Stock management control of the raw materials
Accurate forecasting of demand so that products do not have to be thrown away as often. Accurate stock control of the raw materials. 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
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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:
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.
Managing stock to
meet customer needs
• Stock control
• Business planning
• Supply chain planning
• Improving productivity
• Planning, controlling,
Stock: materials or finished
products for sale.
maintaining information on
the quantity, location and
condition of materials.
Stock management: the
process of controlling stock;
may be through automated
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,
The Stock Management Problem
Meet customer needs Minimise waste
Raw Materials Work-in-progress Finished products
Types of stock
24765_McDonalds 23/3/07 13:24 Page 186
The three sections are:
• 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)
Work-in-progress refers to stocks that are in the process of being made into finished
product. A Big Mac consists of a bun, two beef patties, lettuce, cheese, pickles, onions, sauce
and a small amount of seasoning. The restaurant will only combine these items just before
the customer orders them so the Big Macs are hot and fresh when served.
iii. Finished products
Finished products are goods that are ready for immediate sale to a customer. At any one
time, a restaurant will have a range of products ready for sale. Many of these will include
finished products like Filet-o-Fish, Big Macs and side salads.
At McDonald's, all raw materials, work-in-progress and finished products are handled on a
First In, First Out (FIFO) basis. This means raw materials are used in the order they are
received. Therefore stock is always fresh because products are sold in the order they are
made. If the process First In, Last Out (FILO) was used, then the finished product would be
dry and unappealing because the first one prepared is the last one sold.
Stock management is the process of making sure there is enough stock at all times to meet
customer demands whilst minimising expensive waste. Holding too much stock carries costs,
so McDonald's runs a lean stock control to save money.
Ongoing communication between the central Restaurant Supply Planning team and individual
restaurants helps to manage the stock more effectively. A mixture of specialist stock controllers
and employees who previously worked in the restaurants makes up the central team.
This team of 14 regional planners works with around 80 restaurants each and communicates
on a regular basis with them via email/telephone. Anything that would affect the number of
customers visiting their restaurant needs to be logged with the team. This is taken into
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account in the calculating of the forecasts.
Supply Planners work with the new stock control system, Manugistics, to ensure enough
raw materials, e.g. beef, tomatoes, lettuce, etc., leave the McDonald's distribution centres, such
as Basingstoke (see image left). This ensures restaurants can produce the meals required for
the level of demand forecasted.
A forecast is an estimate of future sales of finished products. Forecasts are calculated using:
• store-specific historic product mix data from the last two years
• store-specific and national causal factors. These specify dates for events such as national
promotions and school holidays
• information from store managers about factors that might affect demand, e.g. road
closures or local events and promotions.
Supply Planners working for McDonald's include a range of causal factors in the calculation of
the forecasts, so that based on past performance they can predict future demand for each restaurant.
(WIP): preparation work
before menu items are
completed items ready for
Lean stock control:
managing stock to keep
just enough to meet
Stock control system: a
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
Meal or a Big Mac given
free in exchange for a
Casual factors: events
or activities which have an
effect or impact, e.g. hot
weather on sales of ice
effectively plan restaurant
stock requirements and
stock levels, maintaining
and assured supply to
24765_McDonalds 23/3/07 13:24 Page 2For example, Big Mac sales increase during a 'Buy One Get One Free (BOGOF)' promotion.
The planners use this data in the forecasts for all stores that took part in that promotion.
Analysing how weather affects demand for particular products, such as McFlurrys and salads,
can also be built into the model. The forecasts then become more accurate, decreasing costs
and improving customer satisfaction.
Stock control charts
A stock control chart shows the balance of orders for new stocks against sales. The system is
dependent on figures for expected sales. For example, if sales of burgers are going out of the
system, then stocks of beef patties need to be coming into the system.
Manugistics uses two years' worth of product mix history to produce forecasts for each
restaurant. This uses time series analysis. The planner will apply a causal factor (the blue
blocks as in the example below) to the time series for the start and end date of this promotion.
Using complex calculations, the graph then produces a forecast - seen below circled red.
Any system is only as good as the data that is provided. Therefore, McDonald's Restaurant
Managers need to ensure that the data they enter into the system is as accurate as possible.
For example, each day Restaurant Managers record opening and closing stocks of key
food items. They record all other items weekly. The store computer system identifies any stock
count deviations from the last stock count so managers can investigate. For example, the
manager may have missed off a box of organic milk whilst counting them earlier on in the shift.
Restaurants hold a small buffer stock. This is an extra quantity of stock held to meet
unexpected higher demand. It is also the point at which more goods are ordered - the
McDonald's store managers use a simple web-based communication tool called 'WebLog' to
view and amend store Order Proposals.
Every day WebLog creates a proposed order for the manager to analyse and amend if
necessary. WebLog enables managers and central planners to see what quantities have been
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ordered, what the current stock levels are and exactly how much stock is due to be delivered
at a particular time. In the past, managers would have had to check their delivery for any
shortages and input every item they had received. The system now automatically generates a
delivery note that gives the exact quantities and descriptions of the delivery. All managers
need to do is simply click 'confirm' on WebLog. This saves valuable time and makes the
process more cost-effective.
Time series analysis: a
tool to track and analyse
data over time in order to
provide forecasts based on
Opening and closing
stocks: the quantities of
stock held at the start and
finish of each period.
Deviations: the difference
between the actual closing
stock and that calculated by
Manugistics screen - product forecast
Finished product sales
24765_McDonalds 23/3/07 13:24 Page 388
Benefits to customers and restaurants
The centralised stock management system generates many benefits. Many of these a
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