A “fast” supply chain for a giant in fast food
IntroductionSince 1980, McDonald's Mesoamérica has been the distributor of McDonald’s products in Central America. The company operates in four countries and has four distribution centers, three production plants, more than 130 points of sale and more than 7,000 suppliers and collaborators. Although the company was one of the pioneers in implementing in-store automated kiosks, its approach to planning did not mirror this innovative mindset. The absence of an effective planning process, along with the company’s organizational changes, rapid expansion and competitive market inhibited planner productivity and lowered service levels.
Results7% inventory reduction Service levels above 90% 83% reduction in the number of expedited shipments between stores Significant improvement in planner productivity and time management
McDonald’s Mesoamérica was contending with four serious challenges surrounding its supply chain planning. First, it faced the complexity of meeting exceptionally high service levels while managing perishable products and dynamic promotions. Second, the company’s recent period of accelerated growth generated extraordinary turnover levels, impelling the company to adapt its supply chain from a push to a pull system. It needed a way to use demand data from different channels (including its restaurants, McCafé and home deliveries) to better plan its raw materials.
The company was also in dire need of a streamlined and organized planning process. Prior to adopting ToolsGroup, McDonald’s planners were using the SAP MRP module alongside custom Excel files—one for each planner! This situation limited visibility and communication between planners and teams and impeded reliable forecasting calculations. Last, the company was undergoing a restructuring process. “We were facing the enormous challenge of organizational change, which included not only the search for a technological tool, but also changes in the organizational structure, processes, and systems,” said Luis Abadía, McDonald’s Supply Chain Manager.
The rapid expansion and restructuring of McDonald’s Mesoamérica highlighted its supply chain planning challenges and prompted the company’s search for a centralized system that could:
- Synchronize logistical operations and standardize the purchase process for all points of sale, distribution centers, and production plants
- Visualize real-time demand, consumption, inventories, transit orders, and forecasts.
- Calculate more reliable forecasts
- Improve service levels and inventory performance
- Transition the company from a push system (based on sell-in data) to a pull system (based on sell-out data)
“The project was led by our President and Directors,” said Luis Abadía, “which allowed us to move forward with an internal committee in which each area of the organization involved could contribute their experience and knowledge.” After a six-month deliberation period during which this committee of executives and experts evaluated seven supply chain solutions, ToolsGroup’s Service Optimizer 99+ (SO99+) emerged as the conclusive answer to McDonald’s difficulties. “The most valuable capability was the simplicity in which SO99+ addresses complexity,” said Abadía, adding that “other aspects such as its qualification in the Nucleus and Gartner quadrants, its technological interfaces, the professionalism and expertise of its executives, and of course, the project’s return on investment were also decisive variables.”
SO99+ now operates in more than 85% of McDonald’s logistics centers and will go live across the entire network in the coming months. The company has extended access to SO99’s reporting module to other departments of the organization, such as sales, marketing and production, thereby facilitating interdepartmental communication throughout the entire chain. McDonald’s also uses SO99+ to create proposals for supplying raw materials to its production plants and uses SO99’s promotional information to manage its S&OP process and improve its service agreements with suppliers.
The integration of SO99+ effected positive and rapid change for McDonald’s Mesoamérica, enabling it to achieve its objectives quickly. The company experienced:
- Improved Planner Productivity: Restaurant planners now only need 30 to 60 minutes per order, instead of three to four hours. This improvement represents a reduction of 17,500 hours at the network level. The time dedicated to alerts analysis and forecast calculation was also reduced in both distribution centers and production plants.
- Improved service level rates: The service level reached above 90%, thanks to daily inventory categorization for each SKU-L. Because SO99+ shows the specific products that must be ordered for each point of sale, McDonald’s Mesoamércia can better measure their fulfillment needs at the restaurant/store level.
- $550,000 stock reduction: The inventory at DC level was reduced by 7%. Although inventory increased for some critical SKUs, restaurant inventory was reduced by 3% overall.
- 83% reduction in the number of expedited shipments between stores: Due to improved product availability at the point of sales, urgent shipments were reduced from 78 to 13 per month. This represents a reduction of more than 18,000 hours per worker per year.
In a second phase, McDonald’s Mesoamérica will automate the process of delivering orders to restaurants, reducing planner intervention by 85%.↓ Download PDF