5 Things I Learned in McDonald´s Supply Chain

I had the privilege of working for McDonald´s in several capacities:

• Heading the Brazilian logistics services provider while the blueprint for the local Supply Chain was “under construction”.

• As a Regional Director for Northeast Brazil restaurant operations.

• As an “internal consultant” for the Latin American Supply Chain team and

• Leading Latin America Business Development for a global Supply Chain Services provider.

I like to believe that rich and varied experience gave me a unique understanding of why the McDonald’s Supply Chain Management is the secret to their success!

The complexity of alignment and integrated planning that McDonald’s logistics depends upon is staggering. Attempts to duplicate it system have been many, but none managed to knock the Golden Arches of its top spot.

A Few Facts

There are over 40,000 McDonald´s restaurants in 120 countries and serves about 70 million customers around each day. Here are some additional facts:

• They sell more than 75 hamburgers per second, of every minute, of every hour, of every day of the year.

• The company works with more than 20 bakeries in the U.S. alone (all of which must not only make the buns exactly the same size, color, texture, flavor and consistency).

• They buy over 2 billion eggs annually just in the US.

• 9 million pounds of French fries are sold globally every day.

All this activity requires an amazingly efficient supply chain that is cost effective and dependable, but the real staggering fact is that McDonald´s outsources 100% of their supply needs.

1.   Internal alignment

You should always engage stakeholders across all disciplines and bring them along with you: Leadership, Operations, Marketing, Finance, and anyone else who might have an important role to play in Supply Chain decision making as all functions are influenced by Supply Chain outcomes in some degree, the more they know, the more they can support you.

2.   Vertical Integration

McDonald´s is a great example of how vertical integration can keep costs down and profits up. But, as in many other aspects, they do it their own way.

Each Supplier sources raw material as they see fit and all relationships are based upon trust and verbal commitments instead of contracts, all Suppliers control their raw material sources quite tightly.

Everything that makes McDonald´s Supply Chain great is done through a vertical integration, and clearly it works for them. Of course, they are a huge volume buyer which makes the vertical integrated supply chain the best option, but there are plenty of companies using the system and not experiencing the benefits they do.

3.    Partnering in Transparency

McDonald´s philosophy is based on the Three-Legged Stool approach designed by founder Ray Kroc, who established trust with his suppliers by developing a winning strategy where each “leg” of the system is heavily dependent on the others to succeed. 

The First Leg of the stool is Company´s employees, the second leg are the Franchisees, 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.

It´s a “What’s in It for Me” system, getting suppliers interested in the Company and Licensees succeed and vice versa.

By approaching suppliers with a plan that helps them to enjoy more profits and steady growth, McDonald´s can secure the supplies that they need and keep costs down, while enjoying their own profits.

4.    Get the basics right, every time

There are no sacred cows, it’s a requirement of every McDonald’s supplier to share their best practices with other suppliers, and to invite each other into their facilities.

Successfully managing food safety and quality across a global supply chain, with thousands of vendor sites means that the Golden Arches relies on its suppliers’ full commitment to and understanding of the McDonald’s food safety and quality requirements. It is each supply chain company’s dedication to implementing state-of-the-art food safety prevention, control and verification strategies and technologies in its own processes and plants that ensures that all of the all-beef patties, special sauces, lettuce, cheese, pickles, onions and sesame seed buns all deliver the safest and same McDonald’s experience that consumers the world over have come to expect.

5.    Always manage the Total Cost of Ownership

The entire Supply Chain is a “we”, everyone works together toward one common goal. This approach is defined by 5 simple rules, set by Ray Kroc to manage their Supply Chain and are still very much in practice today:

• Focus on outcomes not on transactions-instead of focusing on RFP’s and searching for better prices, McDonald´s focuses on building long term business partnerships that will further the goals of the business.

• Focus on the what, not the how-this is a simple rule that in its simplest terms means trust the suppliers to deliver the Quality, Service, Cleanliness & Value standards that have set and do not worry about how they will do it.

• 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.

• Pricing model/incentives for cost/service trade-offs-this is one of the most important rules to McDonald´s model, everyone must be making money. Pricing so that every supplier can make a profit and enjoy the rewards of doing business with McDonald´s is a key tenet to this successful Supply Chain.

• Govern for insight not oversight- establish peer-to-peer relationships to provide insight and not micromanage.

What’s Best for the System

Before a supply decision is made at McDonald´s, 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.

McDonald´s 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.

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Elcio Grassia, CEO, Nazar Systems.