Good Example OF Essay On Supply Chain Management
Just because a firm operates a variety of supply strategies does that make supply chain management strategic? Critically discuss this statement
Supply Chain Management (SCM) refers to strategic and system coordination of the business functions of a given organization for the purpose of improving the long-term performance (Nicita, Ognivtsev, & Shirotori, 2013). The entire function helps in assisting planning, executing, controlling, and monitoring various activities of the organization by creating net value and leveraging upon the logistics system of the organization. SCM refers to managing of the goods and resources that are flowing from one end of suppliers to the other end of consumers.
However, there are various intermediaries and hence, we need to effectively manage this function. The major functions involved in SCM are sourcing, procurement, and logistics management (Cousins, 2005). One needs to plan a lot for establishing a collaboration and coordination with the different channel partners. These channel partners will include suppliers, third-party service providers, intermediaries, and end customers (Garrett, Lambin, & Naylor, 2013). Hence, SCM needs to integrate all the activities of this process, and accordingly manage the supply and demand management within a given organization.
However, today due to increased globalization and due to increase in the competition, the organization needs to adapt to several supply chain management strategies as well. We will be considering the example of McDonalds so as to better understand how a given firm operating with a variety of supply strategies, turns the entire SCM function strategic in nature. For this purpose, we shall first be analyzing the supply chain management at McDonalds, and will then analyze the strategies adopted by McDonalds. We will also discuss the strategies that are available for effectively managing the entire supply chain management in the organization.
Supply Chain Management: Agile and Lean approaches
Supply Chain Management is a big concept, and there are two different approaches of adapting to the given system. The first one is the ‘Agile’ approach and another is the ‘Lean’ approach. However, it depends upon the functionalities of a given business enterprise and the top-level management to decide upon which approach to apply (Chouinard, Ellison, & Ridgeway, 2011).
Agile supply chain management approach is for the team, which believes that, they can survive the economic turmoil only through this approach, as it can readily accept the changes and can develop as per the changing requirements of the environment. All the functions of supply chain management that includes its development, logistics management, and sourcing will be designed as per the changing requirements and demands of the customers (Wagner, MacBeth, & Boddy, 2002).
So, if the economy suddenly changes for a given organization or nation, the management will be in a proper position to capitalize on its resources and bring the best to the market (Chouinard, Ellison, & Ridgeway, 2011). However, people often feel that, such an approach should be applied only when the market is booming, and changes are not much anticipated, or else it will lead to unnecessary loss.
The approach of lean management favors the economic period of stagnation or economic downturn (Cousins & Spekman, 2003). There will be not too much focus on innovation and even there will be not much flexibility. However, one can rely upon this approach, since it will at least help in the daily operations. Further, it will also help in generating profits, and is a good viable option for the functional and basic products. The demand will remain constant and not many changes will be anticipated for the products and services (Cousins et al., 2011). This approach relies on consistency and hence, the management can plan their supply chain management for several months or years in advance (Garrett, Lambin, & Naylor, 2013). They will thereby try to maximize their economies of scale, and not much risk will be involved in their operations.
McDonalds on the basis of their business operations and looking at the current market scenario, has adopted the lean approach so as to first of all serve the various locations all around the world. They need to plan a lot and hence, they cannot adopt the agile approach, since the demands will be constantly changing. They need a steady environment, wherein there will be no unforeseen changes (Murphy & Schindler, 2011). The lean approach is adopted by McDonalds with a view to efficiently complete their daily operations. But, recently, they have even adopted a hybrid approach with a view to expand them in different nations. So, they are working more on the forecasting models, and accordingly, deciding upon which approach to select.
Procurement of raw materials / components / sub-assemblies / services
As per the reports, McDonalds needs to focus highly on the filling the needs of around 35,000 restaurants all over the world. They are serving nearly 70 million customers in nearly 100 different nations all around the world. The key point of McDonalds is that, it has never gone stock out for any item despite serving so many of the customer orders (Johnsen, 2011). Thus, effective supply chain management does seem to be an important function for the McDonalds.
There are no manufacturing units or major distribution centers available for McDonalds, and hence, the management team needs to establish a good repo with the suppliers. There is a special team dedicated that tracks on the point-of-sale data for all the items on a daily basis (Scholtens & Kang, 2013). They even check for the stock levels of different items in each of the retail stores. Further, they even focus upon the marketing plans since there are items that are provided in larger quantities during the promotional offers (Tatikonda & Stock, 2003). Hence, they need to be ready for providing enough supplies for such food items. They even need to manage the inventories and the center shipments so as to effectively manage the entire SCM function of the organization.
McDonalds Supply Chain Management
For a given nation like India and US, wherein the numbers of end customers are very large, there will be nearly 40-70 suppliers that will be providing all the vegetables, poultry products, and other farm products. There are around 20 core suppliers that provide vegetables, chicken, and other basic supplies, which are required to prepare the McDonalds products (Sydow & Frenkel, 2013). However, some of the processed products come directly from other food processing companies such as Vista Processed Food Pvt. Ltd. provide the Vegetable and Chicken patties, whereas McCain Food India Pvt. Ltd. will be providing the French fries and potato wedges.
