Managing Stock To Meet Customer Needs At McDonald's 653088 ✓ Solved

Managing Stock To Meet Customer Needs A Mcdonalds Restaurants Case S

Managing stock to meet customer needs: A McDonald's Restaurants case study Introduction McDonald's is one of only a handful of brands that command instant recognition in virtually every country in the world. It has more than 30,000 restaurants in over 119 countries, serving around 50 million people every day. All businesses face challenges every day. One of the major challenges facing McDonald's is managing stock. Stock management involves creating a balance between meeting customers' needs whilst at the same time minimizing waste.

Waste is reduced by: 1. Accurate forecasting of demand so that products do not have to be thrown away as often. 2. Accurate stock control of the raw materials. Stock management involves creating a balance between meeting customers' needs whilst at the same time minimizing 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. Why change was needed In the past, stock ordering was the responsibility of individual restaurant managers. They ordered stock using their local knowledge, as well as data on what the store sold the previous day, week and month. For example, if last week's sales figures showed they sold 100 units of coffee and net sales were rising at 10%, they would expect to sell 110 units this week.

However, this was a simple method and involved no calculations to take account of factors such as national promotions or school holidays. It took up a lot of the Restaurant Manager's time, leaving them less time to concentrate on delivering quality food, service and cleanliness in the restaurants. The new system In 2004, McDonald's introduced a specialist central stock management function known as the Restaurant Supply Planning Department. This team communicates with restaurant managers on a regular basis to find out local events. The team builds these factors into the new planning and forecasting system (called Manugistics) to forecast likely demand of finished menu items (e.g.Big Macs).

This case study looks at how McDonald's manages its stock through its management systems and what benefits this brings. Types of stock Stock is the physical product a company buys, creates or sells. Every business has three main types of stock: Raw materials The raw materials are the ingredients that will go into producing the finished product. For McDonald's, these will include the buns, beef patties, paper cups, salad ingredients and packaging. These are delivered to the restaurants between 3 and 5 times a week.

The raw materials arrive together on one lorry with three sections so that each product can be stored at a suitable temperature. The three sections are: · frozen · chilled · ambient -- which means foods that can be stored at room temperature (coffee or sugar packets). Work-in-progress (WIP) Work-in-progress refers to stocks that are in the process of being made into finished product. A Big Mac consists of a bun, two beef patties, lettuce, cheese, pickles, onions, sauce and a small amount of seasoning. The restaurant will only combine these items just before the customer orders them so the Big Macs are hot and fresh when served.

Finished products Finished products are goods that are ready for immediate sale to a customer. At any one time, a restaurant will have a range of products ready for sale. Many of these will include finished products like Filet-o-Fish, Big Macs and side salads. Using stock At McDonald's, all raw materials, work-in-progress and finished products are handled on a First In, First Out (FIFO) basis. This means raw materials are used in the order they are received.

Therefore stock is always fresh because products are sold in the order they are made. If the process First In, Last Out (FILO) was used, then the finished product would be dry and unappealing because the first one prepared is the last one sold. Stock management Holding too much stock carries costs, so McDonald's runs a lean stock control to save money. Stock management is the process of making sure there is enough stock at all times to meet customer demands whilst minimising expensive waste. Planning and managing supply Ongoing communication between the central Restaurant Supply Planning team and individual restaurants helps to manage the stock more effectively.

A mixture of specialist stock controllers and employees who previously worked in the restaurants makes up the central team. This team of 14 regional planners works with around 80 restaurants each and communicates on a regular basis with them via email/telephone. Anything that would affect the number of customers visiting their restaurant needs to be logged with the team. This is taken into account in the calculating of the forecasts. Supply Planners work with the new stock control system, Manugistics, to ensure enough raw materials, e.g. beef, tomatoes, lettuce, etc., leave the McDonald's distribution centres, such as Basingstoke.

This ensures restaurants can produce the meals required for the level of demand forecasted. Forecasting A forecast is an estimate of future sales of finished products. Forecasts are calculated using: · store-specific historic product mix data from the last two years · store-specific and national causal factors. These specify dates for events such as national promotions & school holidays · information from store managers about factors that might affect emand, e.g. road closures or local events & promotions. Causal factors Supply Planners working for McDonald's include a range of causal factors in the calculation of the forecasts, so that based on past performance they can predict future demand for each restaurant.

For example, Big Mac sales increase during a 'Buy One Get One Free (BOGOF)' promotion. The planners use this data in the forecasts for all stores that took part in that promotion. Analysing how weather affects demand for particular products, such as McFlurrys and salads, can also be built into the model. The forecasts then become more accurate, decreasing costs and improving customer satisfaction. Stock control charts A stock control chart shows the balance of orders for new stocks against sales.

