McDonalds Just-in-Time Strategy - Essay Example

McDonald’s Just-in-Time Strategy McDonald’s Lean Production System Executive Summary The paper looks at McDonald’s Lean system integration in the production system. The company effectively uses the lean system as a corporate strategy focus to eliminate wastes in all its processes and to maximize profitability. The JIT implementation criteria in McDonald for success are integrated in quality, service, people and food production. The paper describes how McDonalds applies the three lean system fundamental principles; Just-in-Time, Kanban and Balanced Production. Recommendations for better future performance are given at the end in the conclusion. Introduction McDonald successfully implemented the Just-in-Time (JIT) model in its inventory system. McDonalds is one of the top fast food chains globally. The food chain has a presence in more than 120 countries worldwide and more than 30,000 restaurants (Grof, 2013). The company employs over 1.5 million workers and serves more than 50 million customers on a daily basis (Grof, 2013). When a fast food store inventory is poorly managed, a lot of wastages are encountered leading to heavy losses. In the McDonalds world, JIT means giving the customers the hamburgers, ice creams, French fries and the cold drinks immediately they ask for them. Initially, McDonalds had a very primitive inventory system where the foods were pre-cooked and then left on the heat lamps to keep them warm until that time when the customer placed an order (Eric, 2014). The old system saw a lot of hamburger and other products discarded when the consumers never made purchases. Additionally, the customers were denied to have a taste of fresh hamburgers. Due to the wastages and losses associated with the pre-cooking conventional method. McDonalds shifted to the JIT system, where the food was cooked only when a customer placed an order. JIT-Just in Time The JIT system brings in a lot of benefits to the McDonalds system over the traditional system. Removing the work in progress materials decreases the holding costs (Japan Management Association). JIT is also effective when it comes to detecting flaws in the inventory during the working flows. Since most of the material only get supplied when needed, the situation where some part of the inventory needs to be reworked, supplied a fresh, discarded is eliminated. JIT is a good recipe to tighten the relationship between the supplier and the producer, giving better opportunity for linking with product development, engineering, and quality control as it is in the best interest of the supplier to decrease the production line variability. Fast food industry characteristics include high holding costs, wastages, and need for speed in terms of time. McDonalds moved from the traditional pre-cooked food system to a faster technology that allowed for the company to cook the food quickly immediately the customer made an order (Yasuriho, 2012). After intensive research, the company resorted to the complex burger making technologies that could allow it to quickly make burgers to the consumers on order. The record-breaking bun toaster in a classic example of McDonalds’ transformation to JIT model. Through the system, lots of wastages are reduced, and the customer enjoys fresh fast food. Initially, the only way to enjoy McDonald’s fresh hamburgers was to through a special order and this consumer sometime before delivery. The three main objectives set by McDonalds for the JIT system include: 1. Create only what the consumers need and create them at the rate the consumer wants them 2. Produce high-quality products consistently 3. Produce the products with minimal waste of material, labor and equipment. 4. Effective employee management 5. High-quality service to the McDonalds clients McDonald and Kanban To provide the food that the customers demand at the time they make the demand, JIT, McDonald needs a scheduling system that can clearly and immediately communicates the customers demand to the delivery system. The Kanban is used as a communication system between the customers and the workers. The aim of Kanban is to reduce lead time in the system. While the ordering system is poor, the communication for re-orders is basically shouting. Improved Quality: Balanced Production The McDonalds current quality is evident. The quality gets attributed to the Just in Time model of production. The burger assembly system is efficient, effective and flawless with as minimal wastes as possible (Hiroyuki, 2012). McDonalds has done a number of things to improve on customer service. First, when a customer places an order from the counter, the employees are very patient and understand the procedure. They do not panic in fear of delay in delivery (Grof, 2013). McDonalds has specialized in making high qualities of burgers very fast. The trick has been to provide the burgers within averagely fast time to make the customers happy that they are not after all going to wait for hours for burgers to get ready. The success is attributed to McDonalds’ knowledge that the moment the burgers delay in delivery in terms of time, the customers goes