International University of Sarajevo

PLANNING PROCESS OF SUPPLY CHAIN MANAGEMENT IN MCDONALDS (BOSNIA AND HERZEGOVINA)

Professor: Senior Assist. Shadi Fadda

Students: Bakir Kalajdzic Alen Delic

Sarajevo, December 2012 CONTENT

1. Introduction .... 3 2. Main actors in planning process of supplies in both companies .... 4 2.1 Where job start and where finish ..4 2.2 Product usage in McDonalds ... 5 2.3 Procurement based on product usage ... 5 3. Ordering process ................................................................................................................ 6 3.1 Lead time . 6 3.2 Following distribution . 6 3.3 Storage . 7 4. Planning process of supplies in MCD ............................................................................... 8 4.1 ABC Classification .. 8 4.2 Details about supplies .. 8 5. What we can change in this process? . 9

1. Introduction
McDonalds company McDonald's is an American company with a worldwide chain of fast food restaurants. McDonald's primarily sells hamburgers, cheeseburgers, chicken products, French fries, soft carbonated drinks (Coca-Cola, Sprite), smoothie drinks and desserts. In Bosnia-Herzegovina, they opened at 2011 year. Currently there are 5 restaurants. Each McDonald's restaurant is connected and all together supplies the stock. Stocks are purchased from companies that need to have certain licenses to make products. They are in this case certain companies from the European Union. To make this whole procurement process was facilitated; found the company and logistics and distribution center, which is responsible for the procurement of all supplies. Nelt d.o.o. Logistics and Distribution Center Logistics of Sales and Distribution is the part that deals with all the actions in the process of moving and storage of goods from producer to consumer. The goal of this company and also the obligation is to take all actions to deliver ordered goods to the customer. Everything needs to be at the appropriate quality, in the right place, with the agreed delivery time and to be the more economically. Chain works by first receiving and verifying product. The second stage is the storage of products, further shipment and transportation of the product to the customer.

2.

Main actors in planning process of supplies in both companies

Inventory management is one of the biggest challenges in the operations of each company. In addition to the need for accurate records and inventory tracking is very important maintain optimal inventory level in the company, because higher and lower levels of inventory gives an additional cost for the company. Efficient inventory management helps to reduce the cost, but also to better utilize capacity and, in general, better organization of the company. Because companies operate in a dynamic environment, large and frequent changes influence that is very difficult, if not impossible, to effectively manage inventory without good and, above all, an integrated information system. - The main actors in the procurement process, in the McDonalds are three responsible persons: procurement manager, assistant for planning consumption, manager for managing restaurants. - Main actors in the distribution center are: assistant for inventory planning and procurement of goods, logistics assistant and chief of warehouse 2.1 Where job start and where finish The stock level is determined in precisely defined intervals (in this case a week) and each of these intervals is ordered that quantity that is required to get the stock to the required level. It's a simple system, but it is sensitive to sudden changes in demand.
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The McDonalds on a weekly basis (Tuesdays), draw power consumption for each product off the all restaurants, based on the unit of measure, and as such they are sending to assistant inventory planning vendors. On the basis of these data, they put into specific files and forms a procure supplies for distribution center where the optimization is done.

The job ends with suppliers, which after 21 days from ordering inventory in its warehouse gets products from the McDonalds suppliers who are mostly from the European Union.

2.2 Product usage in McDonalds Definition of Product Usage (based on 1000 guests) - product usage is specific product review based on 1000 guests. On this basis, the stock performs procurement planning for the future. It is meant to be the most realistic and simplest manner the orders of products. Usage is based on units of measure. Every week responsible persons from McDonalds sent a report on the consumption of each product individually in the unit depending on whether the measures in kilograms, liters or pieces. Based on that, it turns into cartons and making order. Responsible for this process is an assistant inventory planning in the MCD, which need to send this data to assistant of planning stock supplier and which cannot change this information. The importance is that the main actor in the MCD, accurately determine what the actual consumption of these products is, because every mistake costly restaurants and suppliers.

2.3 Procurement based on product usage Inventory planning always starts with the forecasting of sales and demand, and the examination of their storage costs. Who is responsible for product usage (based on 1000 guests) at the distribution center? Assistant for planning inventories in distribution center receives information from a restaurant on the consumption of each product and planning for the future. On this basis, using a certain file in which enter information, and get exactly the goods which need to be ordered and which later goes into storage. How is made file which is base for planning? - a file that used to make the orders, provides information about the current state of stock in the warehouse, the goods had already been commissioned (in the process of arrival) and in which is recorded planned spending. Based on that, inventory planning is done for a particular product or products.

