Inventory management managing stock to meet customer needs in mcdonald’s restaurants

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<b>MINISTRY OF EDUCATION AND TRAINING HCMC UNIVERSITY OF TECHNOLOGY AND EDUCATION </b>

<b>Faculty For High Quality </b>

<b>Inventory Management </b>

<b>MANAGING STOCK TO MEET CUSTOMER </b>

NEEDS IN MCDONALD’S RESTAURANTS

<i><b>Class code: INMA321506E_02CLC </b></i>

<b>Lecturer: </b><i><b>Nguyễn Hoàng Long </b></i> Lê Trần Gia Tiến 20124165

<b>Semester 1 _ School year 2022 2023 </b>–

<i>Ho Chi Minh City, November of 2022 </i>

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<b>2. Table that shows contributions of each member </b>

<b>Name of member Contribution content Contribution rate </b>

Nguyễn H u D ữ ự ^{-Synthesis report.}

Đoàn Ngọc Yến Nhi ^{-Chapter 1.}

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CHAPTER 1. OVERVIEW OF THE MCDONALD’S GROUP ... 1

1.1 About Mcdonald’s group ... 1

1.2 Operation of the company from 2019 to 2021 ... 1

1.3 The company’s inventory situation ... 2

CHAPTER 2. SOME BASIC THEORETICAL ISSUES OF INVENTORY MANAGEMENT ... 4

2.1 Inventory and tool-related issues ... 4

2.1.1 The concept of inventory ... 4

2.1.2 Inventory characteristics ... 4

2.1.3 Inventory functions and classification ... 5

2.2 Inventory management and issues related to inventory management ... 6

2.2.1 The concept of inventory management ... 6

2.2.2 Inventory management content ... 6

2.2.3 Methods of determining inventory value are commonly used in enterprises 7 2.2.4 Risks in inventory management ... 9

CHAPTER 3. CASE STUDY: MANAGING STOCK TO MEET CUSTOMER NEEDS IN MCDONALD’S RESTAURANTS... 11

3.1 Case study ... 11

3.2 Inventory characteristics at McDonald’s ... 11

3.2.1 Raw materials management ... 11

3.2.2 Work-in-progress (WIP) ... 12

3.3 Why change Mcdonal’s inventory management system? ... 12

3.4 Proposing solutions to upgrade the inventory management system ... 12

3.4.1 Planning and managing supply ... 12

3.4.2 Forecasting ... 13

3.4.3 Causal factors ... 14

CHAPTER 4. THE INTERNET OF THINGS (IoT) INTEGRATE ... 15

4.1 What is IoT? ... 15

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4.2 Smart Warehouse Important of IoT ... 15–

4.3 Emerging Technologies: IoT The trend of inventory management. ... 15–

4.4 IoT World of Smart Warehouse ... 16

4.5 The benefits of Smart Warehouse System ... 16

CHAPTER 5. APPLICATION THE LEAN SIX SIGMA TECHNIQUE AND 7 WASTES ... 18

5.1 About Lean-six sigma ... 18

5.1.1 What is Six Sigma? ... 18

5.1.2 What is Lean-six sigma? ... 18

5.2 About 7 Wastes ... 19

5.2.1 What is Waste? ... 19

5.2.2 The benefits when using 7 Wastes ... 20

5.3 Mcdonald’s 7 Waste and 5 Whys Technique ... 21

CHAPTER 6. FISHBONE DIAGRAM AND APPLYCATION ... 26

6.1 What is a Fishbone diagram? ... 26

6.1.1 Fishbone chart elements ... 26

6.1.2 The benefits when using the Fishbone diagram ... 26

6.1.3 Steps to create a Fishbone Diagram ... 26

6.2 What is the 5 Whys technique? ... 27

6.2.1 The benefits when using 5 Whys technique? ... 27

6.2.2 Step to create the 5 Whys technique ... 27

6.3 Fishbone diagram and 5 Whys technique at McDonald’s ... 28

6.3.1 Fishbone at McDonald’s Company ... 28

6.3.2 Five Whys technique at McDonald’s ... 28

CHAPTER 7. CHECKLIST AUDIT FOR INVENTORY MANAGEMENT ... 31

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iii 7.1 Propose one checklist for Inventory audit at McDonald’s company ... 31 REFERENCES ... 33

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<b>LIST OF TABLES </b>

<i><b>Table 1.1 Operating output of the company in 3 years 2019 2021</b></i>– ... 1

