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The McDonald’s franchise is revered as having one of the most successful supply chains in the world, holding top positions in Gartner’s Supply Chain rankings for several consecutive years. In 2018, the fast-food chain was inducted into the Gartner’s ‘Masters’ category, which recognizes global leaders in supply chain management, joining other supply chain giants, such as Amazon, P&G, and Apple.
The key to McDonald’s success is its skillful orchestration and execution of processes across a vast network of suppliers, service providers, and franchise owners. This achievement is made all the more impressive considering the fast-food chain caters to approximately 69 million customers daily in over 37,000 restaurants across 100 countries.
While McDonald’s supply chain and logistics management systems have been duplicated by other franchises, no one has been able to knock the fast-food chain out of the top spot.
The Secret Sauce in McDonald’s Supply Chain
Maximizing Long-term Supplier Relationships
McDonald’s logistics and supply chain success rely heavily on long-term strategies established by Ray Kroc, one of the pioneers of the fast-food giant. Kroc’s approach, which is still the foundation of McDonald’s operations today, is based on a simple win-win strategy for all parties involved.
This model, which McDonald’s calls the 3-legged stool, is focused on achieving mutual positive outcomes for franchisees, suppliers, and employees. In other words, when the company succeeds, its suppliers succeed. Both McDonald’s and its suppliers help create value for each other rather than simply exchanging value, leading to more beneficial, long-term partnerships.
McDonalds largest distributor, The Martin-Brower Company, for example, began by supplying paper napkins to the company’s Des Plaines, Illinois branch in 1956. Today, the supplier delivers supplies to almost all 15,000 McDonald’s locations in North America.
Responding to Modern Consumer Demands
The demand for fresh foods and transparency is rising among modern consumers. Research shows that millennial consumers are willing to pay more for fresh foods that are organic, sustainable, and healthy.
In a move that has been seismic for the fast-food chain, McDonald’s is rolling out fresh, never frozen beef patties, gradually doing away with frozen burgers, and upending a decades-old supply chain in the process.
The transformation comes as part of the company’s plan to revitalize its image. In early 2018, McDonald’s announced that it would be testing the adoption of fresh patties at 300 of its U.S. locations. By July 2019, the fast-food company had recorded a gain in market share for the first time in five years, buoyed by its switch to fresh beef in its signature Quarter Pounder burgers.
Utilizing Effective Vertical Integration
Vertical integration is a manufacturing model in which companies control more than one stage of the supply chain. This approach, if done correctly, can increase supply chain efficiency, reduce product costs, and increase profits.
Unlike most restaurants, which pay higher costs to source ingredients from third-party suppliers, McDonald’s is the source of its products. Through partnerships with contracted producers, McDonald’s processes its own meat, grows its own potatoes, and transports its own materials. Furthermore, the company also owns most of the land on which its restaurants are built, thus reducing or eliminating costs associated with leasing or renting property.
By taking full control of the component and distribution elements of the supply chain, the company delivers products to its restaurants at a lower cost. The use of these vertical integration techniques is the primary reason why McDonald’s is one of the cheapest fast-food chains in the world.
Looking to the Future of McDonald’s
81% of global consumers believe that companies should take measures to improve the environment, while 85% of millennials believe that it is ‘extremely’ or ‘very’ important that companies implement programs to do so, according to a report from Nielson Holdings.
In light of this staggering data, McDonald’s announced that it would be taking steps to implement sustainable packaging in all its restaurants over the next several years. According to the company, by 2025, 100% of the fast-food chain’s guest packaging will be sourced from renewable, recycled, or certified sources.
To achieve this, McDonald’s partnered with environmental organizations, like the Forest Stewardship Council (FSC) and the Program for the Endorsement of Forest Certification (PEFC), to ensure that all raw materials used in its packaging come from well-managed sources.
Another measure taken by the company in its push toward environmental sustainability is the goal to recycle guest packaging in all of its restaurant locations by 2025. The company has pledged to work with its employees, franchise owners, and local government agencies to help support the development of the necessary recycling infrastructure at its restaurants.
Reengineering the Drive-thru
By integrating technology into its operations, McDonald’s seeks to transform a service that it helped popularize – the drive-thru. In March 2019, the company announced that it acquired Dynamic Yield, an Israel-based company focused on personalization and decision logic. Through this acquisition, McDonald’s is planning to use artificial intelligence (AI) to automate its drive-thru menus.
This AI integration is set to take personalization to the next level with automated systems that can make real-time menu recommendations based on consumer trends, ordering habits, and even weather conditions.
In a bid to further automate its drive-thru, McDonald’s also acquired Apprente, a Silicon Valley company founded in 2017. The company will use Apprente’s speech recognition AI to understand drive-thru orders. McDonald’s also plans to use this technology in its self-order kiosks and mobile applications.
According to the company, the use of AI technology will help reduce service times, making the ordering process more efficient and improving the overall customer experience. This technology can also be used to provide the company with valuable analytical data, which it can use to improve supply chain operations and strategic decision-making.
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