Asia Pacific University College Business Essay

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Executive Summary

This project is mainly focus on McDonald's strategies in reducing carbon in its daily operations and the effects of these strategies bring both positive and negative impacts. There is cost, quality and service of McDonald's in supply chain and in these three categories, environmental optimization strategies can minimize carbon and at the same time affects operational capacities and facilities.

McDonald's, a fast food restaurants, are serving more than 60 million customers daily worldwide. The primary foods selling in McDonald's are hamburgers, chicken products, cheeseburgers, french fries and breakfast items. It also sells soft drinks and desserts like milkshake or vanilla ice-cream. It came out with many programs and plans in reducing carbon in its daily operations.

Nowadays, the fast food restaurants chain sectors worldwide are concerned about global warming. Many companies have took up their responsibilities to protect the environment by applied the suitable environmental strategies on its operational capacities and facilities. Meanwhile, it would also emphasize on the challenges of implementing Just-In-Time (JIT) Principle along with the recommended green strategies.

Based on the company's business operations, answer the following questions:

Analyse the implications of the company's environmental optimization strategies on its operational capacities and facilities. Your answer should include the supply chain trade-off that involves quality, cost and service.

(45 marks)

Assuming that the company practices Just-in-time (JIT) principle, critically evaluate the challenges of implementing carbon reduction programme in its daily operations.

(35 marks)

Introduction

McDonald's is one of the largest fast food companies in the world with the capacity of serving more than 60 million customers daily worldwide. It is also a food manufacturer whereby it prepares frozen foods and ingredients to all the franchises. A McDonald's restaurant is function by either franchise or the corporation itself. The primary foods selling in McDonald's are hamburgers, chicken products, cheeseburgers, french fries and breakfast items. It also sells soft drinks and desserts like milkshake or vanilla ice-cream.

McDonald's are found in 119 countries and operates over 31000 restaurants worldwide on six continents, with more than 1.6 million employees. (McDonald's Plaza 2011) McDonald's is one of the world's most recognized and respected brands. There is no doubt that McDonald's are trying their best to be the leader in the area of social responsibility and commit in protecting the environment for future generations.

The McDonald's supply chain is a complex combination of direct and indirect suppliers and focus on sharing values and visions with the suppliers for sustainable supply. There is a clear standard for quality, safety, sustainability and efficiency of McDonald's for the suppliers. Besides that, McDonald's also partner with the main direct suppliers in order to identify, understand and address industry-wide sustainability challenges and achieve continuous improvement. McDonald's Sustainable Supply Chain Vision focused on three responsibility areas which are Ethical, Environmental and Economic. McDonald's have come out with many Green projects to increase its reputation and to win customers to increase profits but McDonald's do produce carbon which is bad for the environment in its operation system and the management should reduce carbon with different strategies.

Part A

Cost

McDonald's in Australia is involved in water management. Over a 20 year period, McDonald's advanced storm water retention tanks can save nearly 4 million liters of water which helps to reduce costs in the end with the help of Waste Electrical Electronic and Equipment (WEEE) Directive.(McDonalds.co.uk 2008) In Brazil, Chile and Argentina, McDonald's has partnered with local organizations which help to transform used cooking oil into biodiesel. Currently, 270 restaurants in these markets deliver their used oil to be converted into biodiesel, representing over 1,000,000 liters of oil to date." (Zachary 2009) Biodiesel is a renewable, clean energy. It is an excellent substitute for petroleum diesel, to meet European fuel standards requirements. It can be from waste vegetable oil, waste acid of the oil to produce oil and woody plants. McDonald's plans to allow delivery trucks in China to use this biodiesel which collected from McDonald's around China. Currently, the trucks are using 95% Diesel and 5% biodiesel but McDonald's are planning to initially let the trucks to use 85% biodiesel and 15% of rapeseed oil fuel mixture. No doubt this will help McDonald's to reduce transportation costs and increase capacities, productivity and efficiency. (China McDonald's 2010)

McDonald's in UK is searching for the safest and most responsible means of waste disposal available whereby its long term objective is to reach zero waste to landfill. McDonald's restaurant in UK collects the waste which will then be converted into electricity and heat for local buildings. There is an obvious result of reducing carbon because each restaurant will avoid sending 100 tons of waste a year to landfills and the energy produced from the recycled waste helps to provide heating for 130 local buildings which in the end reduces annual carbon emissions by 54%. McDonald's is saving cost by collecting the waste and transfer it into energy and contribute towards societies which also achieve better capacities in its operation. (McDE 2010)