<i><b>Table 1.2 Annual inventory of the company ... 2</b></i>

<b>Table 7.1 Checklist for Inventory audit at McDonald’s company... 31</b>

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<b>LIST OF FIGURE </b>

<i><b>Figure 3.1 The Stock Management Problem ... 11Figure 3.2 Management chart by forecasting method ... 13</b></i>

<b>Figure 6.1 Fishbone at McDonald’s Company ... 28</b>

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<b>CHAPTER 1. OVERVIEW OF THE MCDONALD’S GROUP </b>

<b>1.1 About Mcdonald’s group </b>

McDonald’s is a fast food restaurant business group with the largest fast food restaurant chain in the world, present in more than 120 countries with the number of more than 37,000 restaurants on all continents, serving more than 70 million customers every day. McDonald’s products: fast food such as hamburgers, chips, fried chicken, desserts, breakfast food, coffee and non-alcoholic beverages.

History:

The first McDonald’s restaurant was founded in 1940 in the U.S. by two the McDonald brothers. In 1961, Ray Kroc acquired the entire rights. McDonald’s with Ray Kroc's talent, McDonal’s has become a franchise Global Brand.

Business model:

McDonald's owns land in locations where McDonald’s restaurants are located and recognizes a significant portion of the total revenue from land rent paid by McDonald’s franchisees. These rents grew by 26% between 2010 and 2015, accounting for one-fifth of the group’s total revenue during that period.

<b>1.2 Operation of the company from 2019 to 2021 </b>

<i>Unit. </i>Million USD

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2 As a business group, McDonald’s always wants to achieve maximum profits. However, in recent years when the Covid-19 pandemic hit the globe has greatly affected all businesses in the world and McDonal’s cannot avoid that either.

Through the data table, we see that in 2019, when the Covid-19 pandemic just appeared, it did not greatly affect businesses, but in 2020, the pandemic exploded. McDonal’s revenue has dropped by a sizable amount ($2156.6 million), not claiming this decline was entirely caused by the pandemic but it was a big impact because when the pandemic hit the globe most people minimized going out even in some countries like China, Vietnam had a period of time when people could not go out on the streets due to government directives so it was impossible to make purchases with McDonal’s. However, by 2021, McDonal’s total revenue will increase by $ 4015.1 million compared to 2020. This is a very positive sign for the group's business situation and especially the Covid-19 situation has temporarily stabilized.

<b>1.3 The company s inventory situation </b>’ Through the table above, we can see that the company’s annual inventory from 2009 to 2015, the annual inventory is always above about 100 million USD, but by 2016 onwards, this figure has decreased significantly or even more than halved compared to the period 2009 - 2015. This can show that the company was really important. pay attention to inventory issues, especially in this food industry, as well as have come up with appropriate strategies and methods to minimize the amount of inventory.

Comparing the last few years, 2019, 2020, 2021, we see that McDonald’s inventory for 2021 is 0.056 billion USD, up 8.81% compared to 2020. McDonald’s

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3 inventory for 2020 was $0.051 billion, up 1.79% from 2019. McDonald’s inventory for 2019 was $0.05 billion, down 1.76% from 2018.

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<b>CHAPTER 2. SOME BASIC THEORETICAL ISSUES OF INVENTORY MANAGEMENT </b>

<b>2.1 Inventory and tool-related issues 2.1.1 The concept of inventory </b>

Inventory is first and foremost the property of the business, it is the raw materials, materials, products, sales of products, etc. which are kept for sale during normal production and business periods; still in the process of unfinished production and business; used in the process of production, business and service provision.

Inventory composition:

-Goods bought for sale: inventory, goods sent for sale, goods sent for processing, goods purchased on the way.

-Unfinished products: Unfinished products, finished products that have not passed the procedures for warehousing finished products.

-N materials, materials, tools, products, sell inventory products, send them for processing.

-Finished products in inventory, finished products sent for sale. -Unfinished service costs.

<b>2.1.2 Inventory characteristics </b>

From the inventory concept given above, we can see that the characteristics of inventory are specific characteristics of raw materials, materials, tools, tools, finished products, work in progress, goods.

Based on the characteristics of goods, inventory is divided into 4 basic categories as follows:

-Inventory is a source of supplies: office supplies, raw materials, materials, fuel, and other supplies of equal use. These are all important and necessary supplies for the production process.

-Inventory is raw materials: raw materials that are sold or retained for future production, sent for processing or processing, and purchased on the way back.

-Inventory is semi-finished products: products that are included in the production process but are not completed and products, although completed, have not been completed after production.

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5 -Inventory is finished products: those products that are finished after the production process and are confirmed completed.

