McDonald’s Supply Chain Management Assignment

INTRODUCTION

Global supply chain management can be explained as development of an integrated and efficient system of managing procurement and distribution strategy for an organization in such a manner that there is an optimal amount of supplies available for each activity. A global supply chain management is connected with the entire business world to develop their procurement procedure and distribution strategy. A global supply chain model is adopted by many organizations or large and mid size who are looking for a competitive presence in market. Benefits associated with global supply chain management are cost effectiveness and a reliable supply chain which will ultimately gives the organization a sustainable competitive organization and dominance in market because of having a advantageous feature in the operational process of the company (Pooler, 1997).

RESEARCH METHODOLOGY

Research methodology for this research assignment would be based on qualitative research approach and it would use case study method to research the subject matter. In this case study a particular organization would be selected and its global supply chain model would analyze to have a better understanding of its intricacies and challenges. This research methodology would use reliable source of literature review for data collection like online data bases, previous journals, operational management books, peer reviewed articles, online publications, news paper articles and reviews etc. in order to ensure the reliability and credibility of the research study only those sources are used which be reassessed and verified by the reader easily. A research methodology is a step by step procedure of answering a research question which will answer the research aim and objective satisfactorily. Organization which has been selected for assessing the global supply chain module is McDonalds which is a global fast food retail chain.

ORGANIZATIONAL BACKGROUND

McDonalds is one the world’s largest fast food chain with presence in more than 118 countries currently. It is known for its excellent services and good quality of food at reasonable prices. The company is very careful about its location and service delivery time for each customer and standardized everything in its process to attain the ultimate goal of giving customer a satisfying experience with in the least time possible. Since organization is working on cost leadership as a competitive strategy their profits can be maintained to a healthy level if they have sufficient volumes and for that they need a shorter customer turnaround time and locations where footfalls are very high. Organization works on franchise business model and provides a very efficient and strict guideline regarding location, layout, interiors, service provider outfits, and delivery time. In this report we will be conducting a secondary analysis of the organization to have a better understanding about its operational intricacies and global supply chain model (Watson, 2006).

CASE STUDY DEVELOPMENT

SUPPLY CHAIN IN CONTEXT OF LOCATION AND LAYOUT

Location and layout is a very important part of the global supply chain model and in this assignment a case study would be made to analyze how a particular location would be selected by McDonalds for its service and fast food delivery center and how supply chain are managed to ensure that each and every location is served in a proper manner. In this report we will be analyzing various aspects of operation cycle and location advantages and disadvantages associated with a company or its service center. The company chosen for this project is McDonalds Inc.

To conduct the analysis the location which is chosen is a very well known McDonalds’ service outlet located in the business district of city of Sydney (Australia). The area is known as circular quay and it is in a prominent location in the city which is visited by thousands of people on a daily basis (Boje, 2005).

ADVANTAGES ASSOCITED WITH THE LOCATION

There are various advantages associated with the location of the service outlet like

  1. The service outlet is on the corner of a famous cross road and act as a landmark there. The roads are two major roads of the city and they are continuously busy with thousands of vehicles passing through these roads every day. This provides the service outlet a footfall of passengers who are travelling through these roads and forms a sizable chunk of the customers of the service outlet.
  2. The location is surrounded by 3 big malls of the city. These malls have big shopping centers and anchor stores which attract a large number of shoppers every day and this number even rises on the weekend.
  3. The location is also with in close distance with three major educational institutions, hotels, harbors etc where thousands of workers and commuters are working and they would be in need of refreshment and fast food occasionally.

DISADVANTAGES ASSOCIATED WITH THE LOCATION

The location is practically ideal for a service outlet like McDonalds still there are a few disadvantages associated with the location but considering the advantages the disadvantages are not very critical for the service outlet.

  1. The traffic around the service outlet is very heavy causing delays in deliveries and supplies occasionally.
  2. Because of high footfall of shoppers and passengers there is always a problem of parking space and on weekends the customers of the McDonalds have to park very far from the service outlet to get a proper parking space.
  3. Since the area is commercially very attractive and in the middle of a shopping district the rents and other wages are relatively on the higher side.

