McDonalds’ Restaurants is a worldwide company servicing an unspeakable amount of customers each day. In order to remain competitive within the food industry, McDonalds’ needs to examine its logistics systems, so it may continuously find opportunities to increase efficiency and effectiveness within its operations.
The logistics aspect of the distribution chain related to the functions of transportation, storage, warehousing and freight forwarding. Improvements in these key logistic areas, may improve productivity, savings in inventory, space saving and most importantly extra customer service profit and competitive advantage.
An effective logistics system requires not only the ability to recognise opportunities in the above key areas, but also an appropriate information system to co-ordinate the supply of goods and materials to places where they are needed throughout the world (Stock, et. al., 1999)
Furthermore, time especially in an operation like McDonalds’ is vital to remaining competitive. Customers no longer look just for low cost and high quality, these attributes are now taken for granted. In order to maintain competitive advantage, the company needs to deliver more value to a customer at a similar cost to the competition, or the same value as the competition at a lower cost (Babbar, et. al., 1998).
Further complications arise due to such a large service area and the rapid expansion of global markets. International logistics takes on a high significance as operations increase. Issues such as variations in government policies, quality of infrastructure and nature of supply base, emerge to the forefront. To compete more effectively in a global marketplace, it is important that firms understand these issues and align their purchasing, management of inventories, and distribution systems to the diverse environments in which they operate. Proper management of these systems can help strategically secure McDonalds’ the position of market leader (Bask, 2001).
As McDonalds’ expands its global network, and enters a more competitive global market, it is apparent that to compete globally requires global co-operation with other firms. It would prove to be extremely expensive to sustain on their own the necessary infrastructure to support transportation, manufacturing and service in all regions. Therefore, an alliance with reliable suppliers of materials will allow effective JIT, or similar system, to be implemented and sustained (Bask, 2001).
However, as globalisation expands and manufacturing increases, the negative impact on the environment also rises. Increasing consumer awareness has encouraged businesses to introduce environmentally friendly products and services. To achieve business goals and objectives, a company must respond to increasing consumer demand for “green”. Since logistics is an integral part of the firm’s efforts to become environmentally friendly, logistics managers must understand the impact of their daily activities on the firm’s image.
The role of logistics managers is important because their decisions on how and where resources are used can potentially have a major impact on the environment. With growing demands for green products, logistics systems that deliver these products to consumers’ hands should themselves be “green”. Not only will this practice create a favourable image among consumers, but it will also cut costs, as more materials are recycled and reused. McDonalds’ may look to extend this practice to all operations, in order to sustain its position as market leader and gain competitive advantage (La Londe, et. al., 1994).
2.0 McDonald’s Restaurants & Logistics Management
McDonald’s Restaurants is the largest and most well-known global food service retailer with more than 30,000 restaurants in 121 countries. Seen as a market leader, McDonald’s capitalizes on its brand recognition, experienced management, high-quality food, site development expertise, advanced operational systems and unique global infrastructure (http://www.mcdonalds.com/).
McDonald’s vision is “…to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness and value, so that we make every customer in every restaurant smile. To achieve our vision, we are focused on three worldwide strategies:
* Be the best employer for our people in each community around the world.
* Deliver operational excellence to our customers in each of our restaurants.
* Achieve enduring profitable growth by expanding the brand and leveraging the strengths of the McDonald’s system through innovation and technology.”
Within the McDonald’s network, suppliers play a critical role to ensure strategical success. Globally, McDonald’s enjoys over 45 million customers every day of the year, therefore making it essential to find quality suppliers. Currently, in the U.S. alone, McDonald’s operates over 40 distribution centres, strategically located to be accessible to more than 12,000 restaurants, providing a diverse range of products and services (http://www.mcdonalds.com/).
In Australia, McDonald’s interacts with a number of major suppliers, purchasing food, beverage, paper and packaging. In response, to McDonald’s’ continuous growth over the last 5 years, most major suppliers have recently made major investments in new facilities in order to manage increasing volumes required by McDonald’s (http://www.mcdonalds.com/).
In attempting to provide the ‘quickest service’, McDonald’s undertakes a “Just in Time” delivery program to ensure the end user receives utmost satisfaction by enjoying the freshest foods, yet also providing McDonald’s with repeat purchases and competitive advantage. Most stores receive deliveries twice a week, regardless of location, ensuring a constant turnover of products.
Currently, McDonald’s utilises traditional EDI to trade with large vendors, however, McDonald’s also does business with 20,000 small to mid-size companies that serve McDonald’s locations regionally across the nation, who currently rely on paper, and generally manual processes, for their logistics needs (http://www.mcdonalds.com/).
3.0 Problem Definition
In order to effectively implement a system such as JIT, McDonald’s needs to assess its relationships with all suppliers to ensure most efficient processes are used to deliver their nominated products and services, as current practices are still not worked to maximum capacity. The company can look at available technology, inventory management as well as time reduction strategies, to determine which practices may aid their relationships with suppliers. In order to gain competitive advantage, McDonald’s will need to examine the principles behind effective use of Logistics management to improve its competitiveness in the market place.
4.0 Problem Analysis
4.1 Logistics ; Technology
One of the enabling factors of effective logistics management is the effective use of information technology. The goal of the logistics manager within McDonald’s, therefore must be to link the end customers, the channels of distribution, the production processes and the procurement activity in such a way that customers’ service expectations are exceeded and yet at a lower total cost than the competition (Closs, et. al., 1997).
“Information has always been central to the efficient management of logistics but now, enabled by technology, it is providing the driving force for competitive logistics strategy.” (Hammant, 1995).
As a retailer, McDonald’s experiences margin erosion and the need forever improving levels of customer service are both instrumental in increasing the levels of IT investment to support supply chain improvements. Recent investments in technologies such as electronic data interchange (EDI) and electronic funds transfer (EFTPOS), have facilitated further reductions in supply chain stock levels and forged stronger supply chain linkages between both their suppliers and customers (Closs, et. al., 1997).
As a worldwide company, McDonald’s have experimented with global sourcing and JIT processes, which further contributed to the need for investment. In particular, McDonald’s has invested in technologies to support product ordering, enjoying a low lead time of 2 weeks. However, this practice is not spread throughout the organisation, as interaction with smaller suppliers requires manual orders to be processed.
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