<b>2.1.3 Inventory functions and classification </b>

Function:

Inventory in trade performs two basic functions: the function of adjusting fluctuations and balancing supply and demand.

-Volatility regulation function: inventory is stored to prevent short-term fluctuations due to fluctuations in demand and import cycles. To perform this function requires an insurance reserve.

-Supply and demand balancing function: inventory plays a role in ensuring the conformity between supply and demand in quantity, space and time. In business, it is necessary to concentrate the volume of seasonal reserves, pre-transport reserves due to transportation and climatic conditions, and reserves in case of fluctuations in the economy. This function is due to the influence of the macro environment on the supply-demand relationship.

Classification of goods in stock:

Inventory in the enterprise has many types, many things have different roles and uses in the production and business process. Identifying and recording inventory requires constant attention because inventory accounts for a large proportion of the total current assets of the enterprise. In order to manage inventory well, it is necessary to arrange inventory in groups of goods according to certain criteria.

<i>Categorized by inventory use purpose</i>. The classification of inventory in countries is basically relatively homogeneous with each other. For example, according to American accountants, inventory is divided into 3 main groups: commercial inventory, production inventory, inventory of other items; according to Vietnamese accountants, inventory is divided according to the purpose of use, including: raw materials, other production reserve materials, value of unfinished work, unfinished services, product inventory, inventory of goods; or according to French accountants, inventory is also divided according to the purpose of use: raw materials, other production reserve materials, unfinished work value, unfinished services, inventory products, chemical inventory of goods.

In general, the inventory will still include the basic types:

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6 -Raw Material: raw materials or goods purchased by the manufacturer.

-Work-in-process (WIP): part of the raw material is still in the production process. WIP may or may not be marketable. These are also called semi-finished products.

-Finished Goods: the final products after the production of raw materials are then marketed.

-Packing Material: inventory is used to pack goods.

-MRO inventory: MRO stands for maintenance, repair, operating supplies. MRO is seen as a supporting commodity.

<i>Sort by the value of the goods or by the ABC method.</i> The ABC classification method divides the entire inventory of products into three categories.

-Type A: high-value goods. -Type B: goods of average value. -Type C: low-value goods.

<b>2.2 Inventory management and issues related to inventory management 2.2.1 The concept of inventory management </b>

Inventory management is a management activity to ensure the optimal inventory level of resources as well as to ensure that goods have sufficient quantity and structure, ensuring the quality of value and shelf life to avoid loss of assets of the enterprise. Thereby promptly meeting production needs, satisfying customer requirements in

<b>emergency cases and minimizing inventory costs for businesses. </b>

Inventory management is a complex operation and has two completely opposite sides: -The positive side: Increasing the inventory of goods will help businesses ensure a continuous, uninterrupted production process and meet the needs of customers quickly.

-Negative side: The fact that goods are stored for too long and the quantity is constantly increasing will entail costs related to inventory such as storage fees, warehouse management, etc.

<b>2.2.2 Inventory management content Accounting administration </b>

Inventory management accounting information is a key factor in business managers making decisions related to inventory. The decision-making process of managers is the selection of many different business options, in which each option is considered based on a lot of accounting information. Therefore, it can be seen that the task as well as the

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7 role of inventory accounting management for businesses is very large. Requires warehouse accountants to:

-Calculate the amount of inventory carefully.

-Periodic and regular inventory to promptly capture the status of goods in the warehouse so that appropriate solutions can be taken.

In-kind management

This activity focuses on the physical preservation of inventory to ensure that the goods are always of the best quality and helps the manager always know the quantity of goods in the warehouse for timely delivery. Make the right decisions. To achieve this business will consider choosing:

-What form of storage and storage area is most suitable?

-Which means and equipment are suitable and effective for the transportation of goods, etc.

In-kind inventory management includes: -Ensure storage is safe and suitable for inventory.

-X Determines the proper method and means of loading goods in warehouses. -Carry out tracking of goods in the warehouse in terms of quantity and quality. -Classify inventory according to appropriate storage methods.

<b> Value management and economic efficiency </b>

The accurate calculation of inventory value helps enterprises promptly direct daily economic activities but also helps enterprises have an appropriate amount of raw materials and goods in reserve, not reserves, ensuring that the business process of the enterprise is conducted continuously and meets the demand for goods of the market.

Inventory economic management activities need to ensure a balance between 2 goals: -Safety goal: It is necessary to have a stockpile to ensure an uninterrupted production process, meeting customer needs quickly.

-Financial goal: Reduce warehousing costs.

