Methodologies Implemented at McDonalds: A Business Analysis

This report provides a comprehensive analysis of the methodologies implemented by McDonald's to ensure effective global operations. It delves into key areas such as inventory turnover, cost drivers, and the application of Just-in-Time inventory management. The report highlights the significance of stock rotation methods, including FIFO, and the role of cost drivers like labor and outlet maintenance. Furthermore, it explores the use of Key Performance Indicators (KPIs) for performance measurement and forecasting techniques to predict future demands. The report also addresses the importance of safety stock management and the challenges McDonald's faces in maintaining fresh inventory and consistent service quality. Overall, the analysis underscores the company's strategic approach to business management and its commitment to operational efficiency within the fast-food industry.

Running head: Methodologies implemented at McDonalds
METHODOLOGIES IMPLEMENTED AT McDONALDS
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1METHODOLOGIES IMPLEMENTED AT McDONALDS
Executive Summary
This report is a detailed analysis of methodologies being adopted by McDonalds for the
effective functioning of the company globally. This report highlights all the necessary aspects
such as inventory turnover the cost driver of the product at McDonalds. This report also
discusses the techniques of management being practices at McDonalds to perform the necessary
functions smoothly such as Forecasting, maintaining safety stock, aligning to KPIs and following
rotation method for the employees.
Table of Content

2METHODOLOGIES IMPLEMENTED AT McDONALDS
s
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Company overview......................................................................................................................3
Inventory turnover.......................................................................................................................4
Rotation methods.........................................................................................................................4
Cost drivers..................................................................................................................................4
KPI...............................................................................................................................................5
Forecast/demand..........................................................................................................................5
Safety stock..................................................................................................................................6
Challenges....................................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

3METHODOLOGIES IMPLEMENTED AT McDONALDS
Introduction
Proper management techniques are essential to streamline the functioning of an
organisation. Effective management is essential in every area of an industry to optimise the
functioning of the wing (Ogbo & Ukpere, 2014). This report is an analysis on the methodologies
being adopted by a food industry for effective functioning. The food industry considered in this
report is McDonalds. A detailed analysis of the elementary functions at McDonalds is discussed
in this report such as inventory management, cost drivers, and managing safety stock. At last, in
this repot the techniques being adopted by the company is illustrated to handle the critical
challenges while keeping up with the effective functioning of the organisation.
Discussion
Company overview
McDonald’s is an American fast food brand, which was founded in the year 1940 by
Richard and Maurice McDonald in San Bernardio, California. McDonald was founded as a
restaurant that initially served hamburgers and later on, it turned into a franchise. In 1955,
McDonald was joined by a businessman named Ray Kroc as a franchise agent and he
successfully purchased the chain from the McDonalds brothers.
McDonalds is the world’s largest food chain of restaurants in terms of revenue (Forbes,
2019) and have its operation in over 100 countries through 37,855 outlets as in 2018 (Chicago
Tribune, 2019). McDonalds is able to server its customer effectively and keep hold of the biggest
food chain with the effective implementation of business and managerial methodologies.

4METHODOLOGIES IMPLEMENTED AT McDONALDS
Inventory turnover
Inventory turnover is the process of keeping measure of the number of times the
inventory is sold or used in within a period of time for example a year. It is done with the scope
of keeping track of inventory in comparison of the sale level of the organization.
At McDonalds, the inventory management is of the prime importance considering the
nature of inventory. If not managed effectively the inventory, which is, mostly food item will go
stale or even rot with time. Just in time is the process of inventory management done with the
scope of reducing the inventory size and storage involved costs (Javadian Kootanaee, Babu &
Talari, 2013). Proper application of just in time inventory at McDonalds is the most effective
way to manage the inventory.
Rotation methods
Stock rotation is the process of maintain stock up to date and to prevent the stock from
being spoiled. Depending upon the size of stock the responsibility is assigned to any of the
following lie the inventory manager, the store manager or the sales associate. At McDonald’s
considering the size of the inventory at an outlet to manager, the responsibility to stock rotation
is assigned to the store manager itself. There are various methods to stock rotation namely the
First in First out (FIFO) , first expired, first out (FEFO) and the last in, first out (LIFO)
(Bertolini, 2013). At McDonalds, considering the stock properties the methodology applied is the
FIFO system in stock rotation.
Cost drivers
Cost drivers are the elementary determiners of the cost of the final product or an activity
reflecting any interrelationship or linkage that affect it. Indirect cost to an activity or product is

