Opn-case-study-whole-compiled.docx

BRAC University

Assignment on: Case study on Supply Chain Management of McDonalds Case study on Inventory Management of Walmart

Course Title: Operation Management Course Code: OPN 510 Section: 1

Submitted To: Dr. Md. Mamun Habib, Associate Professor

Submitted By: ID

Name

17264097

Fariya Ahsan

17264014

Nishat Nabila

17364010

Md.Foysa

17164015

Ahmed Mustafa Labib

17264086

Shamima Sultana

Date of submission: 28.11.2018

Assignment on Case study on supply chain management of mcdonalds Case study on supply chain management of Walmart

BRAC Business School (BBS)

Acknowledgement

First and foremost, we would like to thank to our supervisor of this project, Dr. Md. Mamun Habib, associate professors, BRAC Business School, for the valuable guidance and advice. He inspired us greatly to work in this assignment. His willingness to motivate us contributed tremendously to our project. We also would like to thank him for showing us some example that related to the topic of our project. Besides, we would like to thank our classmates for providing us with a good environment and facilities to complete this project by giving their valuable opinion.

Letter of Transmittal 28th November 2018

Dr. Md. Mamun Habib Associate Professor BRAC Business School BRAC University

Subject: Submission of Assignment on case study

Dear Sir, We have honor to submit the assignment entitled “Case study on supply chain management of McDonalds and inventory management of Walmart.” under your supervision. We would like to thank you for approving this significant topic.

We may note here that there has been no dearth of sincerity on our part to bring the issue under study into proper focus. Based on our works we have prepared this report that describes the assigned topic.

We will highly appreciate if you kindly accept the report. Your positive actions regarding this matter would be very much helpful for our academic performance.

Sincerely yours, Md.Foysal Id:17364010 On behalf of Group C

Executive Summary McDonald’s Corporation is a “Centralized, International company”, which competes in the fast food industry supplying hamburgers, french fries and other consumable items using standardization, heavy expansion and branding as the driving force. McDonald’s operates in over 121 countries and has over 30,000 restaurants worldwide. McDonald’s utilized an intense, rapid expansion into foreign countries through three primary methods, franchising, company owned restaurants, and joint ventures. With the majority of international restaurants stemming from franchising agreements, McDonald’s management relied on this method to aid in the acceptance of a new style of eating into unfamiliar markets. With minimal risk and maximum gains, franchising continues to contribute heavily to McDonald’s international success. Walmart’s success in managing its inventory is partly due to the effective implementation of the vendor-managed inventory model, which ensures suppliers access data from Walmart’s information system, such as data on current inventory levels and the rate at which certain goods are sold. Suppliers decide when to send additional goods to Walmart, while the company monitors and control the actual transit of goods from warehouses to the stores. Overall usage of different methods to manage its inventory support the company’s cost leadership generic strategy through cost minimization.

Table of Content

SL. No.

Topics

Page No.

