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McDonald's’ Supply Chain Success Shows The Benefits Of Collaboration

Although the company is suffering, their supply chain is still one of the best

17Jan

McDonald’s has hit upon hard times in recent years. Its revenues have been inconsistent for a while now, while an internal memo revealed by the Wall Street Journal last year, found that just one in five millennials says they have ever tasted a Big Mac. The fading fast food giant’s quest to make itself relevant again has seen new products tossed out with an alarming frequency, with everything from all day breakfasts to a push for fresh ingredients all dominating the news around the company over the last year. Such attempts have left it looking increasingly desperate. And this year holds even more challenges, with upward wage pressure, a strong US dollar, and a general trend for healthy eating all expected to seriously impact its bottom line.

However, there is a great deal to be positive about. Throughout its troubles, there has been one constant - the excellence of its supply chain. In 2016, it returned to the number 2 position in Gartner’s Supply Chain Top 25 for the fourth year in a row, its sixth year in the top 10. This is an achievement made all the more impressive by the scale of the task. McDonald’s caters for 69 million customers daily in 36,000 restaurants across 100 countries, and they do so while contending with the company’s goal of never being short of an item a customer orders and restrictions around when deliveries can be made (they can’t deliver during breakfast and lunch hours because having the trucks outside may put customers off).

McDonald’s supply chain success lies in a long-term supply chain strategy created by founder Ray Kroc. His system rests on a simple ‘win-win’ proposition for all parties - its employees, the owner/operators that run the restaurants, and its supply chain partners. The three are known as the three legs of the stool. Kroc believed that if he ensured that restaurant owner/operators and suppliers were all successful, it would translate into success for him. The onus has - and still is - on whether a decision represents long term value, not on costs, and that improves things for all parties, not just on individual components.

Many of its supply chain partners have been around since the very beginning, with Kroc having sought suppliers who had the same long-term vision he did. This has nurtured an atmosphere of trust and enabled them to work together and innovate to keep costs as low as possible. McDonald’s largest distributor, for example, is the Martin-Brower Company LLC, a supplier with whom they have had a relationship since 1956. Having started delivering paper napkins to Kroc's first restaurant in Des Plaines, Illinois, it now delivers supplies to almost all of the company’s 15,000 locations in North America. Each of its distribution centers provides warehousing, transportation, and logistics services to between 250 to 700 restaurants, often making at least two deliveries to each restaurant a week.

Integral to ensuring this happens is a high priority on communication and collaboration between all parties. The company constantly tracks everything, sharing all data with partners and franchise owners, including daily point-of-sale data for each item, restaurant stock levels, and inventories, among other metrics. Gartner noted in its reasoning behind placing McDonald’s second on its list that: ‘Overall, the McDonald's corporate supply chain team excels at orchestrating the upstream supply network. It promotes and acts as the conduit between outsourced vendors, suppliers, corporate stores and franchise partners. It uses council meetings to collaborate with suppliers on new product innovation and technology, as well as on plant safety. Base expectations with suppliers are managed through a standard supplier performance index, but the differentiator is more cultural and behavioral, as partners tend to put the McDonald's system first when sharing product and process innovations and staffing support teams with top talent.’ This close relationship has seen it overcome a number of crises that could have crippled a lesser company. The bird flu outbreak, for example, impacted about 40 million egg-laying hens in 2015, but through close collaboration with the egg suppliers, the restaurant was able to lock in adequate supply at a higher quality rating than the overall industry and ensure constant pricing. The company’s response to the horsemeat scandal that engulfed Europe’s food industry in 2013 also drew praise, most notably from the Elliott Review, the British government's official investigation into the horse meat scandal. McDonald’s response to the scandal was to exercise full transparency, working with its partners to issue a series of promotional films that clarified the provenance of its beef for its customers to address their concerns.

Operating a fully horizontal supply chain is highly effective, but it needs positive relationships with suppliers to work. McDonald's has shown that by trusting supply chain partners and working closely alongside them, they will reward you.

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