FOREIGN TRADE UNIVERSITY

SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS

GRADUATION THESIS

Major: International Business Economics

MC DONALD’S – SUSTAINABLE SUPPLY CHAIN

MANAGEMENT AND RECOMMENDATIONS FOR VIETNAM

Student’s Full Name : Dang Bui Quynh Anh

Student ID : 1511150007
Class : A26 – High Quality Program
Cohort : 54
Supervisor : Dr. Bui Duy Linh

Ha Noi, June 2019

 TABLE OF CONTENTS

ACKNOWLEDGEMENT

LIST OF FIGURES AND TABLES

LIST OF ABBREVIATIONS

INTRODUCTION ...................................................................................................1

CHAPTER 1. THEORETICAL BACKGROUND OF SUSTAINABLE

MANAGEMENT OF SUPPLY CHAIN IN ENTERPRISES ............................3

1.1. SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT IN

PRODUCTIONS AND BUSINESS .........................................................................3
1.1.1. The concept of supply chain ...........................................................................3
1.1.2. The concept of supply chain management (SCM) ..........................................7

1.2. THE OPERATION OF SUPPLY CHAIN MANAGEMENT IN

PRODUCTION AND BUSINESS ACTIVITIES ..................................................13
1.2.1. Planning ........................................................................................................14
1.2.2. Sourcing ........................................................................................................14
1.2.3. Manufacturing/Executing .............................................................................16
1.2.4. Distributing/Delivering .................................................................................16
1.2.5. Return ............................................................................................................16

1.3. FACTORS THAT INFLUENCE THE SUPPLY CHAIN PERFORMANCE 17

1.4. SUSTAINABLE SUPPLY CHAIN MANGEMENT IN ENTERPRISES .....20

1.4.1. Defining sustainability in supply chain management ...................................20
1.4.2. Activities in sustainable supply chain management .....................................22
1.4.3. The importance of SSCM .............................................................................24

CHAPTER 2. ANALYSIS OF MC DONAL’S SUPPLY CHAIN

MANAGEMENT MODEL ..................................................................................25

2.1. ABOUT MC DONALD’S ...............................................................................25

2.1.1. Overview .......................................................................................................25
2.1.2. Mc Donald’s establishment and development history ..................................28
2.2. SUPPLY CHAIN MANAGEMENT OF MC DONALD’S ............................29
2.2.1. Components in Mc Donald’s supply chain ...................................................29
2.2.2. Operation of Mc Donald’s supply chain management .................................32

2.3. SUSTAINABLE SUPPLY CHAIN MANAGEMENT OF MC DONALD’S 35

2.3.1. Practices ........................................................................................................36
2.3.2. Achievements ................................................................................................49

2.4. EVALUATION OF SUSTAINABLE SUPPLY CHAIN MANAGEMENT OF

MC DONALD’S .....................................................................................................50
2.4.1. Strengths........................................................................................................51
2.4.2. Weaknesses ...................................................................................................52

CHAPTER 3. ANALYSIS OF SUSTAINABILITY OF VIETNAMESE

FOOD SERVICE INDUSTRY SUPPLY CHAIN MANAGEMENT AND
RECOMMENDATIONS ......................................................................................53

3.1. OVERVIEW OF VIETNAM’S FOOD SERVICE MARKET .......................53

3.1.1. General ..........................................................................................................53
3.1.2. Market share ..................................................................................................53
3.1.3. Big players ....................................................................................................55

3.2. DEVELOPMENT ORIENTATION OF FOOD SERVICE IN VIETNAM ...56

3.3. ANALYSIS OF CURRENT SITUATION OF SUSTAINABILITY OF

SUPPLY CHAIN MANAGEMENT OF VIETNAMESE RESTAUANT
ENTERPRISE .........................................................................................................57
3.3.1. Strengths........................................................................................................58
3.3.2. Weaknesses ...................................................................................................61

3.4. RECOMMENDATIONS .................................................................................62

3.4.1. Locate critical issues across the whole supply chain ....................................62
3.4.2. Link supply-chain sustainability goals to the global sustainability agenda ..63
3.4.3. Assist suppliers with managing impact and make sure they follow through64

CONCLUSIONS ...................................................................................................67

REFERRENCES LIST .........................................................................................68

 ACKNOWLEDGEMENT

This thesis is written to fulfill the requirements for my graduation in Foreign

Trade University. During thirteen weeks of researching and writing this thesis, there
have been many people who have inspired and guided me. I would like to express
my gratitude to them for their supportive help, contribution and precious
recommendations during my writing process.
First and foremost, I would like to give my special and sincere thanks to my
supervisor – Dr. Bui Duy Linh, who has instructed me during the time of writing
this thesis. I could not have been able to complete this thesis without his valuable
suggestions and advices.
Secondly, I want to give my special thanks to the authors whose books are
very valuable knowledge resources for my thesis.
Thirdly, I would grateful to thank my family and friends for their supports and
encouragements whenever I needs.
Finally, my appreciation is to my friends, who read and give me feedback to
improving this thesis.
 LIST OF FIGURES AND TABLES