away. McDonalds has learnt to manage its inventory supply. There has to be a relationship between inventory supply and the consumption rate. This way, wastages, and shortages are avoided. The suppliers have learnt the game, and whenever McDonald places an order for the materials from the suppliers, they make the deliveries almost instantly (Eric, 2014). Advantages and Weaknesses of JIT to McDonalds In the following months of implementing the new system, McDonalds experienced improved quality of production, reduced costs, better customer service and improved inventory control and material handling. On the other hand, McDonalds experienced difficulty to implement and maintain the JIT system. The system depended on systemic and accurate forecasting (Eric, 2014). The process had to be managed very closely for efficiency and effectiveness. The products also had to be standard in nature. The most important thing is that the JIT inventory management system changed the overall image of the company by showing the world that it is currently producing fresh, tasty burgers within a few minutes of ordering. Quantity Savings JIT has specifically been essential in reducing the holding inventory and the total cost ordering. The fast food industry is characterized by high holding costs. The JIT system aided in exploiting the realized savings as a result of holding lower inventory. Safety Stock decrease JIT leads to the safety decrease in stock. Safety stock does exist for two main reasons: the variability in the supplier lead time and the variability in demand. For McDonalds, the supplier is the internal production process. It is this variability that contributes to the existence of safety stock. JIT comes in as a regulator by reducing the variations in lead times and lead times for the purpose of reducing safety stock. Safety stock formula: {Z×SQRT(Avg. Lead Time*Standard Deviation of Demand^2 + Avg. Demand*Standard Deviation of Lead Time^2} (Andrew, 2013) Where: Lead Time*Standard Deviation of Demand^2 = the required inventory during the lead time to account for demand fluctuations. If we have a shorter lead time, then this section of the safety stock becomes smaller, reducing the safety stock inventory (Roger and Yasmin, 2012). McDonald has accomplished this by designing and implementing a system that promotes faster production of burger. It is worth noting that the McDonald’s lead times are all internal. Avg. Demand×Standard Deviation of Lead Time^2 = this is the inventory required to meet the demand due to lead time variance. It there is no variance in the lead time or, when the lead time reduces, then this section can be removed or decreased. McDonald has tried to accomplish this by standardizing the production process. There are two main parts to McDonald’s JIT inventory operations: decreasing the ratio between the holding costs and the ordering costs that decreases the lead time (Eric, 2014). What comes out of this is a McDonald with very high holding costs where profits can only be made when the customers make very frequent orders. This helps in the removal of the inventory above the safety stock capacity. Then, if lead time and variability and lead time can be reduced, the safety stick in turn can be decreased. What we get is inventory that is coming in only when it is required (Grof 2013). Meaning inventory just-in-time. McDonald has moved from the traditional pre-cook method and mastered the Just-in-time inventory management model (Hitoshi, 45). The burger company has done so by committing significant level of investment in resources and technology to create a system that will yield consistent quality with as minimal inventory as possible. The system is accompanied with a production system that minimizes wastes and maximizes efficiency. Conclusion McDonald effectively uses the Lean system mechanism in its production system leading to fresh, quality burgers. The lean system also reduces wastes and as a result changes the phase of the company. However, I feel that McDonald needs to do more in terms of reordering system. The customers have to literally shout for the orders. There is need for a creation for reordering and ticketing system that ensures the consumers accurately tracks the orders and delivers them on a timely manner. There is a Kanban tray system in McDonald production system. But without the Ticket or Kanban to initiate the demand pull. Reference List Grof, A. 2013. Everyone Loves Ronald McDonald. Sustone Press. Houghton Miffin Harcourt. Print. Eric, S. 2014. Fast Food Nation: The Dark Side of the All-American Meal. Hatoshi Takeda, 2004. The Synchronized Production System: Going Beyond Just-in-Time through Kaizen. USA, Kogan Page Limited Hiroyuki, H. 2012. JIT Implementation Manual: The Complete Guide to Just-in-Time Manufacturing. Second Ed. Vol. 1. Taylor & Francis Group, CRC Press. Japan Management Association, 2012. Kanban Just-in-Time at Toyota: Management Begins at the Workplace. Revised Edition. Productivity Press. Roger R, Yasmin R. 2012. Just-in-Time Systems. Springer New York Yasuriho, M, 2012. An Integrated Approach to Just-in-Time, 4th Edition. Taylor & Francis Group, CRC Press. Read More