It is impossible to take a bite from a Big Mac at any McDonald’s franchise and not be blown away by this giants’ incredible success. McDonald’s supply chain is largely responsible for its amazing success and continued growth. The amount of strategy and planning that goes into McDonald’s logistics must be simply staggering. The McDonald’s system has been duplicated many times over by other franchises, but no one has been able to knock the “double arches” out of its top spot. As a matter of fact, McDonalds and Unilever were the supply chain giants that is until of course Amazon came a long and took the helm.
Some Quick Facts
McDonalds began its franchise operations in the 1950’s and has grown exponentially every year since. Today there are McDonalds fast food restaurants in over 100 countries! Just about everywhere you travel there will be a McDonalds serving up their burgers and other fare. This company has over 69 million customers around the world. Here are some facts:
- Over 14000 McDonalds in the US
- Over 37,000 McDonalds globally
- They buy over 2 billion eggs annually just in the US.
- They sell 75 hamburgers every minute of everyday around the world
- There are 550 million Big Macs sold each year
- 9 million pounds of French fries are sold everyday
- 60 million people have downloaded the McDonalds App
The numbers are simply staggering! All this activity requires an amazingly efficient supply chain that is cost effective and dependable. The real staggering fact is that McDonalds outsources 100% of their supply needs.
McDonalds the King of Vertical Integration
McDonalds is a fine example of how vertical integration can keep costs down and profits up. They grow their own beef through contracted producers, process their own meat, create their own spices and mixes in factories that they contract, grow their own potatoes and other vegetable through contracted producers, transport their goods on their own. McDonalds owns the land that their restaurants are situated on, so they do not have to deal with leases and landlords. They have taken control of their supply chain nicely.
Everything that makes McDonalds, McDonalds, is done through a vertical integration supply chain, and evidently it really works for them. Of course, they are a large volume buyer (that may be one of the biggest understatements) which makes the vertical integrated supply chain the best option, but there are plenty of companies using the system and not experiencing the growth that they do.
One of the clear advantages to their supply chain system is that they have control, although according to the people in charge, McDonalds does not want to control their suppliers. However, this system does give them a lot of control over supplies.
Why is McDonalds Successful?
They make a decent burger and they sell them on the cheap but is that enough to drive a business to become the corporate giant that they are? McDonalds hires 1 million workers annually. They have a workforce that is 1.5 million strong and a net worth of about $105 Billion Dollars. The stock is strong and stays strong, the question is how did they do it?
Theirs is one of the most powerful supply chain success stories! If you ask reps at McDonalds about the McDonald’s system you get vague quotes back about “establishing a supply chain where everyone wins” but you do not get a lot of “do this than do that” type instruction. Recently when asked about the success of their supply chain the chief supply officer for McDonalds answered “Our unique supply chain model is based on an exceptional set of operating principles that create long-term wealth and competitive advantage for everyone involved by mitigating costs, preventing safety issues, and producing quality and innovative products that delight customers in a uniquely McDonald’s way. The result is increased customer value, better brand health and stronger business performance.”
They have mastered the vertical integrated supply chain but there is something else that has really proven to be the deciding factor in this company’s exceptional success.
In 2016 They Held the Number Two Spot for Best Supply Chain
In 2016 McDonalds supply chain system was ranked number 2 in the Top Supply Chains by Gartners. One of the key reasons for McDonalds successful supply chain is their vested interest model. It is a model where suppliers receive larger pieces of the proverbial pie by doing business with McDonalds.
In traditional models, suppliers and business receive value from each other but in McDonalds approach suppliers and business create value together. Their model promotes growth not only of the restaurants but for the suppliers as well.
McDonalds philosophy is based on The Three-Legged Stool approach designed by McDonalds founder Ray Kroc. He established trust with his suppliers by developing a winning strategy where each “leg” of the franchise was heavily dependent on the other to succeed.
The First Leg of the stool is McDonalds employees, the second leg is the franchise owners and the third leg are the trusted suppliers. Each “leg” is a partner in success and equally important. If one leg fails, the stool collapses. For one member of this trinity to prosper they all must prosper.
The What’s in It for Me System?
This all sounds just too simple. McDonalds did not reinvent the wheel to develop this dynamic supply system? The fact is they did not, what they did reinvent was getting suppliers interested in seeing a company succeed.
The WIIFWe approach (identified by the University of Tennessee during a study of the success of McDonalds supply chain) is a big part of why this company has been able to enjoy the great success it has. WIIFWe (what’s in it for we) is the backbone of the entire “system” at McDonalds. Bringing value to everyone involved in the process is a must to achieve the smooth operations that Ray Kroc envisioned.
By approaching suppliers with a plan that helps them to enjoy more profits and steady growth McDonalds can secure the supplies that they need and keep costs down, while enjoying their own profits. For example, suppliers do not have to worry about asking for increases for products, that is already built into the contract. As the restaurants do well, so do the suppliers. Instead of viewing producers as simple suppliers, they are viewed as business partners and collaborators.