Figure 1.1 Schematic diagram of a supply chain (shaded) within the total supply
chain network ..............................................................................................................4
Figure 1.2 The basic Supply Chain model ..................................................................5
Figure 1.3 Flow of supply chain .................................................................................6
Figure 1.4 Three levels of Supply Chain Management ..............................................9
Figure 2.1 Brand value of the 10 most valuable fast food brands worldwide in 2018
(in million U.S. dollars) ............................................................................................25
Figure 2.2 Supply chain of Mc Donald’s .................................................................29
Figure 2.3 Process Cycles of Mc Donald’s supply chain .........................................31
Figure 3.1 Market share of FSR and QSR across demographic groups - % visits ...53
Figure 3.2 Market share of key sub-segments in FSR - % visits ..............................54
Figure 3.3 Market share of Non-Vietnam cuisine in year end 2018 - % sales .........54
Figure 3.4 Traffic growth of key sub-segments in FSR ............................................55

Table 1.1 Characteristics of SCM ...............................................................................8

Table 3.1 Current situation of warehouse of Vietnamese enterprises ......................60
 LIST OF ABBREVIATIONS
CGF Consumer Goods Forum
DC Distribution Centers
F&B Food and Beverage
FCR Food Chain Restaurant
FSC Forest Stewardship Council
FSR Full service restaurant
GRSB Global Roundtable for Sustainable Beef
IEO Informal Eating Out
MSC Marine Stewardship Council
NGO Non-governmental Organization
OEM Original Equipment Manufacturer
QSR Quick Service Restaurant
RSPO Roundtable on Sustainable Palm Oil
SC Supply Chain
SCM Supply Chain Management
SSSC Sustainable Supply Steering Committee
TBL Triple Bottom Line
UAE United Arab Emirates
WHO World Health Organization
 1

INTRODUCTION
1. Research overview
Trends in supply chain management, such as the globalization of market
economies, shorter product life cycles, digitalization, and multifaceted customer
expectations, along with developments such as resource scarcity, stricter regulatory
requirements, and a more long-term focus, have led to the evolution of highly
complex supply chains. The incorporation of environmental and social
responsibility issues into the management of supply chains is becoming increasingly
relevant to the success of organizations and their supply chains. Organizations are
considered accountable for their activities that affect the environment, society, and
economy of their own businesses, as well as those of their supply chain participants.
As a result, sustainability within the operations of organizations, as well as within
the supply chain, has become a contemporary issue and an important area of
research. The adoption of sustainability practices not only improves the
environmental and social performance of organizations and their supply chains, but
also provides an opportunity for organizations to acquire a new set of competencies,
which can help them to achieve a competitive advantage by undertaking
sustainability initiatives within and outside the organizational boundaries.
In Vietnam, sustainability of supply chain management has been a noticeable
topic. Despite there were a large number of corporations taking the first steps in
reducing the impact on the environment caused by their supply chain, it is still
required more effort from the other enterprises especially food service ones. Being
aware of this urgency, the writer chooses the topic of “Mc Donald's - Sustainable
supply chain management and recommendations for Vietnam” to find out the
solutions to deal with sustainable problems in supply chain management in Vietnam
by investigating the way of Mc Donald’s dealing with sustainability issue and how
they gained the success with their practices.
2. Research objectives
The thesis aims at identifying pertinent recommendations of solutions for
Vietnamese food service enterprises in term of sustainable supply chain
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management. In order to reach this objective, the following specific objectives are
required to obtain.
Firstly, the research analyzes theoretical frameworks in order to provide
audience basic knowledge of supply chain management, and sustainability aspects.
Secondly, by addressing recent sustainable practices in supply chain
management adopted by Mc Donald’s, the thesis will draw out valuable lessons
used as groundwork for later recommendations.
Lastly, an overview of Vietnamese food service market and sustainable supply
chain management practices will be analyzed to find out the pros and cons as well
as suitable solutions based on Mc Donald’s experiences.
3. Object and research scope
The object of the thesis is practices in sustainable supply chain management of
Mc Donald’s and Vietnamese food service enterprises as well as their achievements
and limitations.
The research scope focuses on supply chain management theories which have
been developed for the last forty years and sustainable supply chain management
practices which have been discussed for the last ten years.
4. Research methodology
 Using the information, collecting data available from reports and related
documents in Vietnamese, English books, legal documents, magazines, thesis
and Internet.
 Analysis, comparative method, and synthesis method.
5. Thesis structure
Except for introduction and conclusion parts, list of tables and figures
catalogue, reference material catalogue, the thesis is organized as 3 following
chapters:
Chapter 1: Theoretical background of sustainable management of supply
chain in enterprises
Chapter 2: Analysis of Mc Donald’s supply chain management model
Chapter 3: Analysis of sustainability of Vietnamese food service industry
supply chain management and recommendations
 3

