Operations Management at McDonald's: Inventory Management and Lean Approaches

This paper focuses on McDonald’s company and how it is currently structured to manage its stock appropriately. The paper addresses current inventory management with a keen purpose of identifying faults in the system. The paper will use organizational theories to explain concepts learned in operations management. Besides, the paper proposes solutions to the areas that are likely to experience problems. Moreover, the paper aims to propose lean approaches that can be adopted by the company to improve the current inventory management system.

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OPERATIONS MANAGEMENT
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Table of Contents
Executive summary.........................................................................................................................2
Current inventory management at McDonald’s..........................................................................2
Key operations.............................................................................................................................4
Restaurant Supply Planning Department.....................................................................................4
Work In Progress.........................................................................................................................5
System Failures............................................................................................................................6
Lean Approaches.........................................................................................................................8
Lean approach discussion findings..............................................................................................9
Value........................................................................................................................................9
Value stream..........................................................................................................................10
Perfection...............................................................................................................................10
Conclusion.....................................................................................................................................11
Reference List........................................................................................................................12

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Executive summary
This paper focuses on McDonald’s company and how it is currently structured to manage
its stock appropriately. The paper addresses current inventory management with a keen purpose
of identifying faults in the system. The paper will use organizational theories to explain concepts
learned in operations management. Besides, the paper proposes solutions to the areas that are
likely to experience problems. Moreover, the paper aims to propose lean approaches that can be
adopted by the company to improve the current inventory management system.
Introduction
Operations management plays a critical role in business for many reasons. For instance, it
is significant in providing customer service as well as maintaining good relationships.
Developing an elaborate operation for an organization is beneficial not only to the customers but
also for the business. Operational systems are subject to improvement based on performance
measures. As a result, this report focuses on how McDonald’s company manages its operations
to create a good relationship with the customers and benefits from their activities.
Current inventory management at McDonald’s
This section of the paper critically analyzes how McDonald’s currently manages their
inventory. To begin with, the organization is among the brands that have a successful track
record in managing inventory across many countries in the world. McDonald’s owns more than
30,000 outlets in more than 100 countries. The company serves an estimate of over 50 million
customers each day. Based on the nature and characteristics of the business model, inventory
management becomes a daunting task for the company. This is a challenge that is experienced by
most managers in most companies including McDonald’s. The inventory management at
McDonald’s is classified in to two main parts. The two section include forecasting demand for
purposes of avoiding wastage and maintaining inventory of raw material in the most efficient
way. In most cases, there is constant communication between supplying team and managers in
individual restaurants.
The constant communication plays a significant role in helping the managers increase
their effectiveness with which they manage stock from central location to their respective outlets
(Choo, 2002). The inventory management is managed by a central team which involves
employees along with stock control experts that serve as regional planners for the organization.
Each regional planner at McDonald’s works with more than a 100 restaurants and ensures

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constant communication on day to day basis through using teleconferencing means and emails.
Possible factors that are likely to impact the inventory management has to be discussed by the
team. Besides, the planners at McDonald’s also use technology to control stock. The control
system that is used by McDonald’s is called Manugistics (Aksin, Armony and Mehrotra 2007).
Manugistic Screen, (2018). [online] Available at:
https://www.csub.edu/.../MKTG490%20McDONALDs%20Place-Distrib%20Case.docx
[Accessed 2 Oct. 2018].
The system is particularly used in managing raw materials such as meat and fresh
produce. Also, the regional managers rely on sophisticated factors for ensuring easy calculation
as well as forecasting the demands of their inventory. This strategy helps the company to predict
with precision future demands as a result of performance of past sales.
For instance, the company is aware that it has to increase stock whenever they have
promotion campaigns where customers get extra for various purchases (Buurman 2002).
Moreover, the company uses stock control charts for purposes of determining a balance between
new orders for inventory against sales. The stick control systems is largely dependent on figure
to project future sales. The system adopted by the company is efficient as it uses data for several
years for purposes of projecting future sales of each restaurant through a time series analysis.
The company has an elaborate inventory management system because most businesses require
effective and efficient inventory management to improve the performance and have a
competitive advantage in specific business category (McArthur 2015). The centralized inventory
management system that is adopted by McDonald’s provides numerous benefits and also
advantageous to the managers.