The entire supply chain is a “we”. Everyone works together toward one common goal, success! This we approach is defined by 5 simple rules.
Ray Kroc set up 5 simple rules to manage their supply chain that are still very much in practice today:
- Focus on outcomes not on transactions-instead of focusing on RFP’s and searching for better prices, McDonalds focuses on building long term business partnerships that will further the goals of the business.
- Focus on the what, not the how-this is a simple rule that in its simplest terms means trust the suppliers to deliver the QSC&V (Quality, Service, Cleanliness & Value) standards that McDonalds have set and do not worry about how they will do it. In other words, if you empower suppliers to meet your demands they will. McDonalds does not micromanage suppliers.
- Set clearly defined outcomes that are measurable-everyone must be on the same page. You cannot set vague guidelines and expect to get the outcomes that you desire.
- Pricing model/incentives for cost/service trade-offs-this is one of the most important rules to McDonalds model, everyone must be making money. Pricing so that every supplier can make a profit and enjoy the rewards of doing business with McDonalds is a key tenet to this successful supply chain.
- Govern for insight not oversight- establish peer-to-peer relationships that are there to provide insight and not micromanage.
What’s Best for the System
Before a supply decision is made at McDonalds, it is reviewed to determine if it is best for the system! While Ray Kroc is long gone his legacy of system first has stood the test of time and survived through different leadership and generations of suppliers. The system works, and no one wants to change that. Of course, changes are made but never without determining if it is best for the system first.
Conclusions
There are a few take a ways from an examination of McDonald’s supply chain.
1. You must have a lot of volume to take full advantage of this model.
2. If you treat people well, many times they will remember and treat you well back even in business.
3. Ray Kroc may have only been a traveling salesman, but he understood intimately what it took to get people to work hard for you and believe in your vision.
McDonalds has developed a supply system that is efficient, effective and the backbone to their organization it is based less on business smarts and more on people smarts and core values that depend on treating people fairly. It is a model that is worthy of close study.
FAQs
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.
Why was the McDonalds concept successful? ›
McDonald's success today is largely attributed to its franchising model, consistency, and innovation. Through their franchising model, they were able to enjoy rapid growth.
Does McDonalds outsource their supply chain? ›
All this activity requires an amazingly efficient supply chain that is cost effective and dependable. The real staggering fact is that McDonalds outsources 100% of their supply needs.
How does McDonalds measure success? ›
The intended outcome for such a performance measurement is ensuring that the company's brand profile continues to have a competitive advantage through customer satisfaction. McDonald's gauges its performance in terms of customer satisfactions based on creativity and innovation for new products.
What business strategies were used in McDonalds food supply chain? ›
E-Procurement System:
E-Procurement is a website that allows McDonald's franchises to buy everything needed to run their restaurants. The complete supply chain of the McDonalds is operated over the Emac e-procurement model.
What type of management does McDonalds use? ›
Opportunities are given to team members to become managers if they perform well. For this to happen, the crew member must contribute to the success of the team. The McDonalds Model is that of Adair's Model which is called action-centred leadership.
What is the main reason why McDonalds strategy was effective in increasing their sales? ›
Invest In Core Products
A key reason McDonald's has been able to grow and sustain its continued success is its focus on promoting and continuously improving its core product offerings. These include fan favorites like the Big Mac and its famous fries, to more up-and-coming products like chicken nuggets.
What are the most important strengths of McDonalds and how do they contribute to its successful operations? ›
Strong brand loyalty. Consumers have loyalty for McDonalds because of their product variety, quality and strong brand presence globally. Large product range. McDonalds have a large product range from, burgers, fries, drinks and desserts.
How does McDonalds attract its customers? ›
McDonalds uses both informative and persuasive adverts, the informative ones are about eating healthy and the persuasive ones persuade people to buy the food sometimes, with TV adverts they show people eating the food and really enjoying it.
How does McDonalds manage its inventory? ›
McDonald's inventory is managed by using the stock control system to ensure constant availability of raw materials. Accurate demand forecasting. Regional planners analyze the past performance and work on future sales campaigns, thus predicting the future demand.
HACCP (Hazard Analysis & Critical Control Point)is the applied system of McDonald's to keep nice and good food items to the customers. The quality management team also looks at the diet contents and nutrition of each food items and is given in Table 1.
Where does McDonalds supplies come from? ›
McDonalds' suppliers include Tyson Foods (TSN), Lopez Foods, 100 Circle Farms, Gaviña Gourmet Coffee, Hildebrandt Farms, and many more. These companies supply bakery supplies, meat, poultry, fish, produce, and dairy products.
How did McDonalds overcome the challenges? ›
McDonalds found the solution to most of its problems;they went Local. They promised that there would be no beef or pork on the menu. Nearly half of Indians are vegetarian so choosing a vegetarian to run their outlets here makes sense.
