McDonalds Corporation Inventory and Supply Chain

Managing Inventory and Supply Chain
Effective operations management is one of the most important processes and components toward the success of any business organization. Given the increased competition that characterizes the modern business environment, organizations are faced with the need to develop suitable strategies for operations management. Managing inventory and supply chain is one of the components of operations management, particularly in manufacturing organization or fast food chains. Inventory and supply chain management plays an important role in the success and profitability of a company because of the role it plays in production processes. This paper examines how to improve inventory systems and supply chain management processes at McDonalds Corporation as part of operations management. The discussion concludes by providing recommendations on how to improve management of inventory and supply chain in this company.
Overview of McDonalds Corporation
McDonalds Corporation was established in 1954 in California, USA and has developed to become the leading fast food chain restaurant across the globe. The company operates in the fast food industry, which is characterized by increased competition. This fast food chain company serves approximately 50 million customers every day in more than 120 countries worldwide. Since its inception, McDonalds Corporation has continued to experience tremendous profitability and success across its global operations due to sound business strategy and practices (Han, 2008). As part of its business strategy, McDonalds Corporation has continuously improved its brand image through engaging in various social activities including sponsorship of major sporting events worldwide such as the UEFA Champions League. McDonalds Corporations’ business strategy is based on a geographic structure and franchising.
One of the components that have contributed to successful operations and profitability of McDonalds Corporation is effective operations management. The firm’s operations management framework supports its position as the largest fast food chain restaurant across the globe (Gregory, 2017). Supply chain development, inventory management, and strategic human resource management are among McDonalds’ strategic needs for its operations management. As competition in the fast food industry continues to increase worldwide, McDonalds faces the need to enhance its inventory systems and supply chain management processes. The company needs to enhance inventory and supply chain management to effectively address the intense competition from competitors like Subway, Wendy’s and KFC. In this regard, McDonalds Corporation needs to identify and implement suitable policies and strategies for inventory and supply chain management in areas of operations management.
Functions, Roles and Types of Inventory in the Inventory Mix
As previously mentioned, the core to the success and profitability of McDonalds Corporation over the years is inventory and supply chain management. The company is regarded as one of the few businesses with successful inventory management strategy and framework in nearly every country where it operates. Since it operates multiple fast food outlets in different countries worldwide, McDonalds Corporation relies on a large and complex supply chain (Sandle, 2017). The size of the supply chain implies that inventory management systems and processes in the corporation is increasingly complex. Inventory management at the corporation entails stock management, which is a challenging task because of the size and complexity of the supply chain.
There are two major functions of inventory and supply chain management of the different types of inventory at McDonalds Corporation. These functions are based on stock management, which is at the core of inventory management. First, inventory systems and supply chain management processes at McDonalds Corporation focus on controlling stock accurately for raw materials. Secondly, these processes focus on forecasting demand in order to avoid throwing products as waste. In this regard, the processes focus on creating a balance between products and demands in order to avoid wastes.
Similar to many businesses, there are three types of inventory at McDonalds Corporation. The first type of inventory is raw materials, which are utilized in the production or creation of finished products for customers. For McDonalds Corporation, raw materials are ingredients used to create finished products (food items). Some of these ingredients include salad ingredients, beef patties, buns, and paper cups. Upon arrival at the company, the raw materials are stored in different sections at the company for suitable temperature. These ingredients are stored in frozen, ambient (room temperature) or chilled sections. The second type of inventory is work-in-progress, which refers to stocks currently being processed into finished products. Hill & Hill (2018) define work in progress as part-finished services and products within a company’s production systems. The company ensures that these stocks are appropriately managed so that customers receive fresh food items. Third, McDonalds Corporation handles finished products inventory, which refers to food items that are readily available for the customer. Finished products are primarily finished goods waiting to be delivered to customers. In this regard, the company has a wide range of finished food items or products given its wide product offerings.
Effective supply chain management of these three types of inventory at McDonalds Corporation requires asking different questions. The following questions help to explore these inventory toward improved supply chain management.
1. What is the required level of inputs (raw materials, services and components) for successful operations of McDonalds fast food outlets?
2. What kind of operation processes are required to handle work-in-progress?
3. How can the balance between finished goods and customer demand be achieved while ensuring products are not thrown as wastes?
The exploration of these questions has significant impacts on operations management at McDonalds Corporation. Operations management at the company need to be designed in a manner that enables products and services to be delivered to customers in line with their requirements and demands. Therefore, McDonalds Corporation would need to build its capacity in order to support effective inventory and supply chain management. Capacity building should focus on ensuring that suitable processes and systems are established to support each of these three types of inventory. In this regard, rather than using a single operations management framework, the company should establish a multi-dimensional operations management strategy that addresses each of these types of inventory as part of internal capacity building. Since these three types of inventory are intertwined, capacity-related inventory management is a suitable operation management framework for the company. Through this approach, the company’s operations would entail transferring work from one period to another in form of inventory. This contributes to stabilized operations capacity even when market demands fluctuate or change (Hill & Hill, 2018).