<b>2.2.3 Methods of determining inventory value are commonly used in enterprises First-in, first-out (FIFO) approach </b>

The FIFO method is based on the assumption that the value of inventory purchased or produced in advance is issued first, and the residual inventory value at the end of the period is the value of inventory purchased or produced near the end of the period.

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8 According to this method, the value of inventory is calculated according to the price of the inventory shipment at the beginning of the period or near the beginning of the period, the value of the end-of-period inventory is calculated according to the price of the inventory at the end of the period or near the end of the inventory period.

Advantages: It is possible to immediately calculate the cost of goods exported each time, so ensure timely data for accountants to record the next stages as well as for management.

Cons: Make current revenues inconsistent with current expenses. According to this method, current revenue is generated by the value of products, supplies, goods that have been obtained before.

<b> LIFO pre-enter, pre-export methods: </b>

This method is applied based on the assumption that inventory purchased later or later production is sold first, and the final inventory is inventory purchased or produced earlier. According to this method, the inventory value is calculated according to the price of the last or last imported goods, the inventory value is calculated according to the inventory price at the beginning of the period or near the beginning of the period.

Advantages: overcome the disadvantages of the first-entry, first-out method. This method ensures the principle of conformity between revenue and expenses. According to this method, the total value of inventory is the value of the last purchased goods, and LIFO helps to improve the cash flow of the business.

Cons: a decrease in the net income of the enterprise in inflationary conditions. Inventory can be depreciated on the balance sheet. The inventory assessment for accounting purposes is usually updated by the previous inventory that is still in stock. This reduction in valuation makes the working capital of the enterprise lower than the actual inventory.

<b> The most effective order management (EOQ) method: </b>

Quantitative models are used to determine the optimal inventory levels that are most profitable yet meet a company’s sales needs. This is a model based on 2 types of costs: for purchasing and for inventory.

As the cost of raw materials/ goods increases, the cost of goods decreases, which pushes up storage costs. From this we can conclude that the two types of costs mentioned

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9 above are inversely correlated and the purpose of the EOQ model is to perform calculations so that the total cost is as low as possible.

Advantages: simple, easy to apply widely in any workshop. In addition, thanks to this model, businesses can strictly control costs such as ordering or inventory.

Cons: The input assumption is unrealistic, such as the input factor for the EOQ model, which assumes that consumer demand is constant for at least one year, is inconsistent with the ever-fluctuating law of supply and demand. Making calculations difficult: assuming constant purchase costs and storage costs makes it difficult to calculate inventory in an ever-changing business environment

<b> Weighted average method: </b>

<b>According to the weighted average price at the end of the period. This method is </b>

suitable for enterprises with few sales points but the number of imports and exports of items is high, based on the actual price, existing at the beginning of the period for

<b>accountants to determine the average price of a unit of products and goods. </b>

According to this method, at the end of the period, the capital value of the goods exported in the period is calculated. Depending on the reserve period of the applicable enterprise, inventory accounting is based on the entry price, the amount of inventory at the beginning of the period and the entry in the period to calculate the average unit price.

Pros: Simple, easy to do, just need to calculate once at the end of the period. Disadvantages: The accuracy is not high it does not meet the timely requirements of accounting information at the time of arising operations.

<b>According to the weighted average price after each entry (time average, instantaneous). After each product entry the accountant must redefine the real value of the inventory and the average unit price. </b>

Advantages: overcome the disadvantages of the method according to the weighted average price at the end of the period, accurately, regularly updated.

Cons: laborious, repeated calculations.

<b>2.2.4 Risks in inventory management Inventory size: </b>

Inventory is often of high value to a business, so if you stock too much or too little goods, it is easy to have serious consequences for the business.

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10 High storage risks: high storage costs, risk of failure, loss, obsolescence, operating costs, hiring workers, etc.

Low reserve risk: failure to respond in time if market demand suddenly increases, disruption of production processes, loss of reputation with customers.

<b> Supply interruptions: </b>

This is one of the common risks encountered when buying imported or seasonal goods. However, supply disruptions can also occur when business purchases are not made.

Giair’s solution to this problem is to pre-order or opt for multiple suppliers instead of just one.

Change the quality of inventory products:

The process of stockpiling goods always has certain requirements on special storage methods for food and chemical items. If not well preserved, it will be easy for goods to be degraded, causing loss of assets of the enterprise. Therefore, businesses always have to pay attention to the preservation of inventory. Basically, to preserve inventory well, it is necessary to meet the following requirements:

-Know the quantity and always pay attention to the good quality of goods in the warehouse.

