McDonald’s JIT Inventory Strategy Gives Way to its Competitive Priorities

McDonald’s is a company that has implemented a Just in Time inventory strategy. As we discussed in class, this is the transformation from “Push” techniques to “Pull” techniques on a line process. We see this “Pull” technique specifically in the assembling of customer food orders at McDonald’s. Similar to the cup example we performed in class, McDonald’s has a supply of hamburgers ready for assembly that are pulled through the line AFTER a customer has placed their order. The supplier (hamburger cook) will make more patties when he sees stock getting too low. The process of assembling the hamburger as the customer has ordered flows through workstations until it is ready for delivery. The workstations may include toasting the bun, applying toppings and condiments, and packaging. In this case, the customer demand is what triggers the supply chain to be put into action, and all the actors within this supply chain will then snowball this effect through until the end. This subjects McDonald’s inventory to a “Just-in-Time” strategy as it works to fill depleted inventories only as they are demanded by the customers.

You may be asking, how did McDonald’s decide this was the best strategy for them? To answer this I want to refer back to our very first blog post in which we analyzed the operational strategies of McDonald’s. What stood out to me, was the duality of McDonald’s low-cost and consistent-quality strategies which were tailored to their specific customer base.  Supply chain managers must then tailor the operations of the supply chain to meet these competitive capabilities, as we see here with the JIT inventory strategy.

Let’s first look at their low-cost priority. This JIT strategy is a great tactic used by food retailers as a way to eliminate waste. Say for example, McDonald’s used a “Push” strategy: They would prepare 50 Big Macs by estimating their customers’ demands. There are two recurring issues of waste in this strategy. First, 50 customers may not order Big Macs; they may order 50 regular cheeseburgers. In this scenario, 50 new patties must be used to prepare these regular cheeseburgers, when the 50 patties used on the Big Macs could have been allocated to these orders, saving the company time and money. The second issue we encounter is that food is perishable, so with a “Push” strategy we must not only predict demand, but we must be able to accurately predict demand within a specific time period. As you’ve already seen with the above example, this will only make our waste of time and supplies larger, unless we are able to accurately predict demand every day at every location (aka impossible). By implementing a “Pull” method, then, you can see how McDonald’s is able to save money in these areas, allowing them to keep their prices to customers low.

This is a great segment into analyzing how this inventory strategy gives way to their consistent-quality priority. From one standpoint, JIT inventory gives the customer consistent quality of service. With a defined line process from start to finish, customers can expect that their orders will take a specific time to be prepared (fairly consistent each time). The supplier plays the role of making sure food is ready for assembly, so the only process that must be done after an order is placed, is the pure assembly. Further, the customer can expect consistent quality of the food being produced. The patty will be heated up when they place their order, toppings will be applied when they place their order, and the bun will be toasted when they place their order. A product should never be cold or soggy with this JIT inventory strategy. Therefore, we can see that this inventory strategy gives McDonald’s their competitive capability of consistent quality.

However, as we know, nothing is ever perfect. I would love to hear your input on the cons of this strategy? Or maybe there is a business that you believe is able to achieve their competitive capabilities through the implementation of  ‘Lean Management’ and ‘JIT Inventory’?

Sources:

https://hbr.org/1989/09/getting-control-of-just-in-time

http://cmuscm.blogspot.com/2014/11/how-mcdonalds-manage-its-inventory.html

 

9 thoughts on “McDonald’s JIT Inventory Strategy Gives Way to its Competitive Priorities

  • March 1, 2018 at 8:39 am
    Permalink

    Jessica,

    I enjoyed your comments on McDonald’s Just in Time Inventory strategy. In class we have discussed McDonald’s business strategy to provide cheap, yet consistent food in a fast manner. Now it is interesting to hear just how McDonalds was able to match their business strategy with their JIT process, which refills inventory just as it depletes. This process removes wasteful inventory and saves money to allow the customers to buy their food at a cheap cost.

    I decided to look a little deeper into what makes the McDonald’s line so effective. Many Lean Processes utilize Obeyaka, which describes a layout in which every component of a process can be seen from one position. However, McDonald’s does not incorporate Obeyaka, and actual has parts of the process line somewhat separated. This allows there to be multiple process lines to decrease the time it takes to complete an order

    SOURCE: http://www.lean-production.org/lead-time/kanban-pull-mcdonalds/

  • February 28, 2018 at 8:35 pm
    Permalink

    Jess,

    When reading your first paragraph, I also began to think our class’ very first blog discussion on McDonald’s and their operations. There are definitely many pros, as you listed, to McDonald’s JIT strategy. However, one large con is keeping up with demand. I am sure almost everyone has had the issue of waiting too long for their food at McDonald’s. They need some preparation, planning, and estimating customer attendance during certain times based on data and patterns so they are able to efficiently serve customers. This could include estimating 50 people coming to McDonald’s during the peak lunch time of 12 – 1 p.m. Even simple preparations such as putting 20 extra hamburger patties on the grill at 11:45am in preparation for the anticipated lunch rush. McDonald’s (like most all fast food and quick-serve restaurants) have implemented stations with heat to keep the food warm, tasting fresh, and keeping it from perishing. This allows them to continue to be a JIT strategic business, without moving completely towards a push strategy.

  • February 27, 2018 at 6:51 pm
    Permalink

    Jess,

    Thanks for your post on McDonald’s Just in Time inventory strategy. I hadn’t considered the process of “fast food” restaurants’ assembly as being a JIT technique, but I think your analysis is spot-on. While the technique doesn’t necessarily apply to the timing of delivery of product to each restaurant, the food is definitely prepared in a JIT fashion when orders are placed.

