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.

2
 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 Tier-
2 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.

4
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

Radhakrishna Foodland Distribution centre

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 non-
recycle 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 cross-
docking. 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