Applicable Theories or Concepts
Assessing the efficiency of McDonalds Corporation’s inventory management requires applying some theories and concepts relating to operations management. One of the applicable concepts in this process is Pareto Analysis, which is based on the pareto principle or 80/20 rule. Based on this principle or rule, 20% of inventory or items generally account for 80% of the overall value of inventory (Hill & Hill, 2018). When applying this concept, the annual requirement value for each item of inventory is calculated by examining unit value and annual usage. Items with higher annual requirement values are deemed to have greater control or more influential in the organization’s profitability. The application of this concept in McDonalds Corporation’s inventory management is essential since the company has a large and complex supply chain. This concept would help determine the most valuable types of inventory, which would in turn help to determine the required level of inputs and necessary operation processes.
The theory of constraints is an applicable theory in the assessment of efficiency in McDonalds Corporation’s inventory management. Based on this theory a constraint is anything that restricts the ability of a business to offer products and services (Hill & Hill, 2018). Inventory is one of the measures utilized to examine what hinders an organization from providing products and services to customers. This theory will help identify obstacles that hinder effective inventory management or problems in inventory systems at McDonalds Corporation.
The Pareto principle provides significant insights regarding inventory and supply chain management at McDonalds Corporation. In this case, the concept has demonstrated that raw materials are the most important type of inventory that contributes to enhanced success and profitability of the organization. Even though the company utilizes a wide range of inventory in its production processes, the most profitable raw materials are salad ingredients, beef patties, and buns. However, the company struggles with identifying the right levels of these raw materials given constant changes in market demands as customers’ taste and preferences fluctuate from time to time. This finding was confirmed by the theory of constraints, which showed that the difficulties in identifying the right level of raw materials, services and components limits the corporation’s ability to provide its products and services to customers.
Supply Chain Systems
Supply chain refers to a system of individuals, activities, organizations, resources, and information engaged in transferring products or services from suppliers to customers. McDonalds Corporation is renowned for having one of the best supply chain despite having inconsistent revenues in recent years (Ovenden, n.d.). The company’s supply chain success lies in its long-term supply chain strategy that was created and established by its founder Ray Kroc. Kroc created a supply chain management system which is based on a simple win-win proposition for all stakeholders. Through this proposition, McDonalds Corporation has ensured that all its supply chain partners benefit.
McDonalds’ supply chain system incorporates different stakeholders i.e. supply chain partners, the owner/operators running the restaurants, and employees. One of the biggest supply chain partners for the corporation is the Martin-Brower Company LLC that has been supplying raw materials to the company since 1956. The company’s founder believed that ensuring suppliers and restaurant owners/operators are successful would translate to success for corporation. As part of the supply chain system, McDonalds Corporation has established distribution centers that offer warehousing, logistics services, and transportation. These distribution centers provide at least two deliveries weekly to each restaurant.
The supply chain stakeholders play a critical role in the organization with regards to production processes. Supply chain partners provide raw materials, which are utilized in creating products that meet customer demands. Therefore, the role of supply chain partners in the system is to provide inventory to the company, particularly inputs. On the other hand, employees play a critical in this process since they transform these raw materials to finished products through various processes. Employees are the premise for the organization’s profitability since their input results in product development. Restaurant owners or operators help to determine the required levels of inventory, which is the basis with which supplies are ordered and delivered by supply chain partners. This implies that restaurant owners/operators help to determine the required level of inputs (raw materials, services and components) for production. These three stakeholders influence the operations management processes by determining operations, particularly in product development. They influence product development processes, which in turn influence the ability of the company to meet customers’ demands and needs.
Recommendations for Improvements
While McDonalds Corporation has a relatively effective inventory and supply chain management framework, the company need some improvements. One of these improvements is developing and enhancing the just-in-time system to help reduce throwing finished products as wastes. Secondly, the company should consider conducting pareto analysis before distributing inventory to each restaurant. In addition to highlighting the most valuable inventory, this analysis would help ensure that such inputs are delivered at the right level. Third, the corporation should calculate its stocks on a regular basis and use the results to create a forecast inventory levels.
In conclusion, McDonalds Corporation is the leading fast food chain restaurant across the globe. The corporation has remained profitable and successful across all its operations since inception due to its use of suitable business strategies. One of the factors that have contributed to its profitability and success is effective operations management including suitable inventory and supply chain management. The corporation is renowned to have one of the best supply chains despite inconsistent revenues in recent years. However, in light of increased competition in recent years, the company can improve its inventory and supply chain management through various strategies including just-in-time system, pareto analysis, and calculating stocks.
References
Gregory, L. (2017, February 5). McDonald’s Operations Management, 10 Decisions, Productivity. Retrieved May 10, 2019, from http://panmore.com/mcdonalds-operations-management-10-decisions-areas-productivity
Han, J. (2008, November). The Business Strategy of McDonald’s. International Journal of Business and Management, 3(11), 72-74.
Hill, A. & Hill, T. (2018). Essential operations management (2nd ed.). London, UK: Palgrave MacMillan.
Ovenden, J. (n.d.). McDonalds’ Supply Chain Success Shows the Benefits of Collaboration. Retrieved May 10, 2019, from https://channels.theinnovationenterprise.com/articles/mcdonalds-supply-chain-success-shows-the-benefits-of-collaboration
Sandle, T. (2017, August 24). McDonald’s Improves its Supply Chain Through Automation. Digital Journal. Retrieved May 10, 2019, from http://www.digitaljournal.com/business/mcdonalds-improve-its-supply-chain-through-automation/article/500860