So, now the service process as shown in the below Supply Chain Management Network figure, begins from the central distribution location, which will be directly collaborating with the suppliers and core suppliers (Lamming, Caldwell, & Harrison, 2004). All the suppliers are classified into Tier-1 and Tier-2 suppliers’ category. Now, the distribution trucks which are having refrigeration features will be transporting all these processed foods, both prepared and unprepared to the company's distribution center, which are often referred to as DCs. The trucks are specially prepared so as to maintain the temperature within it, which will safeguard all the food items and raw materials (Hughes, McEwan, & Bek, 2013).
Figure: Critical Components of McDonalds Supply Chain, India
Source: How Does McDonalds Manage its Supply Chain in India? - Retail Mantra
This logistics services act in a bi-directional way. So, when all the food items reach the DCs, they will be further providing it to the various city-wise distribution centers. So, if the DC is located in New York, it will further transport it the subsidiary locations located in the New York City and the surrounding areas. From these subsidiary locations, it will then be transported to individual restaurant outlets of McDonalds. So, consider an example, if McDonalds wants to serve 250 restaurants, it will first of all need to have four DC centers. Further, for all the restaurants, it is the inventory should be turned over every four days.
Thus, from each of the DCs, it will be served to the primary distribution centers, which are again owned by the company. These primary distribution centers are the leased properties owned by the company. Now, as and when needed, the supplies will be provided by these primary distribution centers to each of the restaurant outlets. So, the entire functioning works on Hub-and-Spoke Model, where all the DCs will be acting as the hubs (Murphy & Schindler, 2011). However, the logistics and transportation is completely outsources, and McDonalds is having a dedicated fleet that will be carrying all the goods, raw materials and other products.
Analysis & Discussion
Researchers have tried to find out that, what is the direct relationship between the function of supply chain management and the nature of the strategies formulated by the organization management. For this purpose, in one of the researches, data was collected of around 142 large manufacturing firms in the UK. In order to test the hypothesis, structural equation modeling technique was applied (Cousins, 2005).
The end results concluded that, the firms that were aggressive and were viewing competitive advantage to be differentiated, considered SCM function to be strategic in nature and their distinctive ability, while the firms that were passive and defensive, considered the function of SCM to be cost-focused. It helped them in reducing several costs, due to which their bottom margins were getting improved (Cousins, 2005). However, the studies provided an in-depth view, on the basis of which the managers of the SCM department can formulate strategies which will not only reduce the operational costs of the organization, but will also act as a distinctive advantage for a given organization.
If we look at the case of McDonalds, we find that, McDonalds initially used to consider SCM function to be a cost-effective function; however, with the recent expansions and considering the increasing competitive scenario, they are now looking at the SCM function to be a distinctive capability (Manning, 2013). We have analyzed the entire supply chain network of McDonalds, and hence we are in a position to find out how this function is related to cost focus, differentiation, marketing collaboration, strategic collaboration, operational collaboration, and business development.
McDonalds is utilizing Pull-Supply Chain Management model so as to keep a track record of all the supplies and provide to the outlets as and when required. For this purpose, a requisition order will be generated by the restaurant, which will be sent to the DC. The DC will be directing this order to the supplier, who in return will be providing with the products to the DC.
The DCs will be transporting all the products across all the outlets depending upon the requirements. Thus, the production or the raw materials are produced depending upon the demand generated by the restaurant. Hence, we can conclude that, McDonalds implements the Pull Supply Chain Management System model (Taylor, 2012).
However, McDonalds has significantly improved in the matter of lead time. With their increasing effective relationships with the suppliers, they are able to differentiate their products and services. We cannot find such application of the outsourcing strategies for other organizations in the same industry (Cousins et al., 2011).
They have directly aligned the supplies directly to the customer requirements with the help of technological advancements. Further, they are working closely with their associated partners, due to which, their SCM function performs better. The managers are formulating strategies on the basis of operational, marketing and strategic collaboration. As a result, they are in a position to perform better (Tatikonda & Stock, 2003).
McDonalds as mentioned earlier had been operating on the basis of lean approach; however, with the changing market scenario and changing demands, the firm decided to adapt a hybrid SCM approach of agile and lean management. In nutshell, they want to prepare them for the challenges of the changing environment. And, the strategies of SCM for the changing environment are best suited for the ones that apply the agile approach. Hence, they are now operating with a hybrid approach (Manning, 2013). They have identified the limitations of the lean approach, and hence, are now capitalizing upon the agile approach.
McDonalds is thereby, been able to respond to changes that are short-term in nature. They are able to balance the demand and supply in a very effective way. They are able to handle the pressures on a smooth basis. Further, through constantly working upon innovative designs for the SCM, they want to promote the flow of information between all the stakeholders in an easy and convenient way (Lamming, Caldwell, & Harrison, 2004). They are even analyzing the SCM functions and strategies of the peer companies. To support the organizational objective of expansion, they are planning to develop new logistics infrastructure and connect with more number of fresh suppliers. They are thereby creating flexible designs, keeping in mind the importance of the ultimate customers as well.
The managers thereby seem to be implementing implement strategies, which are aligned to the entire SCM function. In addition, McDonalds has outsourced majority of the supply functions so as to effectively manage not only the SCM function but also to manage Inventory Management and Logistics Management effectively (Tsao & Lu, 2012). Thus, looking at the analysis carried out in the manner, and from the current strategic implementation of McDonalds, we can conclude on our assumption that, a firm like McDonalds operating with a variety of supply strategies has turned the entire SCM function strategic in nature.
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