-Create conditions to perform the care and preservation of goods in warehouses. -Conduct periodic inspection and monitoring of inventory.

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<b>CHAPTER 3. CASE STUDY: MANAGING STOCK TO MEET </b>

<b>CUSTOMER NEEDS IN MCDONALD’S RESTAURANTS </b>

<b>3.1 Case study Figure 3.1 </b>

The Stock Management Problem

<i>Source.</i> The author’s team builds.

Only a select few brands, including McDonald’s, are instantly recognizable in almost every nation on earth. There are more than 30,000 of its restaurants worldwide, servicing more than 50 million customers each day. Every day, obstacles are faced by all enterprises. Managing stock is one of the biggest difficulties McDonald’s has. In order to satisfy consumer demands while also reducing waste, stock management must strike a balance. Waste is decreased by:

<i>1. Accurate demand forecasting to reduce the amount of waste produced by items. 2. Accurate raw material inventory control. </i>

In order to satisfy consumer demands while also reducing waste, stock management must strike a balance. This balancing act is getting harder and harder. McDonald’s wants to expand its selection of new goods as consumer tastes shift, making waste reduction an even bigger problem.

<b>3.2 Inventory characteristics at McDonald’s 3.2.1 Raw materials management </b>

The components that will be used to create the completed product are the raw materials. These will be the buns, beef patties, paper cups, salad components, and packaging for McDonald’s. Between three and five times each week, they are supplied to the eateries. Three separate portions of a single vehicle transport the raw ingredients so that each product may be kept at the proper temperature.

The Stock Problem

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12 The three categories are as follows: frozen; chilled; and ambient, which refers to goods that may be kept at room temperature (coffee or sugar sachets).

<b>3.2.2 Work-in-progress (WIP) </b>

Stocks that are being transformed into final goods are referred to as “works in progress.” Two beef patties, a bread, lettuce, cheese, pickles, onions, sauce, plus a modest bit of spice make up a Big Mac. To ensure that the Big Macs are hot and fresh when served, the restaurant will only mix these ingredients immediately before the client orders them.

<b>3.2.3 Finished products </b>

Products that are finished can be sold to a consumer right away. A restaurant will always have a variety of goods available for purchase. A lot of these will feature prepared foods like side salads, Filet-o-Fish, and Big Macs.

<b>3.3 Why change </b>Mcdonal’s inventory management system?

Individual restaurant managers used to be in charge of ordering goods. They placed their stock orders based on information about the store’s past days, weeks, and months of sales as well as their local expertise. For instance, if coffee sales last week were 100 units and net sales increased by 10%, they would anticipate selling 110 units this week. However, this was a straightforward solution that didn't require any computations to account for things like national promotions or school breaks. The Restaurant Manager’s time was largely consumed by it, which reduced their ability to focus on providing exemplary cuisine, service, and restaurant cleanliness.

<b>3.4 Proposing solutions to upgrade the inventory management system </b>

Create a department called the Warehouse Management Department that has specific knowledge. To learn about neighborhood activities, this organization keeps in touch with the restaurant management on a regular basis. In order to predict potential demand for finished menu items, the team integrated these components into a new planning and forecasting system. This division will handle inventories specifically by product type.

McDonald’s maintains a tight stock control in order to save expenses associated with holding excess inventory. Making ensuring there is always enough inventory to satisfy consumer expectations while minimizing costly waste.

<b>3.4.1 Planning and managing supply </b>

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<b>Figure 2. </b>

<i>Management chart by forecasting method </i>

<i>Source.</i> The author’s team builds.

Effective stock management is aided by ongoing communication between the central Restaurant Supply Planning staff and the various restaurants. The core workforce is made up of both specialized stock controllers and former workers of the restaurants. Each of the 14 regional planners on this team works with about 80 restaurants, and frequent email/phone contact with them is maintained. Everything that could have an impact on the amount of people that visit their restaurant has to be reported to the staff. This is taken into account when the predictions are calculated. To guarantee that adequate raw materials, such as meat, tomatoes, lettuce, etc., leave the McDonald's distribution centers, such as Basingstoke, supply planners use the new stock control system Manugistics. This guarantees that eateries can create the meals needed to meet the degree of demand anticipated.

<b>3.4.2 Forecasting </b>

A forecast is a projection of completed goods sales in the future. Data from the previous two years

-Specific historic product mix is used to construct forecasts.

-Regional and societal causative variables. These provide information on dates for occasions like national promotions and school holidays.

-Details provided by shop managers regarding elements that might influence demand, such as local events and promotions or road closures.

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