CHAPTER 1. THEORETICAL BACKGROUND OF SUSTAINABLE

MANAGEMENT OF SUPPLY CHAIN IN ENTERPRISES
1.1. SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT IN
PRODUCTIONS AND BUSINESS
1.1.1. The concept of supply chain
1.1.1.1. Definition
There have been a variety of different definitions of logistics and supply chain.
Firstly, as reported by Beamon B. (1998), a supply chain (SC) is “a structured
manufacturing process wherein raw materials are transformed into finished goods,
then delivered to end customers”. Also, Tecc.com.au (2002) defines supply chain as
“a chain starting with raw materials and finishing with the sale of the finished
good”.
Besides, Bridgefield Group (2006) defines supply chain as “a connected set of
resources and processes that starts with the raw materials sourcing and expands
through the delivery of finished goods to the end consumer”. Pienaar W. (2009) also
defines supply chain as “a general description of the process integration involving
organizations to transform raw materials into finished goods and to transport them
to the end-user”.
The above definitions centralize on the core determinants of an effective
supply chain. They connote the need for a provenance and a destination within
which goods flow and accept the approach that overall supply chain start with
resources (raw materials), combine a number of value adding activities and finish
with the transfer of a finished goods to consumers.
The following definitions are more complicated. They include an extended
view of a supply chain and integrate extra activities in the function of the supply
chain.
First of all, Little, A. (1999) defines a supply chain as “the combined and
coordinated flows of goods from origin to final destination, also the information
flows that are linked with it”.
After that, According to Chow, D. and Heaver, T. (1999), supply chain is the
group of manufacturers, suppliers, distributors, retailers and transportation,
 4

information and other logistics management service providers that are engaged in
providing goods to consumers. A supply chain comprises both the external and
internal associates for the corporate.
Meanwhile, according to Chopra and Meindl (2001), supply chain can also be
defined as a group of inter-connected participating companies that add value to a
stream of transformed inputs from their source of origin to end-products or services
that are demanded by the designated end-customers. The supply chain not only
includes the manufacturer and its suppliers, but also (depending on the logistics
flows) transporters, warehouses, retailers, and consumers themselves. It includes,
but is not limited to, new product development, marketing, operations, distribution,
finance, and customer service. Figure 1.1 depicts a generic supply chain within the
context of the total supply chain network. Each firm belongs to at least one supply
chain: i.e. it usually has multiple suppliers and customers.
Figure 1.1 Schematic diagram of a supply chain (shaded) within the total supply
chain network

Source: Jack Van der Vorst (2004)

To conclude, a supply chain can be considered as a sequence of (decision
making and execution) processes and (material, information and money) flows that
aim to meet final customer requirements and take place within and between
different supply chain stages.
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1.1.1.2. Components in the supply chain

There are a number of key characteristics that have been used to portrait a
supply chain (Dawei Lu, 2011). First, a supply chain is formed and can only be
formed if there are more than one participating companies. Second, the
participating companies within a supply chain normally do not belong to the
same business ownership, and hence there is a legal independence in between.
Third, those companies are inter-connected on the common commitment to add
value to the stream of material flow that run through the supply chain. This material
flow, to each company, comes in as the transformed inputs and goes out as the
value added outputs.
Intuitively, one can imagine a supply chain as something resembles a “chain”, in
which the “links” are the participating companies that are inter-connected in the value
adding process (see Figure 1.2). The link on the upstream side of the material flow is
the supplier’s supplier; and on the downstream side of the material flow is the
customer. There is usually an OEM – Original Equipment Manufacturer in between.
The OEM sometimes is represented by OBM – Original Brand Manufacturer, or
sometimes simply the “focal company.”
Figure 1.2 The basic supply chain model

Source: Dawei Lu (2011)

At the end of a supply chain is the product and/or service that are created by the
supply chain for the end consumer. Thus, the fundamental reason of a supply chain’s
existence is hinged on to serving the end-consumer in the market place. The degree
of how well a supply chain can serve their consumer ultimately defines its
competitive edge in the market place.
 6