Besides that, McDonald's Switzerland cooperates with Kompogas, which is a company specialized in fermenting organic waste and produce biogas for McDonald's biogas truck which they call it the "super truck". The super truck runs on CO2 neutral. With this strategies, Swiss McDonald's save a lot on cost. Compared to the former incineration costs, McDonald's now pay 60% less for the disposal of organic waste and in addition, the super trucks saves about 10,000 liters of diesel annually.

Quality

McDonald's has taking up the efforts to do a research to curb greenhouse gas emissions from UK cattle. McDonald's is the largest purchasers of British beef whereby it uses 350,000 cattle of meat each year for its burgers. As a result, a sizable chunk of its greenhouse gas emissions are a consequence of methane emissions from cows. According to government figures, livestock emissions account for four per cent of the UK's carbon footprint, while one US study calculated that burping cows mean that each single McDonald's cheeseburger results in greenhouse emissions equivalent to 3.1kg of carbon dioxide. (Steven 2010)

McDonald's is researching on new feeding and farming techniques on 350 beef farms across UK and Ireland. McDonald's has teamed up with rural environmental consultancy Eco2 Project, which will visit all 250 farms by the end of April and offer advice on how to curb cattle emissions. By, harnessing the efficiencies of dairy beef which is by improving existing cow farming and techniques, it will improve the quality of the beef and generate further supply chain efficiencies. A small change can result in carbon savings on beef farms. (Peter 2010) The effects are farmers are getting financial beneficial and McDonald's is getting better quality beef for its food products which will indirectly increase customer satisfaction and reputation.

McDonald's is trying to reduce the collection of used oil by designing a new l500 litre cistern to increase restaurants' used oil stocking capacity. With this technique, cistern offers higher security, overflow detection and regulate heating system that enables oil to preserve its fluidity and characteristics. Staffs would only have to open a valve at the base of the frying unit and push a button for the used oil to be automatically transferred to the cistern. It means McDonald's is using fresh oil to fry the foods in order to maintain the freshness and quality of the foods. Oil always comes first when talking about frying foods. This innovative cistern makes removing used oil from the frying units a quick and totally safe process. The storage capacity reduces the frequency of used oil by nearly 75% which is a big forward step in environmental protection. (McDE 2010)

Kanban System

McDonald's using the Kanban system has came out with the "Made for You" in its production process was both a natural extension of McDonald's use of process automation and a radical departure from the make-to-stock philosophy. Costing an estimated $25,000 to $85,000 per store, the key elements of the system were steamers, flash toasters, and a computerized ordering system. Some restaurants already had automation for french frying or even computerized order entry. The objectives of the system were to allow for customized customers orders, improve the service response time to fit best within 90 seconds and thirdly, improve food quality and freshness as measured by the temperature of the sandwich, the crispness of the lettuce, and the sogginess of the bun. This Made for You process was installed in most North American restaurants on 1998. (Deborah 1998 ) This will increase the quality of the foods as the foods will be monitored all the time to check its freshness. This will create a better brand reputation for customers for McDonald's to be able to compete with its competitors.

Service

In Portugal, McDonald's came out with a specially designed collection container throughout the country to enable staffs to collect and recycle all used batteries. Customers and employees can dispose the used batteries in the lobby of every McDonald's restaurants. As a result, McDonald's Portugal has contributed to the recycling of over 600,000 kg of batteries in 2008 which also helps to reduce carbon at the same time. This facility has no doubt brought benefits to both the customers and McDonald's by providing better customer service and increase customer satisfaction. (McDE 2010)

In addition, McDonald's launched the "waste recycling program" in Hong Kong which is looking forward to contributing further to the environment. In the first phase of the program, McDonald's will have source separation of waste, one is organic  such as food scraps, wrappers and paper bags and another one is non-organic which are the plastic bags and utensils, Then, all the waste will be transfer and be recycled in the Environmental Science and Technology Department to transform into useful fertilizer. (Veryeast.cn 2007) McDonald's have different environmental protection measures, including environmental sense to launch "no straws Day", and participate in "Rechargeable Battery Recycling Program", which also keep the idea of ​​a viable environmental programs, strengthening environmental education. McDonald's is saving the environment by cutting down the materials usage and educating customers to be alert about environmental issues. It provides better services and produce more knowledgeable customers. McDonald's Waste Management Strategy is based on the hierarchy of Design, Reduce, Reuse, Recycle, and Dispose.