Case 1 1.1

Introduction

02

1.2

The Supply-Chain Procedure of McDonald’s in India

03

1.2.1

Multi-Layered Supply-Chain

03

1.2.2

Outsourcing policies

05

1.2.3

Relationship with the Suppliers

05

1.2.4

Sole Distribution Partner -Radhakrishna Foodland Pvt. Ltd

05

1.2.5

Local Sourcing

05

1.2.6

Demand Forecasting: 31Q System

06

1.2.7

Ensuring the Quality

07

1.2.8

Technological Advancement

07

1.3

Challenges faced in India Market by McDonald’s

07

1.4

Conclusion and Recommendations

09

Case 2 2.1

Introduction

11

2.2

Discussion

12

2.3

Benefits Gained Through Their Inventory Management Procedure

13

2.4

The Strength of Wal-mart

14

2.5

Conclusion

16

CASE ONE

A Case Study on McDonald’s Supply Chain in India

1

Introduction McDonald’s Corporation is basically known as McDonald’s which is one of the largest fast food chains in the world specially known for its hamburgers, cheeseburgers and french fries, they also offer chicken products, breakfast items, soft drinks, milkshakes, wraps, beverages, topping, desserts, happy meal and a-la carte and desserts. It is an American fast food company which was founded in 1948 as a restaurant by two brothers named Maurice and Richard McDonald in San Bernardino, California. McDonald’s serves in more than 118 countries with 33,000 outlets and serving more than 67 million customers each day. With the expansion of McDonald's into many international markets, the company has become a symbol of globalization and the spread of the American way of life. Moreover, they started their business as a hamburger standpoint but later turned the company into a franchise. In 1953, they introduced themselves with the Golden Curves logo at a location in Phoenix, Arizona. Then In 1955, a businessman named Ray Kroc merged the company as a franchise agent and continued to purchase the chain from the McDonald brothers. McDonald's had its original headquarters in Oak Brook, Illinois but moved its global headquarters to Chicago in early 2018. In 1996, the first outlet of this food chain opened for the public at Delhi in India and then within one month they unlocked another outlet at Mumbai. McDonald’s is present in 40 Indian cities with 250 restaurants and serves 650,000 customers daily. It emerged in Indian Territory in 1996 eyeing the informal dining-out industry in India which is estimated at $74 billion a year.

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The Supply-Chain Procedure of McDonald’s in India A Supply Chain is a network of facilities including- material flow from suppliers and their “upstream” suppliers at all levels, transformation of materials into semi-finished and finished products, and distribution of products to customers to their “downstream’ customers at all levels. So, raw material flows as follows: supplier- manufacturer- distributor- retailer- consumer. Information and money flows in the reverse direction. The balance between these flows is what a Supply Chain is all about. In India, the number of employees about 9,000 including restaurant staff but the surprise lies in its unique and integrated supply chain network which is managed by just five people across the whole country. This number increases to eight including quality assurance team who are all responsible for its efficient supply chain in Indian Territory. The traits of supply-chain network of McDonald’s in India are 100 percent outsourced, lean with no back-up staff and no frills. Because of the uniqueness of their supply-chain network, the company is enjoying growth of 30-40 percent every year in India.

Multi-Layered Supply-Chain The McDonald’s supply chain is both critical and multi-layered. There are two categories in food ingredients supply; In Tier-I there are 14 core suppliers-provide processed products such as vegetable and chicken patties come from Vista Processed foods Pvt. Ltd. Then french fries, potato wedges and hash browns by McCain Foods India Pvt. Ltd. McDonald’s has a total of 40 suppliers in which 14 are the core suppliers, known as Tier-1 suppliers, they supply directly to the fast food chain. The rest are Tier-2 suppliers and most of the suppliers are local. Some internationally famous foreign players like McCain Foods India are also the part of supply team. McCain set up its Indian business when McDonald’s ventured into the fast food business in the country. In Tier-2 suppliers there are growers and processors who provide lettuce and potato, poultry items and coating systems 3

that are used for coating the chicken and vegetable patties. The flow of ingredients are from Tier2 to Tier-I suppliers who process them.

Figure: Pull Supply Chain System McDonald’s expects its suppliers to personally ensure the quality of their products to reduce the risk factor. Coca Cola, the beverage partner impart water management knowledge to the restaurant staff to ensure potable quality of drinking water. To ensure on-time fast delivery for 250 restaurants, there are four Distribution Centers across the country. The fleet of refrigerated trucks (multi-temperature and single temperature) carries the processed foods to the company’s Distribution Centers. To ensure their quality, plastic crates are used for buns. Later, the empty bottles and racks are available for further processing. Every new outlet addition is capably handled by these DCs within in ten days in the country. The Noida and Mumbai DCs are primary Distribution Centers owned by the company. The other two Distribution Centers are in Bengaluru and Kolkata are housed in leased properties. The system that is used to manage link between Restaurant and DCs is a hub-and-spoke model where the DCs act as hubs. McDonald’s transportation has been completely outsourced and since 80 percent is refrigerated truck movement, the company has a dedicated fleet which transports their goods.

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Outsourcing policies The essence of the effective supply-chain model is undoubtedly attributed to its unique concept of outsourcing.The performances of outsourced companies are monitored on Key Performance Indicators (KPIs). The company has 100 percent outsourced supply chains which arecontrolled over its operations.

Relationship with the Suppliers McDonald’s has no legally signed agreements with its suppliers. To build long-term relationshipswith the suppliers,the policy is ‘one product-one supplier’.The major demand is fulfilled by 14 core suppliers and whenever addition is there in restaurant line those 14 suppliers are the first choice.

Sole Distribution Partner -Radhakrishna Foodland Pvt. Ltd The entire distribution of McDonald’s products in India is handled by Radhakrishna Foodland Pvt. Ltd, the only distribution partner. RKFL manages the four DCs and since it has a transport division, handles the truck movement in the supply-chain right through the country. McDonald’s exhibits control on its distribution partner to meet its standards of cold, clean and on-time delivery.