The system is dependent on figures for expected sales. For example, if sales of burgers are going out of the system, then stocks of beef patties need to be coming into the system. Manugistics uses two years' worth of product mix history to produce forecasts for each restaurant. This uses time series analysis. The planner will apply a causal factor (the blue blocks in the example) to the time series for the start and end date of this promotion.

Using complex calculations, the graph then produces a forecast - seen below circled red. Entering data Any system is only as good as the data that is provided. Therefore, McDonald's Restaurant Managers need to ensure that the data they enter into the system is as accurate as possible. For example, each day, Restaurant Managers record opening and closing stocks of key food items. They record all other items weekly.

The store computer system identifies any stock count deviations from the last stock count so managers can investigate. For example, the manager may have missed off a box of organic milk whilst counting them earlier on in the shift. For efficient stock management, McDonald's uses buffer stock, which ensures they can meet unexpected demand and prevent stockouts. The buffer stock level is maintained based on historical data and anticipated variations in demand.

McDonald's employs a web-based tool called 'WebLog' for daily ordering and stock management. This system automatically generates order proposals based on current stock levels and past consumption, saving time and reducing errors. Managers review and confirm, ensuring an efficient and responsive supply chain. The benefits for both customers and restaurants include avoiding stockouts, reducing waste, saving costs, and maintaining high service quality.

In conclusion, McDonald's has effectively implemented a comprehensive stock management system that integrates forecasting, precise stock control, and real-time data input. This system allows Restaurant Managers to focus more on delivering quality food and service, enhancing customer satisfaction while reducing waste and operational costs. The strategic use of technology and communication facilitates aligning supply with demand in a highly dynamic environment.

Sample Paper For Above instruction

Introduction

Effective stock management is crucial for retail and fast-food chains like McDonald's to balance customer satisfaction with operational efficiency. As one of the world's most recognizable brands with over 30,000 outlets globally, McDonald's faces unique challenges in maintaining optimal stock levels across various locations. The company's approach to managing stock incorporates advanced forecasting techniques, an integrated supply chain system, and strategic inventory control to meet fluctuations in demand while minimizing waste and costs.

Predictable Variability in McDonald's Product Line

McDonald's product demand exhibits several predictable variabilities, primarily driven by seasonal factors, promotional activities, and local events. For example, demand for specific items like the Big Mac or McFlurry tends to increase during promotional campaigns such as "Buy One Get One Free," which can be anticipated based on past promotional data. Similarly, seasonal variations influence sales of cold beverages or salads, typically surging during warm weather (Hollander et al., 2017).

Additionally, local events such as school holidays or community festivals lead to spikes in customer foot traffic, resulting in predictable increases in stock requirements. These factors enable McDonald's supply chain managers to plan proactively, adjusting inventory levels and staffing accordingly. Forecasting models incorporate historical sales data, causal factors like weather and holidays, and promotional calendars to predict demand accurately (Jüttner et al., 2013).

Furthermore, the product line's simplicity—consisting of ingredients assembled to form finished goods—allows for predictable variability patterns, as the assembly process is consistent and repeatable. Understanding these variabilities helps McDonald's ensure that individual outlets are never understocked or overstocked, resulting in a seamless customer experience.

Ensuring Customers Are Never Turned Away

To prevent stockouts and ensure customer satisfaction, McDonald's employs a robust stock management process centered around advanced forecasting and real-time data communication. The company utilizes the Manugistics system, a sophisticated demand forecasting tool that integrates historical sales data with causal factors to generate accurate predictions for each outlet (Christopher, 2016).

Restaurant managers regularly input actual stock levels into the system, which then compares this data against expected usage, identified through historical trends and current promotions. If discrepancies are detected, managers are prompted to investigate and correct the data, maintaining the system's accuracy (Chopra & Meindl, 2016). This dynamic feedback loop ensures that stock levels are adjusted proactively, preventing shortages.

Additionally, buffer stock levels are maintained based on analysis of demand variability, allowing the system to accommodate unexpected increases in sales, such as sudden local events or weather changes. The implementation of WebLog, a web-based ordering platform, facilitates daily automatic order proposals that raw data into actionable information for managers, significantly reducing human error and delays (Mentzer et al., 2008).

In practice, if a manager notices increased customer demand for a specific product, they can update the system promptly, and the centralized supply planning team adjusts procurement and logistics accordingly. This tight coordination ensures that high-demand items are always available, avoiding disappointed customers and maintaining the brand's promise of quality and consistency.

Supply Management Through Capacity, Inventory, and Subcontracting

McDonald's employs a strategic combination of capacity management, inventory control, and subcontracting principles to manage its supply chain effectively. The company's capacity management involves maintaining adequate production and distribution capabilities to meet forecasted demand, ensuring that manufacturing centers and distribution networks are scalable during peak periods (Lee, 2019). For instance, McDonald's invests in flexible logistics and multiple distribution centers, such as those in Basingstoke, to handle fluctuations efficiently.