In Netherlands, McDonald's has the ambition to re-use and recycle for 95% of the waste coming from its restaurants and it started its own recycling system whereby the employees separate the waste and McDonald's Green Trucks will collect the waste every few days. The process will be track and check by an independent organization. The effects of this are that more than 98% of the waste from restaurants are being reuse and recycle. McDonald's even gets a fee for the recycling of plastics, frying oil and paper whereby it gives a positive reflects on the company's sustainability efforts. (McDE 2010)

Part B

Just-In-Time (JIT)

Just-in-time (JIT) Principle was introduced by Toyota Motor Corporation for its manufacturing and inventory management process. It is being accepted in most of the industries whereby it helps to improve productions. Just-In-Time (JIT) principle has also attempted to maximize production efficiency and reduce costs, but on the other hand, there will be challenges of implementing carbon reduction programs by McDonald's if it practices Just-in-time (JIT) principle.

Time Consuming

Time always matter for customers and it has become a issue or challenge for McDonald's in implementing Just-In-Time (JIT) Principle. McDonald's head quarters will distribute the frozen foods, vanilla cream for desserts, pepper and sauces packets weekly to all the franchise restaurants. If McDonald's applies Just-in-time (JIT) Principle, it will indirectly incur slightly higher costs due to the pack delivery schedule and on-time delivering together with implementation of green strategies.

When mistakes occur in the process of foods delivering in JIT, some McDonald's restaurants will receive the frozen foods and ingredients later than expectation. The timing would be incorrect and customers would not be able to order and get what they want from McDonald's which in the end leave a bad impression by customers towards McDonald's. Just-in-time (JIT) Principle does help in reducing carbon if everything goes well according to schedule but it should not combine with environmental strategies in McDonald's.

Transportation

Just-in-time (JIT) Principle could lead McDonald's to disadvantage on transportation issues. Confirmation and double checking works of ordering foods and ingredients by franchise must be taken seriously. For the company concerned a JIT production leads for example to a clearly higher amount of vulnerability towards crises if there is a disruption in the process of production. (Kafer, 2007, Page 205) The costs would be much higher if McDonald's foods and ingredients delivering requires implementation of Just-in Time principle. Delivery services each time will incur the emission of carbon dioxide and carbon monoxide which causes pollution to environment. Just-in-time (JIT) Principle is not suitable for matching the ideas of implementing reduction of carbon programs due to the cost and the carbon emission factors.

Storage on Inventory

Storage of inventory becomes one of the challenges as every franchise of McDonald's would have storage for frozen foods and other ingredients which link to green strategies because refrigerator will produce carbon monoxide which is bad for environment. In Just-In-Time (JIT) Principle, each McDonald's franchise can keep track on the amount of the frozen foods and ingredients available in storage so that the operations and progress of works continue without being interrupt. But, on the other hand, if there is improper management of stocks by franchisers, there will be wastage of foods and ingredients whenever the expiry dates are up. This will not only wasting the electricity of refrigerator, it is also wasting up the storage capacity because fresh and new frozen foods would not be able to keep in the storage space. This is the limitations of JIT if the storage space is not fully utilize due to operating cost factor.

Recommendations

Shipment Consolidation

Shipment consolidation is an opportunities to reduce the carbon footprint. Quantifying the impact of shipment frequency on cost and carbon can help to establish an inventory replenishment policy that addresses business needs and reduces environmental impact. Many current Just-In-Time and direct customer delivery inventory policies requires smaller loads to be shipped more frequently. McDonald's can try to implement a change in its policy whereby there will be fewer but larger shipments. This may be made at the cost of higher inventory levels and associated storage which could affect service levels. The increase of energy and carbon costs will likely shift the balance of McDonald's current policies in this direction.

Sourcing Locations

Sourcing locations

Conclusion

In conclusion, McDonald's as food manufacturer and fast food chain restaurants is

(2500Words)

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