COMSATS University Islamabad, Sahiwal Campus

Department of Mechanical Engineering

McDonald’s Supply Chain Logistics

Presented By:
Engr. M. Touseef Tahir
FA19-RMM-002
 CONTENTS

 Introduction
 Facts
 Vertical Integration
 King of Vertical Integration
 Why McDonald is successful
 Three legged stool
 What's in it for me system
 5 Rules to manage Supply Chain
 How to make supply Decision
 Conclusion
 INTRODUCTION

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.
 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. 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
 VERTICAL INTEGRATION

In microeconomics and management, vertical integration is an arrangement in

which the supply chain of a company is owned by that company.
 Usually each member of the supply chain produces a different product or (market-
specific) service, and the products combine to satisfy a common need. It is
contrasted with horizontal integration.
 Vertical integration has also described management styles that bring large
portions of the supply chain not only under a common ownership, but also into one
corporation (as in the 1920s when the Ford River Rouge Complex began making
much of its own steel rather than buying it from suppliers)
 MCDONALD’S 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.
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?

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.”
 NUMBER TWO SPOT FOR BEST SUPPLY CHAIN

• 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 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.
 THE THREE-LEGGED STOOL

• 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?

• 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.
•
 5 RULES TO MANAGE SUPPLY CHAIN

Ray Kroc set up 5 simple rules to manage their supply chain that are still very much in
practice today:
1. 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.
2. 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.
3. 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.
 5 RULES TO MANAGE SUPPLY CHAIN (CONTD.)

4. 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.
5. Govern for insight not oversight establish peer-to-peer relationships
that are there to provide insight and not micromanage.
 HOW TO MAKE SUPPLY DECISION

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.
Thank
You