Supply Chain Management essay

SupplyChain Management

SupplyChain Management

Supply chain management is theoverall control of the flow of goods and services. The supply chaincomprises of processes that depict the movement of raw materials intowork in progress and finally to the final product. Specifically, thesupply chain consists of services, goods and business partnersinvolved in the transfer of products from their points of origin tothe consumption point. Supply chains are interconnected networks,business nodes, and channels that facilitate the flow of goods andservices. The main activities in a supply chain entail planning,designing, execution, control and monitoring of all the activitieswithin the supply chain. The aim of all the activities is to createnet value, to leverage networks and building competitiveinfrastructures. Consequently, supply chain management is anessential part of an organization`s operational efficiency applied toensure customer satisfaction, as well as, the overall success of acompany (Wisner, Leong &ampTan 2012).Supply chain management encompassesthe planning and management of all activities involved in sourcingand procurement, conversion and all logistics management activities.It entails the coordination and collaboration with channel partnersthat include intermediaries, suppliers, third party serviceproviders, and customers (Lambert, 2006).I decided to evaluate the level towhich the principles of supply chain management apply at McDonald’sUSA. Consequently, I decided to have a talk with one of the managersat a local McDonalds shop. McDonald’s is the largest chain of fastfoods restaurants. The company serves approximately 70 millioncustomers on a daily basis throughout its chains located in more than119 countries. Specifically, the chain has 36,535 outlets all overthe world (Lambert, 2006).

Giventhe scope of the company, it has a very sophisticated supply chainnetwork. The outlets sell a variety of goods such as cheeseburgers,chicken, French fries, breakfast items, milkshakes, desserts and softdrinks. According to the manager’s explanation, the company seemsto have a very sophisticated model of managing its supply chainmodel. The manager explained that McDonald’s supply chain operateas a franchise. Specifically, McDonald’s uses a three-legged stoolmodel to manage its supply chain networks. First, the business isstructured as a rental agreement. Franchisees rent the restaurantfrom a building owned by McDonald’s and own the interior part, andthe rest of the building belongs to McDonald’s. The three-leggedstool represents McDonalds as one leg of the stool, the suppliersrepresent another leg and finally, the other leg represents thefranchisees (Lambert, 2006).

The Three- legged stool of McDonald’s


Franchiser (McDonald’s)



Flowof supplies- SCHM

Theglobal nature of the company calls for the establishment of standardroutines and qualities. Regarding pricing, the company works on abasis of predictable prices. Consequently, the company establishesvery close contacts with the suppliers as well as obtaining knowledgeabout the industry. After understanding the commodity markets, thecompany set stable prices on its purchases as opposed to competitiveprices. The inventory management system at McDonald’s serves as agood ground for reducing excess inventory as well as lowering theaccounting costs in the chain (Lambert, 2006).

Suppliersand inventory management

Theprincipal aim of inventory management at McDonald’s is to reducethe operation cost in the supply chain. First, the company has fullyoutsourced its supply chain operations, specifically, warehousing andlogistics. The aim of outsourcing is to reduce the operational costsand to enable the franchisees to concentrate fully on the customerwithout worries about the supply of goods. The company operates witha set of recognized transporters and warehouse owners who are incharge of providing the supplies for the outlets. The company has anaccurate system that predicts the quantities of products in eachrestaurant to enable a perfect strategy of outsourcing. The storemanagers have the capacity to adjust the levels to enhance theaccuracy of prediction, for example, when there are expected changesin the rate of consumption due to sport events (Wisner et al., 2012).

Supplychain cost reduction

Concerningthe costs, McDonald’s reduces its overhead costs through loweringthe cost of acquiring and procurement of raw materials. Initially,McDonald’s had set strict guidelines for its suppliers of rawmaterials and other outsourced services. The businesses uniquelysupplied McDonald’s and could not provide any other business,especially, the competitors of the organization (Wisner et al.,2012).

Recently,McDonald’s has started allowing its suppliers to provide servicesto other companies. Although the practice was restricted in the past,the aim is to lower the costs of transportation and warehousing byenjoying the economies of scale. The ability of suppliers to supplyother companies enables the reduction of fixed costs. Consequently,the vendors can provide goods to McDonald’s at a lower price ascompared to the situation before when they were the sole suppliers(Wisner et al., 2012).


Atthe restaurants, the managers spend most of their time estimating thelevel of inventories to prevent stock outages. The amount requiredhas a high possibility of changing since the franchisees do not fullytrust the system. Consequently, the managers frequently adjust thelevels required and provide constant communication to suppliers(Wisner et al., 2012).

Thetime horizon of the supply chain

Themajority of McDonald’s suppliers have existed from the beginning ofthe company. Consequently, the businesses have a relationship ofdecades. The McDonald’s outlets work to ensure that the suppliersrealize the benefits of long-term relationships. The most interestingfact about McDonald’s supply chain relationship is their lack ofcontracts as agreements. The lack of contracts is due to theresultant mutual trust from long-term business relationships. Themanager explained that contracts created lower confidence between thepartners. Besides, as a result of the time horizon, the franchiseesare willing to invest in the buildings despite the fact that they areowned by McDonald’s. The key reason for the franchisees willingnessto invest in the buildings is that they believe in the investment andthe future of the McDonald’s brand (Wisner et al., 2012).

Levelof coordination in the supply chain

McDonald’ssupply chain involves a constant need for coordination since it iscomprised of many components that are used to deliver goods fromsuppliers to customers. The suppliers conduct most of thecoordination. Due to the high coordination of suppliers andrestaurants, they can develop efficient sourcing strategies as wellas future product development. The franchises are frequentlycoordinated on the management level as well to ensure consistency inthe flow of operations (Wisner et al., 2012).


Thefranchisees and the suppliers conduct meetings to enable planning andforecasting. Since the suppliers are experts who have specialized inlogistics and warehousing, they can provide adequate information. Thecompany is saved from costs of research and development, as thesuppliers are conversant with the business. Specifically, thesuppliers provide information on future prices of raw materials tothe company. Besides, the suppliers provide plenty information on theavailability of raw materials in the future. Expected shortages ofraw materials are anticipated by changing the sourcing strategies ofcompany (Wisner et al., 2012).

Inconclusion, although most of the supply chain is discussed in theory,the practical application of the supply chain process is problematicto carry out in practice. The members of the McDonald’s supplychain coordinate their activities, as it is required in theliterature of the supply chain management. Given the success of thecompany, it is possible to conclude that an efficient supply chain isa backbone of any successful company. Consequently, McDonald’sremains unbeaten in the fast food industry due to the efficiency ofits sourcing operations.


Lambert, D.M. (2006).&nbspSupplychain management: Processes, partnerships, performance.Sarasota, FL: Institute

Wisner, J.D., Leong, G. K., &amp Tan, K. (2012).&nbspSupplychain management: A balanced approach.Mason, OH: South-Western/Cengage Learning.