{"id":13292,"date":"2016-11-04T17:56:43","date_gmt":"2016-11-04T21:56:43","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/dollar-menu-in-danger\/"},"modified":"2016-11-04T17:56:43","modified_gmt":"2016-11-04T21:56:43","slug":"dollar-menu-in-danger","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dollar-menu-in-danger\/","title":{"rendered":"Dollar Menu in Danger"},"content":{"rendered":"

Summary<\/strong><\/p>\n

Climate change promises to negatively disrupt the operations and possibly profitability of fast food chains like McDonalds, as (i) weather disruptions and droughts lead to rising costs of agriculture and food; (ii) scrutiny and regulation over carbon emissions threatens to increase the cost of meat production; and (iii) costs of and pressures to reduce carbon emissions weigh on the company\u2019s transportation costs.<\/p>\n

McDonald\u2019s Supply Chain<\/strong><\/p>\n

Generally, McDonald\u2019s works with both independent farmers who supply raw food products (wheat, lettuce, cattle, etc.), and independent suppliers of packaging and equipment.\u00a0 McDonald\u2019s takes advantage of its scale to maintain very close relationships with these partners.<\/p>\n

The sourced ingredients move to food processing plants, which make products like buns and meat patties before being purchased by independently owned and operated distribution centers and delivered directly to McDonald\u2019s restaurants. [1]<\/p>\n

\"http:\/\/marketrealist.com\/2013\/12\/mcds-food-come-exploring-supply-chain\/\"<\/a>
[Figure 1] McDonald’s Supply Chain<\/figcaption><\/figure>Costs of the Fast Food Supply Chain<\/strong><\/p>\n

It may be surprising to note that at the top of the chain, the agricultural industry uses 70% of global freshwater [2]. Unusual weather conditions have had a major effect on raw and processed food prices. These events include (i) the US severe droughts that caused grain prices to spike in 2012 [3]; (ii) the uncommonly low rain in Europe and flooding rains in the US that had the same effect in June 2015 [4]; and (iii) the March 2016 drought in South Africa that killed 5% of cattle, causing cattle futures to spike [5].\u00a0 These effects are interconnected, as higher grain costs make it more expensive to feed livestock, making that meat itself more expensive.<\/p>\n

Moving further down the chain to the food processing plants, there is a preponderance of evidence that meat production contributes to an enormous amount of greenhouse gases\u201310-25% of global GHG emissions are due to agriculture while 80% of agricultural emissions are attributable to livestock [6]. The US EPA implementation of the Paris climate negotiations involves collecting GHG reports from 41 sectors, but excludes meat production at the moment [7].\u00a0 If and when this industry begins to be regulated, the costs for this section of the supply chain could become extremely high.<\/p>\n

Finally, there is the connecting piece between all the supply chain components: the fleet of trucks traveling from farmers to distribution centers and distribution centers to restaurants.\u00a0 The fast food chain\u2019s largest distributor, Martin-Brower, works with almost all of McDonald\u2019s 15,000 or so restaurants in North America.\u00a0 They use one truck per restaurant with 2-3 deliveries\/week, resulting in 30-45k truck deliveries a week total [8].\u00a0 Similarly, Northeast Foods, which works exclusively with McDonald\u2019s delivering grains and baked products, uses 200 tractor-trailers and over 400 delivery trucks to make daily visits to the 15k North American locations [9].\u00a0If and when regulations crack down further on carbon emissions in the transportation industry, this could prove to either block or mitigate the efficiency of the inter-supply chain transportation (thus increasing lead times), or it could make the chain more expensive.<\/p>\n

What McDonald\u2019s Has Done<\/strong><\/p>\n

It is important to note that McDonald\u2019s is well known for its supply chain (it has been #2 on the Garter Supply Chain Top 25 list for 4 years in row) [10].\u00a0 McDonald\u2019s also spends a lot of effort innovating ways to make its supply chain more sustainable, as evidenced by the company\u2019s recent focus on Ethics, Environmental Responsibility, and Economic Viability in its Sourcing process.\u00a0 Since 2012, the company has gone from using 9.3% fiber-based materials in packaging to 53% in 2015, with a goal of 100% in 2020 [11]. McDonald\u2019s has also set and progressed towards equally impressive targets in sustainable coffee use and its beef, fish, and palm oil procurement [12].<\/p>\n

