I will be moderating a CPO panel at the next PERT meeting at the Loews Hotel in Chicago being hosted by Corporate United on April 24th. The title is “ Transformation: Evolving from a Necessary Cost to a Competitive Weapon to Meet Tomorrow’s Challenges!”. You may be wondering by now what the title of this post has to do with that – just bear with me as we examine how the supply chain was first hindering and is now enabling the largest QSR (Quick Service Restaurant) chain to compete.
First a full disclosure – McDonald’s has been a pretty big client of ours (we’ve done $100 million deals for them) and we actually worked with the team that introduced chicken to their menu and that was also a major supply chain challenge, especially “what to do with the parts of the chicken that were not going to be used” – ewwww.
Better quality food has become a decision factor for many consumers and Wendy’s had been attacking McDonald’s on the fresh vs. frozen hamburger patties argument for a while. And now fresh beef is being served at 3,500 locations already with plans to reach 14,000 locations by May. You can just imagine the drastic changes it requires in the supply chain. After all, going from frozen meat to fresh meat means a totally different storage strategy coupled with a totally different distribution strategy. The amount of time that the product spends in transit all of a sudden becomes far more critical than it even was before. Handling of the product is totally different. Suppliers had to invest over $60 million to make it happen. Getting that type of collaboration and investment from suppliers requires an ongoing strategy of Supplier Relationship Management Optimization that must be ingrained in the culture – and McDonalds is legendary for that. Their institutional memory is replete with stories of decades long supplier relationships based on handshakes.
While many mistakenly think of McDonald’s core competitive advantage being making hamburgers, nothing could be further from the truth. Their advantage lies in their competency of finding the best locations for their restaurants and their supply chain competency. The ability to provide the same product with the same taste regardless of where you stop (at least within the same country) is what allowed them to define the entire QSR space for decades – they were the pioneers. And it all came from developing and putting in place a supply chain that allowed them to do that. They recognized early on that that was their core strength and they never deviated from that. Supplier Relationship Optimization was defined by McDonalds even before such a term existed.
The fresh beef strategy was initially met with skepticism from all stakeholders (franchisees, investors, McDonalds executives) because of the impact on productivity and food safety risks. Fortunately, it turns out that fresh beef actually takes about 40 seconds less to cook (that’s a big number when you’re in the QSR space – after all Q stands for Quick 😊). And the reason for the $60 million investment by suppliers is related to food safety. And oh, by the way, Adoption of this new strategy was not easy – the main proponent (Joe Jasper) knew that and took pains to make sure that he focused on Adoption. He knew that he could not push this onto the various stakeholders. For example, he identified the biggest skeptics amongst the franchisees and started with them, knowing that if he won them over, Adoption would go a lot smoother. He made sure that a larger number of McDonalds’ executives actually tasted the fresh meat hamburgers at various locations so they experienced the difference.
Sourcing/Supply Chain can be a competitive weapon and more and more of our clients are finally realizing that and we enjoy helping them get there – it’s far more satisfying than helping them squeeze the last penny from their suppliers 😊. Hope to see you at the Loews Hotel on April 24th!!!