Monday, September 1, 2014

McDonalds - Demand Forecasting and Supply Chain Management


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




3 comments:

  1. It seems like McDonald's is working smoothly in today's competitive market.

    ReplyDelete
  2. Thank you!McDonalds - Demand Forecasting and Supply Chain Management in your post. It's so grate idea.

    ReplyDelete

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