    I really think the most critical advantage afforded restaurants that use JIT is the ability to quickly adapt to a personalized order. The expectation in fast food is that the experience is just that: fast. If a company fails to fulfill a customized order at a nearly equal pace, one of the main components of customer satisfaction goes out the window.

    In an Economist article, it would appear that the biggest downfall to using JIT is the potential for problems when something unexpected happens and the inventory is not ready to handle the change in demand. However, for the sake of your analysis, the point is that the orders are fulfilled as ordered, but the product is already in the restaurants, so that concern is largely handled before the order is even placed.

    Ray Kroc certainly had a knack for business, and I’m sure he would be incredibly proud of the continued success of his brand! Thanks!

    https://www.economist.com/node/13976392

    • February 28, 2018 at 3:24 pm
      Permalink

      Christian,

      I agree with your discussion of the advantages of using the JIT inventory strategy. McDonald’s has the ability to adapt to personalized orders, which ultimately gives them the ability to optimize customer satisfaction. On the other hand, the Economist article you attached to your comment suggests that a change in demand may cause serious problems for McDonald’s and create a bottleneck in the assembly line production. This system poses a challenge to managers when it comes to changes in levels of demand. During peak hours, management must oversee the process to make sure that the increase in demand does not exceed what inventory is available for use. This can potentially cause stress on management.

  • February 27, 2018 at 5:46 pm
    Permalink

    Jess,
    I think you hit the nail on the head describing McDonald’s and the pull strategy they utilize in each of their locations. To answer your question, I don’t think there are very many cons of using the pull method in this scenario. If McDonald’s were to implement a push strategy, the food would not be as fresh as the customer currently expects it to be, and there would be a whole lot of waste if McDonald’s can’t accurately predict customer arrival rates and orders around the globe. In addition to these cons that you’ve already mentioned, I can only see one positive outcome for McDonald’s if they choose to switch to the push method: time. Because this is the only “pro” and because McDonald’s already competitively prioritizes the time it takes to receive an order, they would never switch to the push method.

    While the push method might not be the answer for McDonald’s, it got me thinking about restaurants like buffets that are built around this strategy. After looking up family mid-scale dining in the United States in the Mintel database, my hypothesis was confirmed: buffets are trending downward, and some are even failing. Golden Corral has been stagnant. Old Country Buffet filed for bankruptcy in March of 2016, the third time they’ve done so in only 8 years. But why? I’m a big fan of Old Country Buffet. Much of the reasoning can be attributed to trends and consumer wants of course, but at the end of the day, Old Country Buffet and other restaurants like it owned by Buffets LLC could not keep their costs low enough. Because these restaurants operate on a push method system, they generate too much waste on a regular basis. Buffets are a dying breed. Should the push method die with them?

    Links:
    http://academic.mintel.com/display/748032/
    http://www.nrn.com/blog/why-so-many-restaurants-are-filing-bankruptcy

    • February 27, 2018 at 6:09 pm
      Permalink

      Nick, Thanks for your comment! I thought that the examples you brought in (Golden Corral and Old Country Buffet) were very interesting and it got me thinking about other restaurants that use the push method. Chipotle uses a combination or hybrid of the push method and the pull method. In line with the push method, the tortillas, guacamole, cheese, etc. are all set-up in a buffet line. Someone takes your order at the start and you go down the line adding toppings that have already been cooked and set out. However, when food is running low, workers shout back to the kitchen and they have a new bucket of chicken, rice, etc. ready within a few minutes, which falls in line with the pull method. I think that Chipotle’s combination of the push and pull method is interesting and is one that other fast food restaurants, such as McDonald’s, might consider implementing.

      • February 28, 2018 at 12:45 pm
        Permalink

        Lily, I really was interested in the way that you brought up Chipotle’s model which combines a push strategy and a pull strategy. One thing that I really admire is Chipotle’s ability to maintain consistently high quality while still providing exceptionally fast service. That being said, they still have their issues with the system. In most Chipotle locations, they have limited amounts of grill space/ prep space to prepare the fresh ingredients that they use. During increased periods of demand, they can often run out of one or many ingredients and not be able to quickly replenish them. In my experience, Chipotle’s bottlenecks are in their meat preparation because they need to prepare, cook, and then cut each piece of meat before they can go to the line. Maybe modifying their hybrid approach during times of increased demand (by preparing the products that cause bottlenecks ahead of time to ensure demand is met) would help them mitigate waiting lines without compromising their strict quality standards.

        • February 28, 2018 at 1:12 pm
          Permalink

          Adam,

          I agree with your point on Chipotle and differentiated demand. I have often had to wait for some ingredients to be prepared when Chipotle was not able to keep up with increased demand. They definitely have bottlenecks in food preparation, particularly meat and vegetables. I found this article interesting addressing Chipotle’s bottlenecks and inventory strategy.

          https://www.fool.com/investing/2016/06/01/is-chipotle-headed-for-an-inventory-problem.aspx

          The combination of the push and pull strategy is difficult. They need to be aware of the possibility of food scares in the future and also the possibility of increased demand. Chipotle should rely on individual stores and franchises to monitor inventory usage.

          • February 28, 2018 at 10:23 pm
            Permalink

            I agree that Chipotle’s hybrid push and pull model is very interesting. There is obviously merit behind it because of the impact it has had on the food industry. There is an increasing trend of assembly-line fast food restaurants, which has been coined as “chipotle-ization.” In a quick google search for the term I found 18,300 results. New restaurants like Richmond’s Cava and Pie Five, are constantly popping up nationwide. Their business model allow their employees to create meals for customers in the present (pull) while having an inventory ready (push). This creates a higher degree of customer satisfaction because customers can see their food being made in front or them and are guaranteed that the food they receive will be exactly what they ordered. I can see the popularity of this assembly-line model to continue to grow as new fast food restaurants are introduced.

Comments are closed.

css.php