Local Sourcing McDonald’s has always been committed to sourcing its requirements from local suppliers and farmers. As McDonald’s firmly believed in mutual benefits arising from a partnership between McDonald’s and the local businesses, thus ensuring that McDonald’s commitment to growth was mirrored by that of its partners. McDonald’s India today purchases more than 96% of its products and supplies from India suppliers. Even they are constructed using local architects, contractors, labor and maximum local content materials. The relationship between McDonald’s and its Indian suppliers is mutually beneficial. As McDonald’s expands in India, the suppliers get the opportunity to expand their businesses, have access to the latest in food technology, and get exposure to advanced agricultural practices and the ability to grow or to export.

5

All suppliers adhere to Indian government regulations on food, health and hygiene while continuously maintaining McDonald’s recognized standards. As the ingredients move from farms to processing plants to the restaurant, McDonald’s Quality Inspection Program (QIP) carries out the quality checks. The list of Indian suppliers is given below:

Trikaya Agriculture

Supplier of Iceberg Lettuce

Vista Processed Foods Pvt. Ltd.

Supplier of chicken and vegetable range of products

Dynamix Diary

Supplier of Cheese

Amrit Food

Supplier of long life UHT Milk and Milk products for frozen desserts

Distribution centre

Radhakrishna Foodland

Demand Forecasting: 31Q System To forecast the demand for long term 31Q system is widely known where 3 stands for the three years that the fast food chain will keep checking its plans, 1 represents the detailed forecast of the next year and Q symbolizes the quarterly monitoring of these forecasts. With 250 restaurants scattered across the country, lead times for delivery assume critical importance.Every restaurant

6

manager knows the exact time of arrival of each product which enables the supply chain team to work backwards to ensure timely distribution.

Ensuring the Quality Taste of the food products is another parameter of quality. For this McDonald’s has developed a Sensory Program. The centralized laboratory for this program is located in Hong Kong which prepares sensory experts. These personnel come both from the suppliers and quality assurance teams. Every batch of a food product that gets manufactured at a supplier’s plant is checked by an approved sensory panel at the plant and scores are allotted to the product. Only a product with minimum score is shipped out of the factory. Other measures are also taken in the form of at random checks of outlets.

Technological Advancement The entire system of supply chain is powered by technology to make it smooth and effortless. Suppliers are using SAP while Distribution Centers are on RAMCO Marshall ERP with Cobra software. These systems are used to atomized upload of store orders. Mcdelivery, delivers meals to the customer’s doorstep, was first launched in Mumbai and Delhi in 2004. Through this service has grown at stratospheric levels by more than 400 percent.

Challenges faced in India Market by McDonald’s 

McDonald’s needs to source all its requirements from within India. According to Indian business law McDonald’s only can enter India if they can develop the local business.



Indians wanted to taste American fast food, but it could not be a substitute for Indian food. Hence adapting McDonald’s menu to Indian tastes was critical if they were to succeed in India.



McDonald’s needs to create a separate menu for Indians as half of its population is Indian and to cater to this customer segment, the company came up with a completely new line of vegetarian items like McVeggie burger and McAloo tikki. India is the only country where even the sauces and cheese used are too 100% vegetarian. 7



It dropped ham, beef and mutton burgers from their actual menu as Indians are sensitive in terms of religion beliefs and have strict restrictions on beef serving.



Lower quality agricultural products were a big concern for McDonald’s. So, McDonald’s needs to train the local farmers to produce the local ingredients based on their specified international standards.



Separate kitchens for vegetarians and non-vegetarian food were created in the restaurants with different uniforms for the kitchen staffs. Besides that the vegetarian menu color is different than the non-vegetarian menu too.



Raw materials movement from one area to another is mainly by road and it take a lot time sometimes.



Storage is divided into three sections: dry, refrigerator and frozen foods. The holding area for each category is maintained at a specific temperature to avoid breaking the cold chain and so products don’t suffer spoilage due to variations of weather and climate.



Being very conscious of the importance of caring for the environment and the huge impact suppliers can cause while producing their raw materials, they collaborate with initiatives that look for ways to protect the environment and maintain ecosystems healthy. They use paper that does not come from deforestation and thus they use of on-renewable sources and nonrecycle material.



Web ordering still bother some local customers who are not internet friendly and prefer to order over the phone which is quite difficult to maintain the track of orders.



Changed management in a decentralize structure so that it would be easier to take decisions whenever it’s needed and can take immediate action.



It has Bullwhip Effect in India. When there is a balance in finished product ordering, the Supply Chain operates at its best. Any major fluctuation in the product ordering pattern causes excess or fluctuating inventories, shortages or stock outs, longer lead times, higher transportation and manufacturing costs, and mistrust between supply chain partners. This is called Bullwhip Effect.