3.

Ordering process

In the process of ordering it is important to define standard quantities during the purchase of products and due to the ordering is done in standard quantities can be defined also rounding factor, in order to purchase always exercised in accordance with the commercial packaging of goods. The procurement process is determined also the time required for procurement, vendor purchase orders from being sent to the time of receipt ordered items. On the basis of these times is planned sales and production. Of course, whether this time will be met by the supplier depends on the policy to suppliers and the quality of the contracts, but again, the program allows the ranking of suppliers based on pre-defined criteria, according to which they can gain an impression of how the supplier has complied agreement on the timely delivery and the corresponding quality of ordered items. In the MCD after each purchased product, their computers automatically put the datas to the database, and of reduces the amount of inventory in the restaurant. Each restaurant has a cohesive and all data sent to the people who work in the supply chain process. Based on this, they have to do as much of the product need to be ordered. Ordering is made on a weekly basis, or every Tuesday. There is sent report of product usage and how long it will take the product separately for the next 6 weeks. This is done that Distribution center could plan their inventories. 3.1 Lead time Total time required for the execution of orders depends on the time required to orders placed and the time it takes to prepare and deliver the vendor commissioned pieces. Assistant when stocks make a report about orders and send it to Distribution center, lead time for goods that have to come into the restaurant is 24 hours. And when MCD sends orders for the next 6 weeks servant because Distribution center when creating an order, lead time for which the goods are taken is 21 days. 3.2 Following distribution Distribution is followed by the responsible person in Distribution center and transportation agency that works in the process. Assistant of transportation is responsible for this process
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because it has to constantly monitor where the trucks are located and whether the goods will arrive on time. He through transport agency has access to the exact location of the truck coming, or where the goods are located.

3.3 Storage MCD twice weekly order the goods, and has in its inventory storage 3 days. So the main storage is at the distribution center. Their inventory stay month. Optimization is done to be a month.

4. Planning process of supplies in MCD

McDonalds uses ABC system inventory planning: 4.1 ABC Classification According to this classification, all products do not participate to the same extent in the total stock. Common are the following applies: - 5 to 10% physical inventory of items made of 60 to 70% of the value of stock (Class A) - About 30% physical inventory items account for about 15% of the value of stock (Class B) - 50 to 60% of the physical inventory of items consists of 5 to 10% of the value of stock (Class C) The steps in the implementation of the ABC-classification include the following activities: - Calculation of annual turnover values of each item (product of the unit price and the annual demand); - Sorting items by values of annual demand; - Assigning classifications and the determination of management models for each class, with higher classification code means stricter monitoring stock movements 4.2 Details about supplies How often supply is? - MCD twice weekly orders the goods. This is done because the MCD does not want to have the goods in your storage, and this is the ABC method of procurement. 70% of the total inventory related products on the top and the rest to other less. How long inventory stay in storage? - In the storage of MCD goods stay 3 days maximum. MCD does not have a large storage, or goods cannot be lengthy due date. Therefore, the orders are often. How those affect cash flow? - Inventories are very expensive and can affect much the Cash flow. The cheapest option is a just-in-time method, but because of the complexity of the situation that

is impossible to do, because it uses the ABC method, where certain products are focused, and the purchase is done every three days. Distribution is cheaper than storage. Unnecessary inventory - Errors that take place and supplies that are unnecessary a lot can damage Cash flow of many restaurants, and therefore must be accurately planned purchase of each unit in order to avoid unnecessary costs.

Monitoring deadlines - Each product has its own expiration date. They must obtain the best optimization of inventory that would not be coming to their destruction because it is very expensive. Supplies cannot last long in this business, and the ordering is very often and very expensive. Therefore, planning assistants must do their best work to reduce company costs.

5. What we can change in this process? MCD should introduce big storage and order the goods by themselves. This would reduce costs. This planning is for a long-term period. They need to invest in warehouses and the new people who will do that job. Find high quality and efficient professionals, assistants and inventory planning, logistics. Procurement process would be easier, cheaper. Although the MCD is great company and they have the option to pay a special company that will perform all the procurement of each product.