McDonald’s Mesoamérica Supply Chain Response to COVID-19
Businesses around the world are learning to adapt as best they can to the COVID-19 supply chain impact. Unpredictable consumer behavior in response to macro events creates demand volatility in every link of global supply chains. The number-one defense against this radical uncertainty is a resilient supply chain that’s ready for anything.
McDonald’s Mesoamérica, like restaurant operations around the world, experienced a significant change in demand as the Coronavirus supply chain effects spread through Latin America. Rafael Labbé, Supply Chain Director at Suministros y Alimentos, a distributor to McDonalds Mesoamérica, shared his company’s experience and COVID-19 supply chain response with ToolsGroup’s Kathleen Geraghty at the recent ToolsGroup virtual user conference.
[This conversation has been edited and condensed for clarity.]
Kathleen: What business challenges were you seeking to solve by using [the ToolsGroup] solution?
Rafael: It has been a really helpful tool with which to go through this crisis. We have 135 restaurants, four distribution centers, and we also manage three manufacturing facilities, with more than 5,000 SKUs, and we deliver to each restaurant up to three times a week.
If you do the math there, you have to make 748,000 inventory decisions per month. We decided we needed this solution because there were so many decisions made by so many people, at the same time, and we wanted to minimize stock and waste, minimize our stock outs, increase working capital and service level, and optimize results and sales.
So our main task now is to consolidate all the purchase and inventory decisions in one team. We’re using SO99+ [ToolsGroup Service Optimizer 99+], and it has given us amazing results.
Kathleen: Can you describe how COVID-19 is impacting McDonald’s Mesoamérica?
Rafael: The main two challenges we’ve had are volume, in our case reduction, and the forecast uncertainty. We don’t know what’s going to happen. You have to consider one other thing; we work in four different countries and they have different governments making different decisions. So for example, Guatemala and El Salvador, they have placed partial curfews and some quite high commercial restrictions. Honduras, they have placed an absolute curfew for 15 days, so we’re actually, now for two weeks, basically closed out, selling absolutely nothing. Zero. Nicaragua has placed lower restrictions. So Honduras suddenly stopped, and we had so many items in transit, so right now we’re overstocked by 140%, and we’re trying to deal with that using external sources.
Basically every product is perishable, so our first great challenge was dealing with this. Decisions were made within 24 hours. We had to close within one day. We had to transfer and move inventories from one place to another, trying to save them as much as possible. Otherwise, some of them were donated, as the shortest shelf-life products were critical.
Then we have longer shelf-life products which can be easily managed, so we are working closely with the marketing team and commercial teams to try to make decisions over those items. Some actually are at risk to expire, but we’re trying to work on them and predict what’s going to happen within the next one or two weeks in our region.
Lead times are at risk too, we’ve seen average time delays growing. It’s also uncertain what’s going to happen globally. For example, Latin America started with the COVID-19 crisis at roughly the same time as the United States, but having smaller populations, this crisis might be shorter for us. So as our markets react and we open again, we don’t know what the response from the U.S. will be. It’s quite uncertain how it’s going to recover and when the manufacturers will be able to provide us products.
Kathleen: How are you leveraging the technology with the new variables that you’re confronting? How is it impacting your team’s performance?
Rafael: I’m really glad that we started these projects some time ago. Under the circumstances, I would say performance is extremely efficient.
First of all, we have great visibility on the inventory, there are so many points and so many SKUs, that it’s barely human to be able to do this without technology. We have great visibility considering the whole system of 135 restaurants, distribution centers, and facilities. I would have to say that the main complexity in our chain is the length of it. We extract information from the sellout of restaurants, and we control their warehouses to distribution centers and the end product of the facilities and the raw materials.
Before SO99+, we would have to consolidate information from different sources, trying to build them up into wide physical information, and it would take a lot of time and had a high risk of mistakes. With SO99+, we can see the whole inventory per warehouse, per location, per item, in near real time. And we can also consolidate regions for categories, we can do beef products or dairy products or bakery in the south, in the north, in a country, in a warehouse.
As we speak, our team is working together to try to get to the daily basis and short-term forecasting. But instead of relying on four years of information, we have to use two days of information to model the realities of COVID-19. But these tools and this system have made us really efficient in making these kinds of decisions.
Kathleen: What is McDonald’s Mesoamérica doing to ready itself for the next disruption?
Rafael: As we have all said, we have reinvented ourselves in the past weeks more times than we did in the past decade, so it’s been quite difficult. We’re focusing right now on the main products and trying to recover main products. We need to focus the supply chain on the main core products that give us the results in the company.
And last but not least, besides the MRP using S099+ as a software and an asset, it has been a great tool, it gives you great visibility of the whole inventory. It’s predicting the forecast as has never been done before, and it has fantastic visual tools that the team is using to make some decisions. As I said, we’re working right now on the short-term model and we expect to have results there, so that will impact what we see in the future.
If you’re implementing an [planning] solution, you have to first have a structure, and at the same time processes. You have to question how you do things right now and why you think the way you do right now. You also need the commitment of the board and the CEO and trust me, you’re going to have to use that. And at the end you can choose a tool. I highly recommend SO99+, which gives you all the advantages I mentioned before, but trust me, you need to do these steps before. Do the structure, do the processes. That will give you forecast accuracy, because even though we have these problems, we still have visibility. To be able to react under these circumstances, you need this structure, the processes, the people and the tools.
The real world doesn’t always follow the rules
According to ToolsGroup CEO Joseph Shamir, COVID-19 provides supply chains with huge uncertainties and the ultimate of unknowns. There are no past references that can be applied other than the constant: “Meet your target service levels and business goals, no matter what happens.” The Coronavirus pandemic is the ultimate demonstration of real-world uncertainty. But there’s hope: supply chains that leverage digital tools including automation, advanced algorithms and machine learning are those best prepared to manage the current crisis and the unknowns of tomorrow. Learn how other ToolsGroup customers are responding to COVID-19 in our blog: ToolsGroup Customers Navigate Supply Chain Planning for COVID-19.