Inventory management is central to McDonald's strategy. The company runs lean stock controls, holding minimum necessary raw materials—such as buns, beef patties, and produce—delivered multiple times a week (Hugos, 2018). The FIFO policy ensures freshness, reduces waste, and aligns with demand forecasts. Buffer stocks provide a margin for error in forecasting, especially during promotions or seasonal surges (Bowersox et al., 2012).

Subcontracting plays a vital role in quality control and supply stability. McDonald's relies on trusted suppliers and distribution partners, such as Basingstoke, to deliver raw materials. This subcontracting reduces the burden on the company's internal production capacity and enables access to specialized manufacturing and logistics expertise (Coyle et al., 2016). The company's strategic relationships with suppliers also facilitate quick response times during unexpected demand increases, aligning with the just-in-time philosophy.

Together, capacity, inventory, and subcontracting work synergistically to ensure reliable product availability, cost efficiency, and responsiveness to demand variability. These principles underpin McDonald's ability to deliver consistent quality and service worldwide.

Use of Aggregate Planning at McDonald's

McDonald's employs aggregate planning strategies to harmonize supply and demand over medium to long-term horizons, particularly for seasonal adjustments and promotional campaigns (Krajewski et al., 2013). The company consolidates demand forecasts across multiple outlets and incorporates causal factors, including weather patterns, local events, and promotional schedules, into an aggregate plan.

A prime example of aggregate planning is the coordination of raw material procurement for upcoming holiday seasons or major promotional events. For instance, prior to the summer period, McDonald's adjusts procurement volumes for cold drinks and salads based on historical seasonal demand, aligning production capacity with forecasted needs. During promotional campaigns like BOGO deals, the company ramps up stock levels at distribution centers to ensure swift replenishment of outlets, minimizing stockouts.

At the store level, the plan translates into specific ordering schedules facilitated by the WebLog system, which automates daily order proposals based on aggregated forecasts. This synchronization reduces variability in supply while maintaining responsiveness (Heizer et al., 2017). The company's centralized demand planning enables it to pool inventory considerations, optimize logistics, and adjust capacity utilization throughout its network.

Therefore, McDonald's effectively uses aggregate planning to balance fluctuating demand patterns, ensure cost-effective resource allocation, and uphold service standards across its global outlets.

Analysis of Strategic Approaches: Chase, Level, or Mixed Strategies

Based on the case study, McDonald's predominantly employs a hybrid approach—integrating aspects of both chase and level strategies in its operations. The chase strategy is evident as the company actively adjusts its procurement and staffing levels in response to demand fluctuations driven by promotions, seasonal changes, or local events (Slack et al., 2010). For example, during promotional periods, McDonald's increases raw material orders and sometimes accelerates cooking capacity to meet heightened customer volume.

Simultaneously, McDonald's maintains a level strategy in core operations, ensuring consistent inventory levels and standardized processes across outlets. The implementation of buffer stocks and the continuous replenishment system exemplify efforts to stabilize supply and maintain a steady operational baseline, regardless of short-term demand variations.

The company's use of sophisticated forecasting models and flexible logistics options enables it to adapt quickly while also preserving a level of steady flow—indicative of a mixed strategy approach. This hybrid approach allows McDonald's to efficiently respond to predictable and unpredictable demand variations, optimize resource utilization, and sustain high service quality globally.

In conclusion, McDonald's leverages a combination of chase and level strategies, utilizing technology-driven forecasts and flexible supply chain arrangements to meet dynamic customer needs while controlling costs and minimizing waste.

References

Bowersox, D. J., Closs, D. J., Cooper, M. B., & Barman, C. (2012). Supply Chain Logistics Management. McGraw-Hill Education.

Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation. Pearson.

Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. J. (2016). Managing Supply Chain Operations. Cengage Learning.

Heizer, J., Render, B., & Munson, C. (2017). Operations Management. Pearson.

Hollander, S., Van Dam, K., & Kress, M. (2017). Forecasting demand in the fast-food industry: Case study of McDonald's. Journal of Business & Economics Research, 15(4), 45-58.

Hugos, M. H. (2018). Essentials of Supply Chain Management. John Wiley & Sons.

Jüttner, U., Kilger, C., & Burton, P. (2013). Demand variability and the implications for supply chains: An analysis across industries. International Journal of Production Economics, 144(1), 251-262.

Krajewski, L. J., Malhotra, M. K., & Ritzman, L. P. (2013). Operations Management: Processes and Supply Chains. Pearson.

Lee, H. L. (2019). Creating a resilient supply chain. Harvard Business Review, 97(1), 49-57.

Mentzer, J. T., Moon, M., & Soni, P. (2008). Supply Chain Management: Strategies and Beyond. Sage Publications.