Question 3 only CASE STUDY Online Purchasing at McDonald\'s n 2002, when McDonal

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Question 3 only

CASE STUDY Online Purchasing at McDonald's n 2002, when McDonald's offered to put an extra tarants to give us information. They look at us as a strip of bacon on any hamburger for 35 cents, it encountered drastic forecasting problems. The pr The franchisees do not have to agree to use the soft motion turned out to be so popular that the company ware. Thus, while there are about 13,000 restaurants had to increase its order for pork bellies, which sent a in the United States, only 12,100 use the online sys- bullwhip effect across the economy, resulting in shortages and increased costs. The source of the prob from hamburger and French fry production to ware- lem? Thousands of franchisees, each of them operat- housing and transportation. The company began ing somewhat independently, using largely man vamping its supply chain in 1996 with software and orderin corporate headquarters on a timely basis. big brother: 'you are going to do bad things to me." tem. Second, the entire supply chain is outsourced, g systems that did not feed information to technology from Manugistics, Oracle, and Sun. Sev- cral years were spent primarily collecting and organiz- The company responded by developing an online ing data. McDonald's worked closely with its two ordering system to help it plan its purchases and ship major distribution contractors, Martin-Brower and ments. The system was first implemented in European Perseco. The technology works well for everyday proj- stores in 2003, leading to a 30 percent reduction in ects but hits snags with limited-supply items like raw waste, a 30 percent reduction in store inventory, Happy Meal toys, where the promotions run for 28 and a decrease in store transfers (i.e., shipments of days, yet the toys must be produced 12 months in bacon between stores because of shortages) from 8 percent to 4 percent. In addition, order times for each store were cut in half, saving 60 minutes per advance. There is no chance to correct for poor fore- casts once the promotion has started. I savings per store were $5,585, which QUESTIONS equates to $11.5 million for the 2,072 restaurants in France and Germany McDonald's is leading a shift to "demand chain 1. Getting franchisees to adopt the online ordering planning by fast-food restaurants. In 2003, the Na- tional Restaurant Assoociation estimated that onlv 12 system is a major challenge. What techniques would you use to encourage adoption? percent of restaurants ordered food supplies elec tronically, and only 10 percent ordered nonfood supplies electronically. With more than 31,000 res- 2. Draw a supply chain map showing the various parties in McDonald's supply chain: food growers, manufacturers, distributors, corporate headquar- ters, and restaurants. Describe the type of infor mation that needs to be exchanged between the partners in each pair of partners. What is each organization looking for in its information systems? taurants serving more than 46 million customers per day in 119 countries, McDonald's has thousands of trucks on the road delivering franchisees. With its Happy Meals promotions, Mc Donald's is one of the largest toy distributors in the food and supplies to its world. Each store receives supplies one to three times 3. Describe differences in how McDonald's should per week. handle information and planning for (1) regular food items, (2) nonfood items like wrappers or napkins, and (3) promotional or one-time items like Happy Meal toys. McDonald's has several major challenges in inte- grating its supply chain. First, the majority of its res- taurants are owned by franchisees, limiting the company's ability to control the adoption and imple mentation of new technologies. According to Robert Bauer, information technology director for McDon- Se: K. Hickey, "McDonald's Tall ald's global supply chain, "It's difficult to get the res. ?1-4. Oeder, afk Wond, Jarmary , 2004,

Explanation / Answer

3(1) The basic reason for forecasting in any business is to maximise profits and minimise loss. In MCDonald's it is no different. It has a system in place for demand forecasting on which, it's warehouse stocks of raw materials and supply plans are based. This forecast going wrong can cause shortages or result in wastages either way, and given the inherent drawbacks of handling a franchise network feedback of changes in demand may not be timely or missing altogether. As all francises follow different technology and use different softwares for their units it becomes complicated to consolidate information in an easy and simple manner. As regular food items are the most important McDonald's should insist on franchisees following a uniform method of reporting atleast. A simple form reporting weekly demand should be introduced and made the norm in every franchise worldwide to be submitted to the central office to enable perfect co-ordination and control. This information should be processed and supply plans formulated on it's basis then forwarded to all the supply units worldwide. It is very important to have a uniform reporting method and a central processing unit for the inputs received to fine tune forecasting to perfection. This will ensure all local and national events and changes in demand are accounted for in the forecast.

3(2) The supply for non-food items like wrappers and napkins or packing also needs to be streamlined perfectly because brands like McDonald's are all about their image and not having their well-known packaging or napkins can create a negative impact on customer's and create loss of credibility. A customer expects impeccable service from multi-national brands the size of McDonald's. For non-food items a similar centralised reporting system but with a separate department processing should be maintained. The system should analyse optimum quantities that need to be shipped at one time to be most cost effective. The forecasting should similarly consider factors causing sudden and sharp increase in demand like festivals or holidays in every place. Besides this for such items every franchise should be encouraged to maintain a minimum buffer stock which equals the maximum increase they can have within a week based on past records so crisis situation doesn't arise.

3(3) Happy Meal Toys are a brand synonym for McDonald's and are a large draw even today as also a major cause for the appeal of McDonald's for young children and parents. They are almost more important than the meal. Promotional items forecast may not be as important as main items if it were not for Happy Meal Toys. You can't call it a Happy Meal and send a child back home intears with distressed parents. It's not delivering your promise as also creating an impression of being irresponsible in the mind of customer's as this is a sensitive issue. The whole world is sensitive to a child's tears. A uniform reporting method to a central office is mandatory for all items as this is the only way errors can be minimised and forecasts be accurate. However, a special control system can be put in place to maintain an inventory of promotional items with each franchise and a system created whereby, in times of crisis, the item be picked up and delivered from the nearest franchise holding surplus stock of the item.

With the advent of technology putting controls in place and forecasting itself has become relatively simple. McDonald's challenge is more from being unable to manage and control information and communication systems over a huge network of independant franchisees. Hence, it has to implement a uniform reporting methodology to stay ahead of crises. Once information is unified and collated at a single point managing supplies for every item should be easy and processed in a timely and controlled manner.

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