What sets McDonalds apart from its competitors? ›
Successful brands want to search constantly for fresh ways to keep their customers interested. This is what sets them apart. McDonald's and their fast-food competitors are trying to stay one step ahead of each other. In this case, the company that best caters to the needs of its customers wins the race.
How does McDonalds measure productivity? ›
The following are some notable productivity measures or criteria used in McDonald's business: Order fulfillment rate (McDonald's restaurant productivity) Stockout rate (Intermediary/distributor productivity) Timely delivery rate (McDonald's delivery productivity)
Why is supply chain management important? ›
Supply chain management is important because it can help achieve several business objectives. For instance, controlling manufacturing processes can improve product quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer brand.
What is supply chain in simple words? ›
A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.
What are the key objectives of stock control at McDonalds? ›
Stock management involves creating a balance between meeting customers' needs whilst at the same time minimising waste. This is an increasingly tough balancing act. As customer tastes change, McDonald's needs to increase the range of new products it offers, so the challenge of reducing waste becomes even greater.
What is McDonalds business model? ›
The company makes money by leveraging its product, fast food, to franchisees who have to lease properties, often at large markups, that are owned by McDonald's. Franchisees are lured by the impressive margins that make McDonald's franchises an almost guaranteed moneymaker.
How many suppliers does McDonalds have? ›
The company said it currently works with more than 385 diverse-owned suppliers in the U.S.
McDonald's has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets.
Where does McDonalds supplies come from? ›
McDonalds' suppliers include Tyson Foods (TSN), Lopez Foods, 100 Circle Farms, Gaviña Gourmet Coffee, Hildebrandt Farms, and many more. These companies supply bakery supplies, meat, poultry, fish, produce, and dairy products.
How McDonalds uses vertical integration to reduce competition and make the business more profitable? ›
This company uses vertical integration to reduce competition and make the business more profitable by purchasing the companies that they need to produce their products. McDonalds strategically owns facilities that produce standardized mixtures of ingredients.
Who makes McDonalds packaging? ›
creative agency pearlfisher has partnered with mcdonald's to redesign the fast-food giant's global packaging system.
How many suppliers does McDonalds have? ›
The company said it currently works with more than 385 diverse-owned suppliers in the U.S.
Why is supply chain management important? ›
Supply chain management is important because it can help achieve several business objectives. For instance, controlling manufacturing processes can improve product quality, reducing the risk of recalls and lawsuits while helping to build a strong consumer brand.
What is supply chain in simple words? ›
A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.
What are McDonalds raw materials? ›
Raw materials for the fast food chain include meat, raw vegetables, ketchup, mayonnaise, napkins etc. Economies of scale are the main source of value creation in McDonald's inbound logistics. The fast food giant has been pursuing backwards vertical integration strategy.
How does McDonalds use vertical integration to reduce competition? ›
McDonald's also has practiced a backward vertical integration, which is by replacing most of its suppliers. It has done so for two reasons, to reduce costs, and to ensure that its products are of top quality. These supplies include beef and milk to be used in its products, which it gets from its farms.
What is a vertically integrated supply chain? ›
Vertical integration is the business arrangement in which a company controls different stages along the supply chain. Instead of relying on external suppliers, the company strives to bring processes in-house to have better control over the production process.
Vertical integration involves acquiring or developing one or more important parts of a company's production process or supply chain. For example, Netflix's shift from licensing shows and movies from major studios to producing its own original content is an example of vertical integration.
Is McDonald's a sustainable company? ›
In April, McDonald's launched its 2020 CSR/Sustainability Framework, spanning five “pillars”: Food, Sourcing, Planet, People and Community. The company says it hopes actions within these pillars will help it to achieve the social and business imperatives necessary to secure a profitable future.
Is Mcdonalds actually sustainable? ›
100% of the palm oil we sourced in 2021 was certified by the Roundtable on Sustainable Palm Oil (RSPO). 100% of soy sourced in 2021 for the feed of chicken used in McDonald's products supported deforestation-free supply chains globally. 98.7% of our ground and whole bean coffee was sustainably sourced in 2021.
What is McDonald brand identity? ›
McDonald's uses Golden and Red as primary colours in its logo design. The Golden colour represents the famous arches of its first franchised restaurant, while the red colour represents the food industry of this company. The synergy of both of these colours creates the excellent brand identity of McDonald's.
Who supplies McDonalds meat? ›
Today, Keystone's US operations are proud to produce and deliver the highest quality beef, chicken and fish products to McDonald's, including more than 150 million pounds of beef, 300 million pounds of chicken and 15 million pounds of fish each year.
Who supplies McDonalds french fries? ›
100 Circle Farms' Story
100 Circle Farms grows potatoes in circles so big they're visible from space. Then our trusted processor, Lamb Weston, cuts them into fries at 70 miles per hour.
What products and services does McDonalds provide? ›
- Breakfast.
- Burgers.
- Chicken & Fish Sandwiches.
- McNuggets® and Meals.
- Fries® & Sides.
- Happy Meal®
- McCafé® Coffees.
- McCafé® Bakery.
