Managing stock to meet customer needs
McDonald’s is one of only a handful of brands that command instant recognition in virtually every country in the world. It has more than 30,000 restaurants in over 119 countries, serving around 50 million people every day. All businesses face challenges every day. One of the major challenges facing McDonald’s is managing stock. Stock management involves creating a balance between meeting customers’ needs whilst at the same time minimising waste. Waste is reduced by: 1. Accurate forecasting of demand so that products do not have to be thrown away as often. 2. Accurate stock control of the raw materials. The Stock Management Problem How to Meet customer needs Minimise waste
CURRICULUM TOPICS • Stock control • Business planning • Supply chain planning • Improving productivity • Planning, controlling, reporting
GLOSSARY Stock: materials or finished products for sale. Stock control: maintaining information on the quantity, location and condition of materials. Stock management: the process of controlling stock; may be through automated systems. Forecast: a projection for the future based on an analysis of likely sales. Raw materials: goods in their original state purchased from outside suppliers – e.g. beef, lettuce, etc.
This is an increasingly tough balancing act. As customer tastes change, McDonald’s needs to increase the range of new products it offers, so the challenge of reducing waste becomes even greater. In the past, stock ordering was the responsibility of individual restaurant managers. They ordered stock using their local knowledge, as well as data on what the store sold the previous day, week and month. For example, if last week’s sales figures showed they sold 100 units of coffee and net sales were rising at 10%, they would expect to sell 110 units this week. However, this was a simple method and involved no calculations to take account of factors such as national promotions or school holidays. It took up a lot of the Restaurant Manager’s time, leaving them less time to concentrate on delivering quality food, service and cleanliness in the restaurants. In 2004, McDonald’s introduced a specialist central stock management function known as the Restaurant Supply Planning Department. This team communicates with restaurant managers on a regular basis to find out local events. The team builds these factors into the new planning and forecasting system (called Manugistics) to forecast likely demand of finished menu items (e.g.Big Macs). This case study looks at how McDonald’s manages its stock through its management systems and what benefits this brings.
Types of stock
Stock is the physical product a company buys, creates or sells. Every business has three main types of stock: Types of stock Raw Materials Work-in-progress Finished products McDONALD’S
i. Raw materials
The raw materials are the ingredients that will go into producing the finished product. For McDonald’s, these will include the buns, beef patties, paper cups, salad ingredients and packaging. These are delivered to the restaurants between 3 and 5 times a week. The raw materials arrive together on one lorry with three sections so that each product can be stored at a suitable temperature.
The three sections are: • frozen • chilled • ambient – which means foods that can be stored at room temperature. This applies to items such as coffee or sugar sachets.
ii. Work-in-progress (WIP)
GLOSSARY Work-in-progress (WIP): preparation work before menu items are sold. Finished products: completed items ready for sale. Lean stock control: managing stock to keep just enough to meet demand. Stock control system: a management system designed to provide a steady flow of stocks that will be available for sale. Historic product mix data: data detailing how the items are sold to the customer as full menu items (i.e. a Big Mac as part of an Extra Value...