LAYOUT

The layout of McDonalds are standardized everywhere and it is dependent upon the target population and grade of the city in which it is located. The service outlet at circular Quay, Sydney is located in a populated locality and the city itself is in grade A city for the organization. The service outlet is situated on the ground floor and has a carpet area of 3000 square foot. The outlet is designed in a rectangular fashion where one two sides are facing the road. The left side of the outlet which is facing the road acts as a drive thru delivery area while the south side of the road is a front entrance for the customers. The north side is the main operational area with kitchens, storage facility and delivery counters while the east side is kept as a decorative wall with TV units and promotional posters. The advantage associated with this layout design IS the rectangular shape gives it a very spacious look and customer does not feel crowded even when numbers of customers are higher. The second advantage of this layout is utilization of both sides which are facing the road efficiently by turning them into a front entrance and a drive through delivery area (Kincheloe, 2002).

TASK TIME, CYCLE TIME AND CAPACITY UTILIZATION

Task time is the time which is required to complete a particular set of activities which will bring a desired result. There are various tasks associated in a fast food service outlet like in front end taking the order, reporting the order in the computer screen, collecting the delivery from the kitchen and delivering it to the customer. There are different time slots provided for each activity and they are very rigid in nature and only the chief manager of the service outlet can alter them if there is any pressing situation. At the back end of the service outlet there are tasks like taking deliveries from the suppliers, preparing the dishes and products, capturing order and putting final touches to the product and then delivering it to the front end. Different task time for each task is given as below (Warner, 2005).

Read about Financial Management.

FRONT END

  1. Taking the order from customer: 40 seconds to 1 minute
  2. Punching the order in computer screen: 30 seconds
  3. Preparing the dishes to be delivered at back end: 3 minutes
  4. Delivering the dishes and collecting payments: 40 seconds

BACK END

  1. Taking deliveries from the supplier once it reaches the service outlet:- 10-15 minutes ( the deliveries are made twice a day)
  2. Preparing all dishes to a level where they can be served by putting finishing touches in 3 minutes: 2 hours (this task is repeated almost 3 times a day)
  3. Preparing the dishes for final delivery on receipt of the order: 2 minutes and 30 seconds.
  4. Delivery to the front end: 20 seconds

Cycle time is different for different activities and there are lots of variables involved with each process which influences the time consumed. However in this study we recorded the time consumed in completing one cycle of a customer which begins with the order taking and ends with the billing process. This entire cycle is finished in 5 minutes with an error margin of 10 percent. However in these service outlets there are generally multiple counters working simultaneously which effectively serve more than 5 customers at a time thus reducing the entire cycle time for each customer by the company into one minute per cycle (Tilanus, 1997).

CAPACITY UTILIZATION

The capacity utilization is calculated at various levels. It indicates the total capacity of entire service outlet designed for and the percentage of that capacity which is actually being utilized by the same. The capacity utilization is a dynamic variable which keeps on changing with the time of the day and with the day of the week. On observation and questioning from the service outlet manager it was recorded that the service outlet is designed for 200 customers at a time and on weekends the capacity is utilized to near maximum and there is a waiting line present to the places which are vacated by the previous customers. Similar situation arises on specially occasions like valentine days, festivals, friendship day or a holiday. During normal working days the capacity utilization is divided into two parts of the day the peak hours and non peak hours. The peak hours of business are from evening 5 pm to evening 11 pm while non peak hours are from morning 10 am to evening 5 pm. During non peak hours the capacity utilization is close to a range of 30-40 percent while in peak hours it ranges from 50 to 80 percent. However there is no thumb rule for this observation as there are occasional spikes in the number of customers walking in and capacity can be utilized up to maximum even during a week day at peak hours of business (Royle, 2000).

BOTTLE NECKS IN SUPPLY CHAIN

After observing the entire operational chain and processes of service outlet of McDonalds there were a few bottle necks which were identified with their reasons

  1. The first bottle neck which was identified is in the process of drive through delivery system. In this channel only one customer can enter at a time as the entry and exit roads for drive through are designed in such a manner while on the other hand at normal service counter 3-5 customers can be served at the same time.
  2. The second bottle neck was identified on the weekends where the cooks and chefs are not able to prepare so many orders at the same time and there were occasional incidents where front end executives have to stop taking orders for a brief period of 5-6 minutes. The reason behind it is the limited number of chefs and cooking stations available while the number of order coming parallel to each other are higher than the capacity.
  3. The third bottle neck which was identified was also seen on the weekends. During weekend peak hours McDonalds has to stop their home delivery service because the number of in house customers are very high and their first priority is to serve the customer who is present in premises. The reason behind this bottle neck is less number of delivery boys for home delivery in the weekends as compared to the number of orders which are placed by the customers (Tompkins, 1993).

