Bob Stewart, Corporate Vice President, Global Supply Chain, McDonald's, joined our lecture at NYU School of Professional Studies. We spoke about whether a BigMac has the same formulation around the world, supply chain digitalization, insourcing & outsourcing, how to solve supply chain challenges, and what it feels like working 26 years for the same company. Students who had selected McDonald's among over 500 companies to learn about corporate Finance were tremendously thankful to Bob for joining us. Below are some of the highlights.
Supply chain digitalization
We know that our customers want to know where their burger patty and the cow came from; who was the rancher and who was the processor. Supply chain digitalization is not a choice anymore. The digitalization of Supply Chain is a journey and while it is about new tools and processes it is also about “change management”. We can't train colleagues on the value of working in a digital environment by zoom or email. We need to collaborate with our stakeholders and in some cases put "boots on the ground" to support this new way of working. We need to sit with them and explain why we are changing processes and how this benefits them and our customers. This is an area we may have underestimated initially on our journey.¹
Why McDonald's outsources its Supply Chain
Ray Kroc, our founder, felt strongly in the philosophy of outsourcing the supply chain whereby the corporation did not have any financial interest in the supply of products to our restaurants. This was fundamental to building a highly transparent model for our Franchisees and Suppliers. McDonald's does not own any of our Supply Chain. Our Supply Chain it's essentially outsourced by trusted suppliers who are extremely committed to the success of the system and meeting customer expectations.
In our Supply Chain team, we manage categories core to our business, such as beef, poultry, produce, baked goods, and beverages. Any item that's core to your business you want to manage yourself because it requires a lot of cross-functional activity, influencing, and relationship building with your internal partners, suppliers, and Franchisees.²
Are Big Macs the same around the world?
We have global core menu items such as Big Mac and Chicken McNuggets. Each core item has the same design and build; what goes into a Big Mac is the same everywhere worldwide. The quality specification is also the same. The exception might be slight changes in the formulation based on regulatory requirements. Our beef patty is an example. The beef patty contains two things: beef and seasoning. The beef is made of lean meat and some fat meat. Fat gives the meat more flavor. Some countries legislate the percentage of fat allowed in a hamburger patty. So you'll find slight differentials to meet local regulatory requirements, but the construct and the design of the Big Mac are the same.³
Delivery frequency
Frequency depends on many factors including the mix between fresh and frozen products, volume, shelf life, and how long the distance is. Higher volume restaurants can afford more frequency. Storefront restaurants in Japan don't have storage space, whereas locations in Northern Montana orFar East Russiahave different dynamics. We try to reduce our carbon footprint for distribution. We use an "open windows concept" to leverage resources and deliver in the most efficient way. The most efficient way is 24 hours a day, seven days a week, however, delivery during peak sales hours may impact restaurant operations therefore our distributors typically work with restaurants to accommodate.⁴
Solving Supply Chain problems during a crisis
The key point with any crisis is to close the communication gap. In a crisis, people are worried, and if there's a communication gap and they don't know what's going on, they make decisions that aren't based on all the available information. You want to define roles and responsibilities. In the pandemic, we asked our suppliers to join our crisis team. The other thing we did was to democratize inventory data across the supply chain. Frequently, the only individuals who can see inventory across the supply chain are those who need to see it. We provided more visibility, and that enabled contingency measures and execution to assure supply.⁵
Two days of inventory
We have a low inventory as a necessity. We are in a high-volume low-margin business, so we need to minimize waste. We have 200 distribution centers, largely dedicated to McDonald's. Many of the manufacturing facilities are also dedicated to McDonald's. Our long-term approach with suppliers enables us to manage just-in-time inventory processes with solid contingency planning. Our Restaurants, Distributors, and Suppliers are highly skilled at managing inventories to reduce waste.⁶
Regulatory impact on McDonald's ingredients around the world
There are different requirements around the world on labeling, graphics, shelf life, animal welfare, and percent fat, but it rarely has a material impact on any of the core items. We certainly make sure to be within the guidelines and laws in any market where we operate.⁷
Digitalization. A key process improvement for Supply Chain
Digitalization is one of the key strategic pillars for our Global Supply Chain. Five years ago, I sat in a room and we mapped out what we needed to digitalize our supply chain and while we are not done, we have made great progress.An example is the digitalization where we have designed a robust contingency plan with access to all internal and external factors to be more predictive. Prior to that, we used spreadsheets and big binders that we would open once a year.We are now able to determine that in a matter of hours versus a matter of days, and that enables us to be predictive instead of reactive. We are also utilizing other tools such as AI to capture social media data, or the result of supplier's audits to better predict business risk.⁸
