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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

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.

85

McDONALD’S

Managing stock to

meet customer needs

www.thetimes100.co.uk

CURRICULUM TOPICS

• Stock control

• Business planning

• Supply chain planning

• Improving productivity

• Planning, controlling,

reporting

GLOSSARY

Stock: materials or finished

products for sale.

Stock control:

maintaining information on

the quantity, location and

condition of materials.

Stock management: the

process of controlling stock;

may be through automated

systems.

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,

lettuce, etc.

The Stock Management Problem

Meet customer needs Minimise waste

How to

Raw Materials Work-in-progress Finished products

Types of stock

24765_McDonalds 23/3/07 13:24 Page 186

The three sections are:

• frozen

• chilled

• 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

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

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.

GLOSSARY

Work-in-progress

(WIP): preparation work

before menu items are

sold.

Finished products:

completed items ready for

sale.

Lean stock control:

managing stock to keep

just enough to meet

demand.

Stock control system: a

management system

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

voucher).

Casual factors: events

or activities which have an

effect or impact, e.g. hot

weather on sales of ice

cream.

Supply planners:

effectively plan restaurant

stock requirements and

stock levels, maintaining

regular communication

and assured supply to

stores.

www.thetimes100.co.uk

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

re-order level.

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

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.

87

GLOSSARY

Time series analysis: a

tool to track and analyse

data over time in order to

provide forecasts based on

past trends.

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

the system.

www.thetimes100.co.uk

Manugistics screen – product forecast

Promotion 1

Summer

holidays

Promotion 2

Promotion 3

Summer

holidays

NOW

History

Forecast

Forecast

Finished product sales

Promotion 4

Promotion 5

McDONALD’S

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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