Sunday, September 8, 2013

Demand and Supply Planning in McDonald's

Gartner has ranked McDonald's as 2  in the list of top supply chain successful implementations.It has climbed all the way from ranking of 11 in 2010 to position 2 in 20131.

This Quick Serving Restaurant chain promises its customers a one-minute guarantee of service. According to the senior management, their work is characterized by the speed of operation. Being accurate in the speed would have not been possible, if they did not have an efficient planning for the supply and demand chain. 

Considering India, there are 217 outlets of McDonald's and it serves in total approximately 650,000 customers daily. Including the restaurant staff, the total staff in India is around 9000 people. But the supply chain network is managed only by 5 people across the country ! Even though it is famous for beef items across the world, keeping in mind the customers in India it designed a new menu with more vegeterian items and non-beef items shows how they forecast demands based on customers. 

The success can be attributed to it's complete outsourcing approach. They just supervise the work to keep a check on all KPIs(Key Performance Indicators). The supply planning is like a three-legged stool, which is based on principles of trust and collaboration between the brand, the operators and the suppliers. The senior director says the 100% transparency with the suppliers plays a important role in smooth flow of the supply chain. They have a set of tier-1 and tier-2 suppliers. "Most of my employees are 12th standard pass, they know nothing about food,so I expect my suppliers to be absolutely accountable to ensure that the quality that I’m selling to my customer is perfect as that is very critical.” Suppliers like Coca Cola which is McDonald’s beverage partner also, for instance, take water management classes in its restaurants to ensure potable quality of drinking water. This shows how they care about the customers' review and involve the suppliers in the process of satisfying customer's demands. 

It is equally accurate on the demand forecasting.The most important KPI is ‘no item may ever be out of stock’. McDonald has devised a 31Q system, where
3: three years that the company will keep checking its planning,
1: detailed forecast of the next year,
Q: quarterly monitoring of these forecasts. 

It uses only one forecasting application , JDA Manugistics 7. Daily POS(point-of-sale) data at item level, product list, stock levels at restaurant, inventory and shipments at the distribution center are used as inputs for forecasting. Also the marketing plan (data corresponds to standard plan or promotion), are taken into considerations. The forecast's output is then verified by the forecast accuracy measures. The restaurant gives 3 days to one week forecast to the Distribution Center(DC). The DC, has 3 month rolling forecast with the suppliers, which enables suppliers in turn to plan their production schedules. 
Even for budget planning, the suppliers are involved. The schedules and performances are monitored every quarter, once the forecast and budget are closed and fixed. The article also mentions about the lead time and the taste checks performed by the company over supplier's production. It also delivers the food to the doorstep of the customers and that too within the guaranteed minimum time of 30 minutes ! But the head says, it does not add more load to their supply chain network ! 

Thus, I feel the importance it gives to planning the supply with suppliers and getting them involved for the entire process(till the consumer gives review about the food) can be the key reason to success. When the suppliers know the exact strategy of the company, it eases out their planning, which in turn leads to smooth supply flow and 'no item out of stock' situation, which is their prime KPI. 


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