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However, the customers enjoy the most benefits through the experience they get in terms
of quality products, clean environment and exemplary customer service. Among the benefits that
are reaped from the inventory management systems to the company include ensuring that no
restaurants runs out of stock. The system helps the company to identify problems and help
addressing these challenges. The company saves significant time as the systems automates what
and by how much is required. The orders of the company are made from current stocks which
reduces work for the restaurant managers. The inventory management helps the company to
reduce wastage and cut costs. The inventory ordered for campaigns is more accurate since it is
based in past data. Besides, the company reduces the need for requesting for emergencies.
Inventory management at McDonalds is always optimum which contributes to ensuring
customers enjoy fresh produce and stock is reduced without challenges after a promotional
campaign (Stevenson, Hojati and Cao 2007).
Key operations
There are several operations involved at McDonald’s that help to manage stock. However
there are key operations that play a significant role in how the company runs its inventory. The
current key operations were necessitated as a result of challenges that were brought out in the
previous system where the manager of restaurants were responsible for ordering stocks. The
assumptions that were made in previous system factored a 10 percent increase on sales of the
previous day, week and month. The assumption was not based on any calculations and
projections which implied that the company relied on estimates that were not necessarily precise.
For instance, the previous inventory management system failed to estimate the required amount
of stock during promotional campaigns (New 2015). As a result, the managers had limited time
to focus on the needs of their customers as much of their time was focused on managing
inventory. However, the new system has two key operational areas that ensure delivery of quality
product, service and healthy environment to operate.
Restaurant Supply Planning Department
The first key operation that McDonald took was to introduce the centralized system that
manages stock. This key operation is often referred to as Restaurant Supply Planning
Department. The primary tool that ensures stock management runs smoothly at all McDonald’s
is communication (Choi et al 2018).

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Type of Stock, (2018). [online] Available at:
https://www.csub.edu/.../MKTG490%20McDONALDs%20Place-Distrib%20Case.docx
[Accessed 2 Oct. 2018].
The planning department ensures constant communication to ensure it is up to date with
the company’s operation in order to determine what is needed to make the operations run without
significant hitches that will reflect on customer’s side and reflect badly on the company’s
reputation. Besides, the planning team uses the Manugistics application that helps to forecast
sales accurately than the earlier increase of ten percent on past sales. This key operation is
designed to manage three aspects of the business which include raw materials, work-in-progress
and finished products. The raw materials represent the ingredients that McDonald’s use to make
finished products. The raw products are delivered to restaurants three to five days in a week
depending on Manugistics data and consensus reached between the planning team. The raw
materials are divided in to three sections and delivered in trucks as a way of maintaining
optimum temperature. The three divisions include frozen, chilled and ambient.
Work In Progress
The second phase of the first key operation is the work-in progress where stocks that
were delivered are turned to finished products (Laudon and Laudon 2016). The popular Big Mac
is made from a variety of ingredients such as beef, lettuce, onions, pickles and seasoning.
Customers receive Big Mac when hot which implies that the restaurants will only combine these
ingredients after the customer as ordered. At any given time, the company has ready finished
products which represents the last phase of the first key operation. The second key area of
managing stock at McDonald’s is planning and managing of supply (Yang et al 2018). The
company manages stock through a system that factors three level. The first level is the planning
department which is followed by planning and communication experts through emails, phone
calls and teleconferencing then restaurant managers in the last level.

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Restaurant Supply Planning (2018). [online] Available at:
https://www.csub.edu/.../MKTG490%20McDONALDs%20Place-Distrib%20Case.docx
[Accessed 2 Oct. 2018].
The Restaurants Supply Planning team work collectively with other stakeholders in the
organization in order to manage stock effectively. The team relies on data and communication to
ensure that the optimum amount of raw material is delivered to various restaurants. The
forecasting process at McDonald’s is reached based on data from previous two years, store-
specific factors and relevant information from store managers regarding the external
environment that may impact the operation of the company. These two key areas represent how
the company is prepared to handle operation management (Chase, Aquilano and Jacobs 2001).
System Failures
McDonald’s delivery system may fail during work-in-progress in the first key operation.
This is because the section is a centralized system which manages raw materials, work-in-
progress and finished products. The central team might have used data and communication to
ensure that raw materials are delivered to respective restaurants based on forecasting information
and communication by restaurant managers (Zhang, Lawrence and Anderson 2015). However,
after the raw materials have been delivered challenges could occur hence leading to failure with
respect to operational performance measures. The reasoning behind this failure could be
attributed to lack of expertise in the preparation of finished products. The employees working at
a particular restaurant may make mistakes such as overcooking specific meals. Besides, the
employees may fail to store the raw materials in the freezer leading to wastage which would
mean making calls to the centralized operation system to request for additional produce. This can
be a daunting task as the centralized system may take some time to verify leading to wastage of
time and sales in the particular restaurant affected.
Moreover, there are other internal factors that may influence operational objectives. For
instance, operational objective should not conflict with the company’s objective (Lim, K.,

