How McDonald’s manage its inventory?

Introduction

McDonald’s is one of a few brands that succeed in inventory management in virtually every country in the world. It owns more than 30.000 restaurants in 119 countries and regions, with 50 million customers every day.

Inventory management, specifically stock management, is a challenging task for every McDonald’s manager. Stock management includes two parts, forecasting demand so that products will not be thrown as waste, and controlling stock accurately for raw materials.

Inventory Management

Between the central restaurant supply planning manager and individual restaurants, there are constant communication which helps to manage the inventory more accurately. A central team, including employees who have worked in the individual restaurants as well as stock control specialists, serve as the regional planner. 

Each regional planner works with 100 restaurants and communicates with them on a daily basis via emails and tele-conferences. Any factors that would influent the inventory level need to be discussed within the team. Regional planners also work with the new ICT stock control system called Manugistics to ensure enough raw materials such as beef, potato and bread.

The regional planner include a range of ad-hoc factors in calculation of the forecast for inventory, so that they can predict future demand based on both past performance and future sales campaigns. For example, the sales of Big Mac will increase during the “Buy one Get one Free” campaign.

Stock Control Charts

A stock control chart shows the balance of orders for new inventory against sales. The system is heavily dependent on figures for expected sales.  For example, if sales of McFlurry are running out of the system, then stocks of ice-cream would need to be coming into the system.

The Manugistics system uses a couple years’ worth of product sales history to generate time series forecasts for each restaurant. The regional planner team applies a specific factor(the blue blocks in the graph above) to the time series analysis for the forecast. After calculation, the graph can generate a forecast for future inventory level.

Closing Remarks

Effective and accurate inventory management is crucial to any business, particular chain restaurants like McDonald’s. Thanks to McDonald’s effort in stock management, each restaurant manager can spend more time focusing on delivering McDonald’s high quality service and cleanliness. The whole system is also optimized for reducing wastes. With efficient use of raw materials and high throughput of work-in-progress, fewer wastes are produced, which produces a win-win situation for McDonald’s and the environment.

References:

1.McDonald's UK: http://www.mcdonalds.co.uk/content/dam/McDonaldsUK

2. McDonald's, a guide to the benefits of JIT: http://www.inventorymanagementreview.org/2005/11/mcdonalds_a_gui.html

Immunizing your supply chain network from terrorism

With the unfortunate rise of terrorism in the last couple of decades, it is imperative that companies incorporate immunizing their supply chain networks as part of their core risk mitigation strategies.

I have listed down some of these mitigation techniques below:

1. For starters, you must opt for transportation insurance. This will protect them from other disasters or shortfalls as well.
2. You must look to distribute the risk by avoiding total dependence on any one particular transport medium (railways, airways or waterways). In case any one of these mediums is disrupted, they can still rely on the other one.
3. You must maintain adequate buffer inventory. An optimized point must be found between just-in-time principle and the just-in-case principle. Use of predictive and prescriptive analytic techniques can help you achieve this.
4. You must shorten their supply chains in terms of distance and the number of parties involved. This will reduce the vulnerability of the network as the attackers will then have lesser points of attacks. Conversely, it also reduces the complexity and is easy for the company to manage the supply chain.
5. You must build a strategic alliance with your suppliers and logistics providers and not just a business relationship. This will ensure that if need be they prioritize your consignment and the entire model stays stable (at least for your company).
6. You must collaborate and educate your suppliers and logistics providers about the associated risks and the mitigation techniques so that the strategies are deployed across the entire network.
7. Lastly, you must also collaborate with your customers (to whom you are the suppliers) so that they understand risks of the supply chain. If collaboration doesn't work, then you must incorporate clauses in your agreements to avert dire consequences.

Reference: http://spendmatters.com/2010/11/01/terrorism-and-the-supply-chain-strategies-for-coping-with-a-form-of-supply-risk-we-cant-ignore/

Silly Walmart And Other Stories.

