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Golden Arches
Materials Cost Policy and Reduction of Materials Costs
McDonalds seeks to improve the cost of its materials through two different means. The first is that the company uses its bargaining power to get the best prices of suppliers Typically, this means that the suppliers are very large scale operations and provide goods for a large region. Switching from buns to baguettes for the French market would jeopardize some of that scale, because the baguettes would only be produced for the French market, whereas buns might be produced from half of Europe. Where the company can drive down food costs, this can affect the bottom line (Baertlein & Klayman, 2009).
McDonalds also controls materials costs by managing its inventories carefully. The company seeks to minimize waste while maintaining adequate supplies to meet customer needs. Goods are only delivered 3-5 times per week, and this includes bread products. There is no just-in-time or similar inventory system in place at McDonalds. The company manages its inventory by predicting demand, and then the individual restaurant managers work with a centralized "supply planning team" to work with the franchise owners to help manage stock more effectively. A restaurant planner at this centralized location will work...
This is part of the McDonalds system that is utilized worldwide, and it allows the company to minimize waste and maximize efficiency, two things that are critical to cost control in the supply chain.
McDonalds also uses contracts to lock in prices from their suppliers. There are agricultural inputs such as wheat that are priced as commodities, and McDonalds wants to insulate itself from the risk inherent in commodity price fluctuations. The company does this by using its bargaining power to gain favorable terms that are locked in. This allows for cost certainty that allows for pricing to be stable.
There are times, however, when commodity prices are out of the control of McDonalds, despite its buying power. For example, the cost of meat increased in 2013 (Reuters, 2013), leading the company to consider raising prices on many meat dishes in response. Normally, when costs increase, McDonalds will try to absorb minor increases because of the importance of pricing to its overall marketing strategy, but there are times when the company must pass price increases in the market along to customers.
Procurement Needs
McDonalds develops its own recipes in-house, in order to control to the cent the cost of…
References:
Baertlein, L. & Klayman, B. (2009). Cost controls boost McDonalds' profit. Reuters. Retrieved November 14, 2013 from http://www.reuters.com/article/2009/10/22/us-mcdonalds-idUSTRE59L2UK20091022
Gale, S. (2006). McDonald's USA: A golden arch of supply chain food safety. Food Safety Magazine. Retrieved November 15, 2013 from http://www.foodsafetymagazine.com/magazine-archive1/februarymarch-2006/mcdonalds-usa-a-golden-arch-of-supply-chain-food-safety/
McDonalds. (2008). Stock control at McDonalds. McDonalds Corporation Retrieved November 14, 2013 from http://www.mcdonalds.co.uk/content/dam/McDonaldsUK/People/Schools-and-students/mcd_stock_control.pdf
Reuters. (2013). McDonald's may raise price of $1 McDouble due to rising beef costs. Huffington Post. Retrieved November 15, 2013 from http://www.huffingtonpost.com/2013/02/01/mcdouble-price-mcdonalds-beef-costs_n_2595696.html
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