5METHODOLOGIES IMPLEMENTED AT McDONALDS
incurred effectively with the Activity Based Costing approach. The Activity based costing is
based on the concept the cost is caused by an activity and thus, a link can be established between
the cost and the activities (Kaplan & Anderson, 2003).
At McDonalds, the cost drivers of the product can be the labour wages, outlet’s
maintenance and functioning, transportation to name a few. To keep the coast of the final
product optimal without compromising on the quality it is essential to manage effectively the
cost related to these activities closely.
KPI
Key performance indicator (KPI) is a tool to measure the performance level of an
organization. KPIs are used to analyse the success of a particular activity (such as programs,
projects, products and other initiatives) or an organisation. There are few metrics to measure the
performance level of the organisation using key performance indicators (KPI, 2019). These
indicators are such as Financial Metrics under which the metrics are Profit, Cost, LOB Revenue
vs. target, Cost of goods sold, Day sales outstanding, sales by region, LOB Expenses vs. budget
Customer metrics consists of metrics such as customer lifetime value, customer satisfaction and
retention, customer acquisition cost, net promoter score, number of customers. Process metrics
are also considered which comprises of employee turnover rate, percentage of response to open
positions, employee satisfaction.
Forecast/demand
Forecast and demand management solution helps the organisation to accurately forecast
the probable conditions in the future and take up necessary actions in advance to tackle the
upcoming situations. An effective way to forecast can bring into notice any hurdles in the way

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and prepare for it accordingly (Athanasopoulos et al., 2019). By incorporating a proper planning
framework by various demand forecasting methods and demand management solutions, supply
chain management decisions can be optimised dramatically and increase the efficiency of the
organisation. The effect can be observed in measures such as optimized inventory, stock
accuracy, streamlining transportation processes. This functions are extensively used at
McDonald to predicts the probable condition mostly based on past experiences and take
necessary measures.
Safety stock
Safety stock or backup stock is an additional quantity of items being stored by the
company in the inventory with the scope of reducing the risk of running out of inventory and
having the situation of a block closure (Korponai, Tóth & Illés, 2017). Block closure is the
condition in which the production is put at halt due to reason such as no inventory or no demands
in the market.
At McDonalds, the safety stock management is the most crucial aspect considering to the
nature of inventory. Running low on inventory will help in keeping the stock fresh and reduces
to risk of wastage but also increases the risk of running out of services and not be able to serve
the customers.
Challenges
At McDonalds, inventory management is the most crucial element of operations to
manage. The aim is to provide fresh consumable to the customer every time and every place. The
objective of the organisation is to deliver consistent services globally and as per the quality

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standards of the company. This is challenge to the organisation as if food products are bound to
get stale at time and improper management can lead to great loss of raw material and eventually
resisting the company to serve the customers effectively.
Conclusion
The report is analysis on the methodologies adopted at McDonalds to function
effectively. This report suggest that the inventory management remains a big concern for the
organisation and the safety stock as well. The company uses effective techniques of management
such as the concept of just in time inventory, forecasting to handle the critical situation in
inventory management. To keep the cost of the products optimised the company relies on KPI to
and monitor the cost drivers of the product effectively.
References
Athanasopoulos, G., Hyndman, R. J., Kourentzes, N., & Petropoulos, F. (2017). Forecasting with
temporal hierarchies. European Journal of Operational Research, 262(1), 60-74.
Bertolini, M., Bottani, E., Rizzi, A., Volpi, A., & Renzi, P. (2013). Shrinkage reduction in
perishable food supply chain by means of an RFID-based FIFO management
policy. International Journal of RF Technologies, 5(3-4), 123-136.
Chen, J., Davis, K. G., Daraiseh, N. M., Pan, W., & Davis, L. S. (2014). Fatigue and recovery in
12‐hour dayshift hospital nurses. Journal of nursing management, 22(5), 593-603.

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Chicago Tribune- McDonald's: 60 years, billions served. (2019). Chicagotribune.com. Retrieved
16 July 2019, from https://www.chicagotribune.com/business/chi-mcdonalds-60-years-
20150415-story.html
Forbes-McDonald's Is King Of Resaurants In 2017. (2019). Forbes. Retrieved 16 July 2019,
from https://www.forbes.com/pictures/591c79084bbe6f1b730a5811/2017-global-2000-
restaura/#6e14e1746d2a
Javadian Kootanaee, A., Babu, K. N., & Talari, H. (2013). Just-in-time manufacturing system:
from introduction to implement. Nagendra and Talari, Hamid, Just-In-Time
Manufacturing System: From Introduction to Implement (March 1, 2013).
Kaplan, R. S., & Anderson, S. R. (2003). Time-driven activity-based costing. Available at SSRN
485443.
Korponai, J., Tóth, Á. B., & Illés, B. (2017). The effect of the safety stock on the occurrence
probability of the stock shortage. Management and Production Engineering Review, 8(1),
69-77.
KPI- What is a Key Performance Indicator. (2019). Kpi.org. Retrieved 16 July 2019, from
https://kpi.org/KPI-Basics
Ogbo, A. I., & Ukpere, W. I. (2014). The impact of effective inventory control management on
organisational performance: A study of 7up bottling company nile mile enugu,
nigeria. Mediterranean Journal of Social Sciences, 5(10), 109.

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