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NEXTLABS Inc 2016). This implies that a restaurant cannot decide to sell all the raw material to
a larger population in order to increase sales. This will affect the data in the centralized system
which will make it harder for the regional planning team to forecast the demand needed at a
particular time. Besides, the company may not have liquidity to cover for wastage in the work-
in-progress section which is likely to affect the overall performance of operation management.
The training of human resource plays a significant role in the company’s operational objective.
Lack of extensive training may lead to poor performance in the work-in-progress sector which
can have a ripple effect in the overall operational performance (Sarkis 2017).
Another key areas where the delivery system may fail is in the planning and
communication department. The restaurant managers and regional planners require constant
communication to determine the amount of stock needed as well as keeping up to date with key
performance insights of operational objectives (Kato 2015). The communication channels may
encounter technical glitches during crucial operational phase which will influence operational
goals. More so, the regional planners may have correct data from stock control system but the
demands in a particular place have shifted. Without prior knowledge of such information, the
operational goals may be rendered ineffective and fail to reflect the true state of affairs. Besides,
there are other external impacts that may affect the company’s operations. In this regard, changes
in the exchange rates may likely influence the demands and capacity of the company in utilizing
and increasing productivity. Another factor that may encourage failure at the planning and
communication face is efficiency of competition (Ellram and Cooper 2014). Competition may
come up with strategies that influence delivery system of McDonald’s. For instance, the
competition carried out extensive campaigns by offering discount will mean that McDonald’s
sales are likely to decrease thereby influencing the delivery system and operational objectives.
Technological change is also likely to influence performance at the planning and
communication stage. Change in technology may influence performance goals of the company
since its common among markets that have short product life cycle. Also, change in legal and
environmental change may influence the performance of McDonald’s at planning and
communication stage. For instance, the government may introduce new rules with respect to
transportation. This may prove difficult if the degree of change directly affects the operations
objectives of the company (Stewart 1997). Lastly, particular areas may be affected by an

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outbreak or catastrophe such as earthquake or heavy rains making it difficult for the planning and
communication team to fail at delivering raw material to the restaurants.
Stock Management Problem (2018). [online] Available at:
https://www.csub.edu/.../MKTG490%20McDONALDs%20Place-Distrib%20Case.docx
[Accessed 2 Oct. 2018].
Lean Approaches
The lean approaches to be used in addressing the problems areas above are centered on
operations management theory whose aim is to ensure that McDonald’s operations are managed
smoothly. In order for the company to realize this objective, it must ensure that it uses the least
amount of resources as well as ensuring that it meets the demands of the consumers.
Consequently, operation management is a concept that is centered on managing raw materials,
labor and resources into finished products (Nielsen, 2014). Besides, it encompasses various
aspects such as creativity and technological aspects in guaranteeing success of operations. These
operational objectives have played a significant role in helping businesses perform well (Bhamu
and Singh Sangwan 2014). The modern operational demands are primarily centered on four
major theories which include business process redesign, reconfiguring manufacturing systems,
six sigma and lean manufacturing. The aim of business process redesign in to assist companies
restructure its processes of operations such as how McDonald’s changed their approach from the
old system. Reconfiguring manufacturing systems represent those elements that are significant in
identifying change and allowing a business to adjust. The six sigma is an operational
management system that is centered in quality of the products (Guha and Kumar 2017).
On the other hand, lean manufacturing takes the approach of eliminating waste in the
manufacturing process. The goal of this strategy is to ensure that all possible waste as minimized
to ensure that the business operates at its optimum. The concept of lean is centered on business
aspects that influence the profitability and efficiency. Lean concept is based in two school of
thoughts which include optimizing operational processes to meet customers’ needs as well as
identification and mitigation of wastage. Lean approaches are effective in planning as well as
implementation of an organization objectives (Bhamu and Singh Sangwan 2014). Among the
potential benefits to be reaped from lean approach include reduced time, reduced work-in-