Suez Canal blockage and the future of ocean freight
After graduating from college, I spent three years at sea working on container ships. The father of containerization wasMalcolm McLean, who came up with the concept of putting a truck trailer onto a ship. At McDonald's, we were not significantly impacted by the Suez Canal incident, despite being a critical passage between Asia and Europe, thanks to the contingencies we've put together. Shipping companies have gone through a lot of rationalization to optimize costs over the year including sharing space, sharing containers allowing them to maintain service levels to diverse geographies while not having to invest in their own capital for each major trade route. Major multinationals want shipping companies that offer services to every market they operate in which is difficult for shipping companies to be competitive in all markets.While this trend continues to evolve there is an opportunity in the future. For ocean freight is pricing, through a dynamically driven "Uber model" with more transparency and consistency based on supply and demand models.⁹
Working for the same company for 26 years
I have three children, so I know in frequent conversations with them that sometimes when you are young in your career you don't know exactly what you want to do. The best is to try different things. At McDonald's, I had an opportunity to work at both the Global and market-level in addition to leading a variety of categories within Supply Chain, so I was never bored. We have a sabbatical at McDonald's every ten years, where you have eight to 12 weeks off to disconnect. This enabled me to contemplate what I really wanted to do.Where did I have a passion, what areas could I excel in, and was the company compatible with my values? For me, it was easy; I wanted to stay at McDonald's as it fits all of those three criteria. When you work for a larger company, you can do different things and stay challenged on a global basis however I would say it is a personal choice based on your individual goals.¹⁰
My goal before retirement
What I hope to do is to have a legacy of helping others. I am involved with Junior Achievement and do a lot of mentoring internally and externally. I get excited about seeing others grow and develop, not necessarily just getting a promotion, but also seeing them grow as individuals and as humans. That's really exciting for me.¹¹
Students' reactions to Bob Stewart's chat
The feedback shown below was received anonymously.
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Why we bring speakers to a Finance class
At a school with constant innovation, the best thing we can do for our students is to have them speak with real-world leaders to become inspired. It's mutually beneficial. Teaching this class is a highlight of the week for me. For my 'day job', I frequently use ideas about pricing and product launches I learn from my students. Read moreabout this class.
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Other speakers this semester
Michael Gonda,Chief Communications Officer;Leading McDonald's Global Communications,April 22nd, 3:30. Full list of 8 previous speakers here.
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Previous speakers and recordings
The list of previous speakers' with links to recordings available to everyone is here.
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Special thanks
Bob Stewartfor joining us. Michael Diamond, Bonni Bergenn,Julie DeVito andMatthew Blon. Also, to my students, who makethis lecturemy favorite part of the week.
These talks are offered as part of the Leading Global Growth series fromNYU School of Professional Studies and managed in coordination with the Department of within the Division of Programs in Business.
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Questions asked by students
For the sake of brevity, we've limited the content of each response in the article.
1.How much stress or pressure is it to digitize a supply chain completely? Are there any unexpected hurdles you faced? Emily Edick
2.We learn in class how to make business decisions through processes anyone case use, from small businesses to global companies. What questions should we ask, other than cost, to decide whether to do something in-house or to outsource it? George Benaroya
3.Do some countries have better qualities than others? How is uniformity achieved for the products across the globe? Lauren Corn
4.Small deliveries are costly. In cities like Tokyo, companies are forced to deliver daily, due to the lack of storage space. We read about Khabarovsk. Any interesting examples you could share about geographies where McDonald's needs to change the delivery frequency? George Benaroya
5.Can you share an example of a crisis you experienced in the Global Supply Chain and how you solved it? Cianna Xian Cao
6.Low inventory. Most of the companies we study have inventories of 60 to 90 days. Apple used to be the exception, and we used Apple to learn about Just-in-time inventory. McDonald's has even fewer days of inventory. How is that achieved, and how is In-transit inventory managed? George Benaroya
7.Different countries have unique versions of the Food & Drugs Administration (FDA); how does that affect ingredients or quality? Lauren Corn
8.We'd love to know about a time when you worked extensively to improve a process, i.e., with specifics to the digital strategy and supply chain management. Jay Chandiramani
9.You majored in Marine Transportation; what was your take on the Suez Canal blockage, and how do you think transportation of goods will change in the next 5-10 years? Emily Edick
10.How do you feel working for the same company for more than 26 years? Grace Ziqing Zeng
11.What goal do you want to reach towards the end of your career? Malika Adilova
