In this age of globalization, corporations are trying to
achieve more “bang for the buck” from their global supply chains. Organizations
are using demand driven forecasting techniques in place of previous predictive
methods. Demand driven forecasting allows companies to manufacture the right
kind of products in appropriate volumes to satisfy consumer demand while best
utilizing their resources. [4] Forecasting methods use previous consumer data
to predict the demand for a particular product taking into consideration the
various social and seasonal factors. This reduces variability, overhead costs
and allows efficient inventory management.
McDonald’s is amongst the top 10 Supply Chain systems in the
world. It is one of the most popular fast food restaurants and receives instant
recognition in almost all countries of the world. It has over 30,000
restaurants in 119 countries and serves around 50 million people every day. McDonalds
has customized its products according to different countries and their
respective taste preferences. The food options available in a McDonald’s
restaurant in India is very diverse to the one available in US. 100% of
McDonald’s supply chain is outsourced and the company does not have any
factories or manufacturing plants. [2]
One of the major challenges faced by McDonalds is stock
management and reducing waste. This is accurately done by
- Forecasting demand
- Accurately stocking raw materials
In the earlier business model of McDonald’s each store
ordered its own raw materials based on local knowledge and previous customer
data. One of the major drawbacks to this approach was that it did not incorporate
school holidays, national promotional schemes or seasonal trends. In 2004,
McDonald’s implemented a central stock management department known as
“Restaurant Supply Planning Department”. Continuous communication between
individual restaurants and the central restaurant supply planning team helps to
manage stock efficiently and meet the forecasted demand. Forecasting is done
based upon:
- Store specific product data
- National causal factors like school holidays or national promotions.
- Local information from store managers. For example local holidays, promotions or seasonal trends.
- Weather information
Various causal factors are
included in the calculation of forecasts so that they can accurately predict
the sales at each store and maintain the inventory accordingly. Promotional
campaigns and local adaptations of individual franchises are also factored in
while forecasting sales. Including basic weather information of a particular
region also increases the accuracy of prediction. For example, McFlurrys and
ice creams are sold more in the summer as compared to the winter. Also, the
sales for these products are higher in regions like India which are warmer as
compared to the US. [2]
McDonald’s achieves its KPI “No
item may ever be out of stock” by leveraging several supply chain principles.
It uses a forecasting application called JDA Manguistics 7 which uses point of
sale data, stock levels at individual restaurants, inventory and shipments and
the product list as input to predict sales.[1] McDonald’s also applies customer
analytics to better predict the sales. It segregates the customers into
categories like end customers and owner operators (franchises). Mystery shops,
800 calls and other programs are implemented to analyze how well a particular
store is doing from a customer perspective. This in turn helps to predict the
sales at that particular store and improve customer relationship. [5]
Despite having numerous
advantages, demand driven forecasting burdens the global suppliers to meet
exact demands. [4] If the corporation’s global suppliers are not able to
deliver on time owing to transportation delays, political instability or other custom
issues then the organization faces the risk of not fulfilling its promise to
its customers. Driving the global supply chains based on demand forecasting
reduces operational costs but also increases the risk of total breakdown.
Hence, the question arises as to what is optimal balance between risk and
reward of demand forecasting?
[5] https://www.youtube.com/watch?v=fags2tc2mRY
It seems like McDonald's is working smoothly in today's competitive market.
ReplyDeleteThank you!McDonalds - Demand Forecasting and Supply Chain Management in your post. It's so grate idea.
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