First, I would like to talk about the Walmart article. It seems to suggest that Walmart got almost everything right in its supply chain: from demand forecasting to ensure that adequate quantities of inventory got to its store locations, to good inventory management practices ensuring timely resupply orders – all operations optimized to laser-like precision. But… in the end it failed to foresee or plan for how its staffers would actually get the merchandize languishing in backrooms to the shelves? Hmm.

The causal relationship between out of stock and layoffs developed in the article is flimsy at best and not very well developed. How much of the stock out costs that have been calculated in the article can be traced solely to the inadequate staffing at stores, right at the end on the downstream end of the supply chain, and how much of it can be attributed to other factors? The comments section for that article was very interesting. One of the comments was by a Walmart store manager explaining how stock outs occur most frequently at the beginning of the month when low-income families get their SNAP (Supplemental Nutrition Assistance Program) benefits, which would seem to suggest that these stock outs occur due to product flying off the shelves. This creates a problem where there isn’t enough staff on hand to rapidly replenish the shelves from the back room. This is a problem, but then I suppose most businesses would like to be in a position where they have to rapidly replace product on their shelves. As one meme would have it:

Going off on a tangent, the Walmart website says that, “today, Walmart operates more than 11,000 retail units under 69 banners in 27 countries” (http://corporate.walmart.com/our-story/our-business/locations/). It would have been interesting if the author of the article had commented on whether there was a similar trend in other locations around the world. With locations in Africa and South East Asia, where labor costs would be lower, I imagine it would not be as big a problem as here in the United States.

Summing up on the Walmart article, in my opinion, it is somewhat naïve to assume that an organization like Walmart, known to be smart about its supply chain planning, using optimization methods that factor in variables like shortest delivery routes, would overlook something as simple as investing another $448 million in additional staff at the stores for a return of $ 1.29 – 2.58 billion.

Moving on to the article on building flexible supply chains for uncertain times, with its emphasis on having an agile, dynamic, proactive, collaborative and responsive supply chain planning process that revolves around a low-response time decision-making process that responds quickly to demand volatility by having cross functional teams, that provide a cohesive and organization-wide, holistic response to changing market dynamics and price fluctuations across supply chain components, made for sensible reading. Mostly – except for the advice to “…deal with changing conditions by making production processes more flexible—shifting manufacturing locations quickly as shipping costs change, for example.” Written in March 2009, with the global crisis of 2008 still underway, and with most organizations engaged in aggressive cost reduction strategies, this sage’s advice to them, about potentially investing millions in moving capital equipment around or setting up new manufacturing locations is a bit hard to swallow.

Furthermore, this article and the article, Ten Ways To Improve Inventory Management, for me, overlook a critical factor – critical for any supply chain that is global at least. And that is the relationship between international trade dynamics and inventory management – how one impacts the operational effectiveness of the other.

In The World Is Flat, Thomas L. Friedman talks about globalization forces and technology as one of the great enablers that flattened the world, making it more interconnected and transparent across borders. There are other factors which have contributed to the globalization drive. The work done by organizations such as the World Trade Organization, United Nations Conference on Trade and Development, World Bank, along with the evolution in global trade in terms of bilateral and regional trade treaties, free trade agreements and the rationalization of tariff structures (which have traditionally been used as a tool of trade regulation by countries, geared towards protectionist policies). All of these factors combined have given us a world where trade across borders – the movement of goods and, today, even services, has become more fluid.

Resultantly, organizations have been able to take advantage of expanding globally, and by extension, taking their supply chains across borders to take advantage of economies of scale made possible due to labor differences – both in cost and productivity. However, there still remain many impediments to a truly free global market, unconstrained by borders. Different rules and regulations surrounding import / export requirements, inefficiencies in say port operations, geopolitical uncertainty, border delays, inadequate infrastructure and even blatant and ubiquitous corruption, are just some of the factors that play a major role in hampering the free flow of goods and services through global supply chains – and by extension have a cascade effect on how nimbly organizations with global supply chains are able to plan and manage their inventories.