Forecasting in McDonalds
McDonald’s as a very large fast food chain company with almost thirty-one (31) thousand stores globally and serving almost forty-seven (47) million people every day (McDonalds, 2010), with that kind of a statistic McDonalds overall operations poses a challenge especially in forecasting demand for their products. McDonald’s have a complex set of applications that form a systematic framework that runs from sales data across all its regional franchises all over the world up to its main headquarters.
That is why as discussed on the previous paragraph the number 47 million shows all statistical data gathered from those sources, which means that is the average or aggregate number of people enjoying a happy meal daily. Before 2004, McDonald’s is using that method also to plan or forecast their demand, which is called aggregate forecasting method (AMR Research, 2009 p.
7) They are using historical data which is specific on a McDonald’s location of its stores and based the future demand from those inputs, an example if a particular McDonald’s store in the Philippines has monthly sales of 1 thousand Big Macs and this is the average number over a period of years, then that would be the basis for the demand next month unless other extreme factors would occur or promotional activity would be established.
However the problem with that method, it is somehow related to naive forecasting, since the assumption of demand would most likely be based on historical data, that does not give the company the precise and accurate forecast since demand can and may change over time. McDonald’s realizing the difficulty on that method of forecasting; they have modified their forecasting methods and applied the new concept called “Manugistics” (The Times Newspapers Ltd, 2010 p. 1). In 2004, according to Times Newspapers (2010)
“McDonald’s introduced a specialist central stock management function known as the Restaurant Supply Planning Department. This team communicates with restaurant managers on a regular basis to find out local events. The team builds these factors into the new planning and forecasting system (called Manugistics) to forecast likely demand of finished menu items”. Using “Time Series Analysis” the Manugistics model applies a “two years’ worth of product mix history to produce forecasts for each restaurant” (The Times Newspapers Ltd, 2010 p. 4)
2) How does that relate to product development and services McDonalds offers? Using Manugistics, McDonald’s can fairly predict a precise amount of supply to meet demand. McDonald’s supply planners (which has constant and consistent communication with McDonald’s branch managers) has planned out the precise amount of raw materials, work-in progress items to effectively manage each outlet’s stock. The Manugistics model can be flexible as well, to analyse and forecast demand of specific items on McDonald’s menu given a specific weather season.
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For example the model can analyse demand for salads and McFlurrys during a cold weather (The Times Newspapers Ltd, 2010 p. 3). Using this program, McDonald’s can now adapt to necessary seasonal promotions to further increase sales of their items or introduce new menu items to the market. As shown by a Manugistics data statistic the promo for Big Mac “Buy One Get One Free (BOGOF)” (The Times Newspapers Ltd, 2010 p. 3), shows and increasing sales trend for that particular item in which planners can use to forecast not only demand but sales to other stores using the same activity for promotion.
Overall, product development can be planned, procured and optimized efficiently using a fairly predictable demand for a promotional product (AMR Research, 2009 p. 11). In terms of McDonald’s services, with this new forecasting system in place all McDonald’s chain improved overall stock management and inevitably improved customer satisfaction, since every time they order, they know that it is always available in McDonalds. 3) What are the difficulties McDonalds faces most in coming up with accurate forecasts? Could they improve their forecasts by using different methods?
As discussed on the answer for question number one, before McDonald’s managers use to employ the naive forecasting on both demand and sales, and in terms of stock management, they provide a simple educated guess for stock buffer in case demand was more than expected. This has caused numerous problems on cost on inventory and the other extreme unavailability of orders. There was also a problem before on a process step such as basic order entry for supplies, now the new system has for managers a “weblog” (The Times Newspapers Ltd, 2010 p.
4) in which managers can be more flexible in terms of order processing by making changes based on precise demand forecast. As part of the continuous improvement program that McDonalds employ, the challenge to predict the exact demand is really critical, to satisfy and meet customer demands but not stock up much to be considered as waste. Currently, McDonalds is already using a good alternative system for forecasting it blends well with their operational excellence concepts of having the right amount of supply for demand and less waste.
For the sake of suggestion, since McDonalds is already a big company and their demand is basically customer driven, they can include or integrate with their current Manugistics system, a random survey to customers inquiring if they would want to eat at McDonald’s on a specific time, this may prove worthless for some, but it is worth the try and would provide another set of data for McDonalds to adjust their stocks. References McDonalds Corporation. (2010). How many McDonald’s are there worldwide? Retrieved from http://www. mcdonalds.
ca/en/aboutus/faq. aspx McDonald’s corporation provided an average number of McDonald’s stores around the globe that serves millions of customers daily. This site also acts as an FAQ for interesting McDonalds facts, such as How many countries does McDonalds currently operates and who is the founder of this company. It also added some nutritional data, that the firm claims that all their food does not contain any unnecessary allergens and lastly it also highlighted how does McDonalds help the environment. AMR Research Incorporated (2009).
Strategic Supply Chain Partnering – Managing the ‘Big Mac’. [PDF] Retrieved from http://www. amrresearchpartners. com/Images/HaviMcDonalds. 3PL09_tcm7- 43553. pdf The researchers from AMR, explains the way McDonalds used aggregate demand forecasting on their operations. This paper also provides a discussion on McDonald’s supply chain system and how they outsource their logistics operations. The research study also includes how McDonalds plan and execute a typical promotional activity for their customers. The Times Newspapers Ltd.
(2010). McDonald’s Managing Stock to meet customer demand. Retrieved from http://www. thetimes100. co. uk/case-study–managing-stock-to-meet- customer-needs–28-273-1. php The authors prepared a case study on analysing how does McDonalds transition from basic “naive forecasting” to a more complex but suitable Manugistics system, in which using the help of time series analysis, McDonalds can predict precisely what could be the demand for any specific item they have on their menu and when will be the proper time to do promotional activities.
The Case study also elaborated on the benefits of this new system, that it has improved overall cost efficiency, decrease wastes adhering to Lean concepts for operations and inevitably increased customer satisfaction since, there is no reported problem on stock shortage on all the items in their menu.