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progress, improving quality, improving flexibility, reduce transaction, simplify scheduling and
enhancing communication among other goals that a business requires. In regards to the two
problem areas that could result in failures at McDonald’s, the appropriate lean approach to be
implemented is human resource training. The company should undertake the responsibilities of
training their employees based on the culture of organization. Through training programs the
employees will learn various aspects that are important in order to reduce wastage and improve
efficiency. For instance, McDonald’s should train its employees on how to handle raw material
once they arrive at a restaurant.
The company should also train their employees on how to store the raw material in order
to ensure that the food is properly stored to prevent it from rotting. Besides, the company should
train their cooks well to ensure that they do not waste resources while cooking and also meet the
demand of the customers (Jacobs, Chase and Lummus 2014). Moreover, McDonalds should
adopt to modern technology that improves operations such as cooking. These lean strategies are
significant in minimizing wastage and improve operational performance. The second failure that
concerns planning and communication can be achieved minimizing the number of
communication with restaurant managers unless when it is necessary. The Manugistic system
plays a significant role in helping the regional department to determine the demands of a given
restaurant. The managers of the restaurants should be given access to the system and be allowed
to input frequent data that allows the regional team to make decision regarding demand and
supply (Vivaldini and Pires 2016). Only the relevant information regarding external factors that
influence the performance of the company should be communicated to regional department who
will then establish communication and address the issue. This strategy is significant in improving
efficiency as well as minimizing costs of constant communication.
Lean approach discussion findings
Value
The first finding that discusses the significance if lean approach in assisting the
production systems relates to value (Galliers and Leidner 2014). Value is important and lean
approach is aimed at providing sufficient information with regards to what value customers put
on various products and services they use. The value attached to the products is what influences
the purchase price of a product or service. By establishing the value of the product, a business
has the ability determine prices. Consequently, through understanding the value of a product
through its operational goals, companies are able to determine the cost incurred in the production

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of various goods and services. All these aspects of the business are directly dependent on
eliminating wastes for purposes of providing value to the customer and increase profitability
(Fullerton, Kennedy and Widener 2014). This concept attests to the fact that McDonald’s should
implement lean strategies that will help minimize waste in the work-in-progress section.
Reducing waste in the work-in-progress stage will help McDonald’s to increase value for their
customers by ensuring quality of products that are not only fresh but also consumed in a clean
environment.
Value stream
The second findings that contributes to the lean approaches suggested for McDonald’s
operational management is value stream. The value stream of a product life cycle from raw
material to finished products should be well optimized to eliminate waste. It is necessary for
McDonald’s to understand the value stream of their products because every step is crucial for
minimizing unnecessary wastage to increase profitability of the company (Laudon and Laudon
2015). The lean approach that is discussed above aims to eliminate unnecessary costs that are
associated with regional department making constant calls to restaurant managers. Instead of the
managers making constant calls, the lean approach suggests a better and efficient way of
managing the company’s resources effectively. This approach attests to the findings relating to
the value stream. Through recognizing that the company incurs significant costs in
communicating, the company will be in a better position to understand the value stream of the
products it offers to its customers and adopt to the lean strategies which will play a significant
role in increasing the profitability of the company. However, in a typical setting of an
organization, there are several steps that can be included to create value and minimize cost while
in some cases the current approach and technologies might realize the goals of lean approach
(dos Santos Bento 2018).
Perfection
The last finding that supports the lean approaches discussed above relates to perfection.
The aim of most businesses is to achieve the desired goals with minimum resources required.
Often, businesses employ more resources with an aim of reaching the optimum performance only
to end up wasting valuable resources. In order to realize perfection through lean approaches. It
requires step by step process of addressing the main problems that leads to poor quality and

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increased waste. The constant desire to achieve perfection is what enables companies to find
better solution to their problems (Cherrafi et al 2016).
Conclusion
It therefore implies that organizations should aim at accurately placing value by
evaluating the whole value stream as well as understanding that there is no end to a process and
companies need to constantly innovate their operational management processes in order to
achieve the desired perfection. McDonald’s should therefore ensure that it does not stop with the
current initiatives but relentlessly try and test other methods and approaches that could have a
positive impact in reducing wastage at the same time increasing the organization profitability and
value for their customers.

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