The hamburger wars are back again and the winner will be decided by their supply chains. We have often talked about how the new role for sourcing/supply chain organizations is no longer being the best negotiators and cost cutters but directly influencing corporate strategy, top line growth, market share etc. etc. Wendy’s has long held on to market share because they were able to tout the fact that their patties were never frozen, always fresh. This has long been McDonald’s Achilles heel and they’ve struggled with how to fix it. The challenge has been that the two supply chains were designed differently – one to handle fresh meat while the other to handle frozen patties. And as all of you know, changing supply chains is not the easiest thing to do. (Disclosure: We’ve worked with McDonald’s since a decade ago and even worked on their Chicken menu development and introduction – I can tell you oodles about unusable chicken parts but won’t).
McDonald’s recently announced that they would be introducing fresh meat patties on a test basis and then expanding it across their system. While I’m not sure I could ever tell the difference between fresh and frozen, especially when consuming fast food on the go, the perception in people’s mind is clearly that fresh is better than frozen. And that perception has cost McDonalds market share. This is no different than people perceiving that frozen vegetables are not as good as fresh when in fact scientists tell us that the exact opposite is true. But Value can only be defined by the stakeholders (consumers in this case) and either we deliver that which is valuable to them or perish.
For McDonald’s to be successful at this, they will need to revamp their entire supply chain. Thankfully, managing supply chains is a core competency for them – not restaurants. They will be the first ones to tell you that managing real estate and their supply chain are their competitive differentiators. Therefore, the bet is that they will pull this off successfully. They have an enviable track record when it comes to working with their suppliers, getting collaboration across their entire system and making changes to their supply chain that would cripple any other organization. They have developed those competencies in their supply chain organization. Clearly they rely on their supply chain strategy to create significant competitive advantages that have a direct impact on top line growth and market share.
For more examples of this, let’s note that they recently announced a switch from using chicken raised with anti-biotics and to cage free; switching from margarine to real butter; getting rid of high fructose corn syrup etc. etc. All of these have common attributes. They are all supply chain related and many of them may have no impact on the taste or cost of what McDonalds sells but clearly are defined as Value by their customers. So much so that it has a direct and measurable impact on their revenue.
For those of you who have heard us speak recently (including the Corporate United sponsored CPO round table I just spoke at in NYC yesterday), the McDonald’s story should support the following points:
- Supply Chain / Sourcing are not about lowest cost but MUST be about delivering far greater value including revenue, market share etc.
- Value can only be defined by the stakeholders (in this case customers) and it doesn’t have to be specific and measurable (like savings). Feeling good about where the eggs come from has as much impact on their decisions and behaviors as does the price and taste of the eggs, if not more.
- You must have the right competencies in your Sourcing / Supply Chain organization to create a competitive advantage and not just deliver lowest price back to your organization.
Let us know what you think and join in the conversation….
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