TASK SCHEDULING

Task scheduling is done using computing software known as Microsoft task scheduler. This soft ware is feed with the task time and cycle of each activity and then software simulation generates the  time available’ beginning time and end time for each task and schedule them in such a fashion that process which can be done parallel to each other using available resources in the service outlet. The mechanism of tack scheduler 2.0 is as follows. The Task Scheduler service works by managing Tasks; Task refers to the action (or actions) taken in response to trigger(s). A task is defined by associating a set of actions, which can include launching an application or taking some custom-defined action, to a set of triggers, which can either be time-based or event-based. In addition, a task also can contain metadata that defines how the actions will be executed, such as the security context the task will run in. Tasks are serialized to job files and are stored in the special folder titled Task Folder, organized in sub directories. Programmatically, the task folder is accessed using the Task Folder interface or the Task Folder scripting object and individual tasks using the Registered Task interface or Registered Task object. Tasks can also be delayed for a specified time after the triggering event has occurred, or repeat until some other event occurs. Actions that need to be done if a task fails can also be configured (Krajewski and Ritzman, 2005).

 INVENTORY MANAGEMENT PRACTICES

There are three basic reasons for keeping an inventory:

Time – The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this “lead time.” However, in practice, inventory is to be maintained for consumption during ‘variations in lead time’.

Uncertainty – some Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.

Economies of scale – Ideal condition of “one unit at a time at a place where a user needs it, when he needs it” principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory (Cannella, 2010).

McDonalds maintains a very lean inventory by applying various inventory management practices. Using advanced inventory management practices enables McDonalds to keep its cost to a lower level and generate a healthy profit margin even when its marketing strategy is cost leader ship. To maintain an efficient inventory following practices are used by McDonalds.

Review Inventory periodically and revise stocking patterns and norms. Inventory is dependent upon the demand as well as the supply chain delivery time. While some items may have a longer lead-time thus affecting the inventory holding, the demand pattern and the hit frequency in terms of past data may show up differently for each of the inventory items.

Just in time or JIT is a very unique and classical inventory management practice. McDonalds uses this practice because they have usually multiple service outlets in a big city and they prefer to keep only the stock which is required only for the same day (Wood et al, 1999).

CONCLUSION

Operations management and global supply chain are some of the most critical factors of an organization and having an efficient operation management policy provides the organization sustainable competitive advantage over their competitors. In today’s competitive environment reduction in the cost of logistics and supplies by forming a lean supply chain where each activity is done just in time and optimally will enable the organization to achieve their short as well as long term goals and objectives (Coulter and Shepherd, 1995). McDonalds is one of the largest retail fast food chains where each process is standardized up to the level of perfection and this perfection assist the company to remain competitive and profitable even in the times of financial depressions.

REFERENCES

  1. Krajewski, Lee J.; Ritzman, Larry P. (2005) Operations Management: Processes and Value Chains. Upper Saddle River, New Jersey: Prentice Hall.
  2. Kincheloe, J.  (2002) The Sign of the Burger: McDonald’s and the Culture of Power. Temple University Press  232pp.
  3. Wood, D.F., D.L. Wardlow, P.R. Murphy, and J.C. Johnson, (1999) Contemporary Logistics, Prentice Hall,
  4. Cannella S.,. (2010) Up-to-date Supply Chain Management: the Coordinated (S,R). In “Advanced Manufacturing and Sustainable Logistics” Dangelmaier W. et al. (Eds.) 175-185. Springer-Verlag Berlin Heidelberg, Germany.
  5. Royle, T. (2000) Working for McDonald’s in Europe: The Unequal Struggle?. Routledge. 248pp.
  6. Warner, M. (2005) McDonald’s to Add Facts on Nutrition to Packaging. The New York Times. Available [online] http://www.nytimes.com/2005/10/26/business/26food.html last accessed July 17, 2012.
  7. Coulter, J. and Shepherd, A (1995) Inventory Credit – An approach to developing agricultural markets, FAO, Rome, x
  8. Tilanus, B., (1997) Information Systems in Logistics and Transformation, 2nd Ed., Elsevier Science Ltd.,