\"[Figure<\/a>
[Figure 2] McDonald’s Coffee Sourcing<\/figcaption><\/figure>What McDonald\u2019s Should Do<\/strong><\/p>\n

McDonald’s should\u00a0continue its work in\u00a0mitigating global climate change, but the company also must\u00a0focus closely\u00a0on preventing the negative effects of this problem on\u00a0its own operations. \u00a0To mitigate the costs of unpredictable weather cycles, the company could hedge via agriculture futures or use its scale and close relationship with its suppliers to investigate their operations and develop and implement predictive models around the weather.\u00a0 They could also invest in research around advanced irrigation systems and synthetic water development.<\/p>\n

For food processing, McDonald\u2019s should help its other suppliers set goals for sourcing sustainable meat.\u00a0 As most of these suppliers\u2019 biggest customer, McDonald\u2019s should help with the large upfront costs as it is an investment in the future endurance of the company\u2019s own supply chain.<\/p>\n

Finally, for transportation, McDonald\u2019s could similarly get closer to or acquire and consolidate its distribution networks (which differ by food product).\u00a0 They can either slowly invest in more energy efficient vehicles (an expensive option) or, more realistically, can make the truck routes more efficient by loading full trucks with many different products to go to each restaurant instead of having several underutilized trucks go from different distribution centers to just one restaurant each.<\/p>\n

(798 words)<\/p>\n

\n

Citations<\/u><\/p>\n

[1] http:\/\/marketrealist.com\/2013\/12\/franchise-mcdonalds-franchise-agreements-work\/<\/a><\/p>\n

[2] http:\/\/web.unep.org\/geo\/sites\/unep.org.geo\/files\/documents\/geo5_for_business.pdf<\/a><\/p>\n

[3] IBID<\/p>\n

[4] \u00a0http:\/\/www.bloomberg.com\/news\/articles\/2015-06-26\/downpours-and-drought-send-wheat-to-biggest-gain-in-three-years<\/a><\/p>\n

[5] https:\/\/schadcommodity.com\/cattle-futures-higher-as-south-african-drought-kills-off-5-of-cattle\/<\/p>\n

[6] http:\/\/www.unep.org\/pdf\/unep-geas_oct_2012.pdf<\/a><\/p>\n

[7] https:\/\/www.revealnews.org\/article\/us-gives-meat-producers-a-pass-on-climate-change-emissions\/<\/a><\/p>\n

[8] http:\/\/www.usanfranonline.com\/resources\/supply-chain-management\/what-are-the-ingredients-in-a-mcdonalds-supply-chain\/#.WBzlZuErK8o<\/a><\/p>\n

[9] http:\/\/www.fleetsandfuels.com\/tag\/mcdonalds\/<\/a><\/p>\n

[10] http:\/\/www.usanfranonline.com\/resources\/supply-chain-management\/what-are-the-ingredients-in-a-mcdonalds-supply-chain\/#.WBzlZuErK8o<\/a><\/p>\n

[11] http:\/\/corporate.mcdonalds.com\/content\/dam\/AboutMcDonalds\/2.0\/pdfs\/sustainability\/McDonald_s_2016_Sustainable_Fiber_Update.pdf?1<\/a><\/p>\n

[12] http:\/\/corporate.mcdonalds.com\/mcd\/sustainability\/sourcing\/priority-products.html<\/a><\/p>\n

[Figure 1] http:\/\/marketrealist.com\/2013\/12\/mcds-food-come-exploring-supply-chain\/<\/p>\n

[Figure 2]\u00a0http:\/\/corporate.mcdonalds.com\/mcd\/sustainability\/sourcing\/priority-products.html<\/p>\n","protected":false},"excerpt":{"rendered":"

McDonald’s has been implementing sustainability measures to prevent global climate change but this company also needs to focus specifically on the serious ramifications climate change will have on its own supply chain<\/p>\n","protected":false},"author":1798,"featured_media":13458,"comment_status":"open","ping_status":"closed","template":"","categories":[332,17],"class_list":["post-13292","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-mcdonalds","category-supply-chain"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nDollar Menu in Danger - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/dollar-menu-in-danger\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Dollar Menu in Danger - 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