8

Conclusion and Recommendations McDonald’s expansion in international market gave a symbol of GLOCALIZATION. This makes the company to become emblematic for the title “McDonalizaion” of society in Globalization. In India company wants to use attractive and affordability proposition for the customer along with taste and preference. McDonald’s needs to keep good relationship with their logistics. From the farmers given o the suppliers, then processes and distributed to the distribution center. The quality of supplies is maintained by using customized multi-chamber temperature controlled trucks. Then dispatched of the restaurants depending their requirements Cold, Clean and On time delivery based logistic through warehouse. After reading the case study, we want to recommend that to focus more on healthy food menu like air fried food, salads, less fat food and need to do innovation on it. McDonald’s need to have the quality control to avoid issues. Try to maintain proper supply chain management. Go for more expansion to the emerging economics for earning profit margin. They can go for easy customization and affordability.

9

Case 2

A Case Study on Wal-Mart’s Inventory Management in US

10

Introduction In the financial year 2001-02, Wal-Mart ranked number one on Global Fortune 500 List. Earning revenues of $219.81 billion, Wal-Mart was the largest retailing company in the world. Compared with its competitors in the US (Sears Roebuck, K-Mart, JC Penney and Nordstrom), Wal-Mart was considered a lot bigger as a company. According to statistics collected in 2002, Wal-Mart operated more than 3500 discount stores, Sam’s Clubs and Supercenters in the US and more than 1170 stores in all major countries in the world. The company also utilized the internet to sell its product. With employee strength of approximately 1.28 million, Wal-Mart was considered one of the largest private sector employers. Sam Walton, the company’s founder, had always concentrated on decreasing costs, improving sales, using innovative information technology tools, adopting efficient distraction and logistics management systems, etc. Several analysts mentioned that Wal-Mart’s efficient supply chain management practices made it possible for the company to achieve leadership status. Captain Vernon L. Beatty, aide-de-camp to the commander, Defense Supply Center, Columbus, Ohio said, “Supply Chain Management is moving the right items to the right customer at the right time by the most efficient means. No one does it better than Wal-Mart.”

Rank

Company

Revenues (in $ million)

1

Wal-Mart stores

219812

2

Exxon Mobil

191581

3

General Motors

177260

4

Ford Motor

162412

5

Enron

138718

11

Discussion

Inventory Management Process

Wal-Mart cares about and tries to cater to the individual needs of the store. A number of delivery plans were created from which the stores could choose. Example: An accelerated delivery system was created by which stores located at a certain geographical region could receive replenishment within a specified period. By investing heavily in IT and other forms of communication systems, Wal-Mart was able to track sales and merchandise inventory in stores across the country and even abroad. Good communication system became an absolute necessity with the rapid expansion of Wal-Mart stores in US. Wal-Mart’s own Satelite Communication system was built in 1983. By allowing stores to manage their own stocks, reducing pack sizes across many product categories, and using timely price markdowns, Wal-Mart was able to reduce unproductive inventory. Computers were used to network Wal-Mart’s suppliers. The company entered into partnership with P&G in order to maintain the inventory in its stores. It then built an automated reordering system which linked all computers between P&G and its stores and between all distribution centers. When items were low in stock, Wal-Mart’s computer system would identify it and send signals to P&G. Using a Satellite communication system, the Wal-Mart system would send a re-supply order to the nearest P&G factory. P&G would then deliver the product either to Wal-Mart distribution center or directly to the concerned store. It was a beneficial proposition for both: on one hand, Wal-Mart could constantly monitor its stock levels and identify items that were moving fast, and on the other hand, P&G could lower its costs and pass on some of the savings to Wal-Mart due to better coordination. In order to manage its inventories, Wal-Mart made use of bar-coding and radio frequency technology. The goods could be directed to the appropriate dock using bar-codes and fixed optical readers, and then loaded onto the trucks for shipment. Bar-coding devices made it possible to pick 12

goods efficiently, receive and control proper inventory of the appropriate goods. It also made it possible to easily pack goods and count inventories. In 1991, Wal-Mart invested approximately $4 billion to build a retail link system. More than 10000 Wal-Mart retail suppliers made use of the link to monitor the sales of their goods and replenish inventories. This integrated system processed the details of daily transactions (which amounted to more than 10 million per day) and those details were furnished to every Wal-Mart store by 4 AM the next day. Wal-Mart later tied up with Atlas Commerce for upgrading the system through internet enabled technologies. It has been reported by many analysts that Wal-Mart used some of the largest and most powerful computer systems in the private sector. The company made use of a technology called Massively Parallel Processor (MPP) which helped in tracking the movement of goods and stock levels. An advanced Satellite was Communication system was used to pass all information related to sales and inventories. The company had an extensive contingency plan to provide back-up in case of a major breakdown or service interruption. The effective use of computers made it possible for Wal-Mart to successfully provide uninterrupted service to its customers, suppliers, stockholders and trading partners.

Benefits Gained Through Their Inventory Management Procedure:

Wal-Mart constantly emphasized on and tried to improve its relationship with customers, suppliers and employees. In order to improve performance and value for customers, the company had to act very vigilant and sense even the smallest of changes in store layout and merchandising techniques. The company tried to capitalize on every cost-saving opportunity. These cost-savings were always passed onto the customers in the form of lower prices, which added value at every stage of production. 13

Wal-Mart had its own transportation system which assisted Wal-Mart in delivering the goods to different stores within 48 hours. This made Wal-Mart enjoy the benefits of low transportation costs. Transportation costs for Wal-Mart were considered to be 3% of their total cost as compared to 5% for their competitors. Wal-Mart managed to replenish the shelves four times faster than their competitors. Wal-Mart priced its goods economically to appeal to large number of consumers. Their prices also varied on a daily basis. The company enjoyed good bargaining power due to purchasing large quantities. This made it possible to cut costs, which were then passed onto the customers in terms of lower prices. The company also offered discounts at various offers, which made their sales volume increase, and thereby increasing their revenue. Low pricing made it possible for the sales volume to be high and consistent. Wal-Mart’s inventory management practices lead to increased efficiency in operations and better customer service. It maintained quality of goods and old stocks. Radio frequency technology and bar-coding enabled accurate distribution of goods. Inventory storage cost was reduced using crossdocking. It also helped to cut down the labor and other handling costs involved in the loading and unloading of goods.

The Strength of Wal-mart Yearly sales

220 billion

Total employees across the globe

1.28 million

Number of Stores Worldwide

4382

Number of Supercenters

1060

Number of Sam’s Clubs

495

Number of new stores opened in 2002

420

Number of suppliers

30000

14

Number of Wal-Mart’s in Texas (US)

316

Value of 100 shares of Wal-Mart (as on January 28, 2003)

11.5 million

Wal-Mart’s rank/position among all retailers in the US

1

Wal-mart rank in jewelry sales

50 million

Number of pallets shipped by Wal-Mart truck every week

70 million

Annual sales of hot dogs by Wal-Mart every year

35%

Percentage of dry dog food bought by Wal-Mart truck every 18.3 square miles week Total occupied floor area of Wal-Mart

24%

Yearly advertising expenditure

498 million

Yearly purchase of gold for Wal-Mart by its suppliers

18.4 metric tonne

Highest one-day sales record till date

1.25 billion

Number of Learjets owned by Wal-Mart

18

Number of Pilots owned by Wal-Mart

60

Number of employees employed by Wal-Mart in China

4000

Yearly sales of 850 McDonalds stores that operate inside Wal- 1.3 billion Mart stores Number of Customers everyday ay Wal-Mart stores 15.7 million worldwide Number of everyday visitors at Wal-Mart stores worldwide

450000

Number of everyday visitors at Wal-Mart website

100000

Number of items stored by a Wal-Mart supercenters

600000

Items stored by Wal-Mart

11.1 trillion

Estimated market capitalization of Wal-Mart in 2020

15

Conclusion

Walmart’s inventory management is one of the biggest contributors to the success of the company. Considering the mammoth size of the firm, effective and efficient inventory management is of critical importance. Walmart is known for cutting-edge technological applications for its inventory management aspect. The company has perfected the art of innovating its inventory management methods and strategies. Thus, Walmart is an example of the benefits of advanced technology and innovation in optimizing inventory management performance. While there are a variety of other factors contributing to the success of this business, advanced inventory management is at the core of Walmart’s leadership in the retail industry. Walmart’s success in managing its inventory is partly due to the effective implementation of the vendor-managed inventory model, which ensures suppliers access data from Walmart’s information system, such as data on current inventory levels and the rate at which certain goods are sold. Suppliers decide when to send additional goods to Walmart, while the company monitors and control the actual transit of goods from warehouses to the stores. Overall usage of different methods to manage its inventory support the company’s cost leadership generic strategy through cost minimization.

16