It is understandable that in real-world a supply chain is much more complex

than the one depicted in Figure 1.2. It is not really a “chain”, rather it is more like a
“network”, considering that there are usually multiple suppliers and multiple
customers for each participating companies in the chain. There are also possible
nested chains within the chains. For example, an engine manufacturing supply chain
is a nested supply chain within the connected automobile supply chain.
1.1.1.3. Flow of supply chain
Since the business connections between organisations are pervasive, how
could one draw a boundary of a supply chain? In order to answer this question, one
needs to understand the three intrinsic flows of a supply chain (Dawei Lu, 2011)
Figure 1.3 Flow of supply chain

Source: Dawei Lu (2011)

Material Flow: All manufacturing supply chains have material flows from the
raw materials at the beginning of the supply chain to the finished products at the end
of the supply chain. A furniture-making supply chain will have the wood cut down
from forest at the beginning of its supply chain and home furniture at the end of
supply chain. The continuous flow of wood being transformed through the chain
and end up to furniture ties the whole supply chain together and defines its clear
boundary. A furniture supply chain can never be confused with a chocolate
manufacturing supply chain because the material flows in between are clearly
different and never will they cross with each other.
 7

Information Flow: All supply chains have and make use of information
flows. Throughout a supply chain there are multitude of information flows such as
demand information flow, forecasting information flow, production and scheduling
information flows, and design and New Product Introduction (NPI) information
flows. Unlike the material flow, the information can run both directions, towards
upstream and downstream alike. Interestingly, most of them are unique to the
specific supply chain. The information of woman’s fashion clothing has no value to
a motorbike supply chain. Any supply chain will have its own set of information
flows that are vital to its existence which are often jealously protected against those
of other supply chains.
Finance Flow: All supply chains have finance flow. It is basically the money
flow or the blood stream of a supply chain. Without it, a supply chain will surely
demise. However, for any supply chain, there is only one single source of such finance
flow – the end-consumer. This understanding of single source of finance has led to a
concept of “single entity” perspective of a supply chain, which is a very useful
foundation for supply chain integration and collaboration. The distribution and
sharing of this single financial resource fairly across a supply chain will allow for
the better alignment between the contribution and reward for the participating
companies.
1.1.2. The concept of supply chain management (SCM)
1.1.2.1. Definition
Numerous supply chain management definitions have been presented in the
academic literature.
It first appeared in logistics literature in 1982 as an inventory management
approach with an emphasis on the supply of raw materials (Oliver and Webber,
1982).
After that, around 1990, academics first described SCM from a theoretical
standpoint to clarify how it differed from more traditional approaches to managing
the flow of materials and the associated flow of information (Cooper and Ellram,
1993; see Table 1.1).
 8

Table 1.1 Characteristics of SCM

Elements Traditional Management Supply Chain Management

Inventory management Independent efforts Joint reduction in channel

approach inventories

Total cost approach Minimise firm costs Channel-wide cost

efficiencies
Time horizon Short term Long term

Amount of information Limited to needs of current As required for planning

sharing and monitoring transactions and monitoring purposes

Amount of co-ordination Single contact for the Multiple contacts between

of multiple levels in the transaction between levels in firms and levels of
channel channel pairs channel

Joint planning Transaction-based On-going

Compatibility of corporate Not relevant Compatible at least for key

philosophies relationships

Breadth of supplier base Large to increase Small to increase co-

competition and spread ordination
risk

Channel leadership Not needed Needed for co-ordination

focus
Amount of sharing of Each on its own Risks & rewards shared
risks & rewards over longer term

Speed of operations, ‘Warehouse’ orientation Distribution Centre

information and inventory (storage, safety stock). orientation (turnover speed).
flows Interrupted by barriers to Interconnecting flows; Just-
flows. Localised to In-Time, Quick Response
channel pairs across the channel
Source: Cooper and Ellram (1993)
 9

Besides, literature on SCM stresses the need for collaboration among

successive factors, from primary producer to final consumers, to better satisfy
consumer demand at lower costs (Bechtel and Jayaram, 1997; Lambert and Cooper,
2000). A driving force behind SCM is the recognition that sub-optimisation occurs
if each organisation in a supply chain attempts to optimise its own results rather
than to integrate its goals and activities with other organisations to optimise the
results of the chain (Cooper et al., 1997). SCM focuses on the management of
relationships.
All in all, SCM could be defined as the integrated planning, co-ordination and
control of all business processes and activities in the supply chain to deliver
superior consumer value at less cost to the supply chain as a whole whilst satisfying
requirements of other stakeholders in the supply chain.
1.1.2.2. Supply chain management levels
Supply chain management has changed little since Booz, Allen & Hamilton
introduced the term in 1982. Historically, functions-from procurement through
manufacturing, distribution, sales, and marketing-“owned” parts of the supply
chain. Conflicting objectives and distortions between and among them led to delays,
excess capacity, and excess inventory throughout the supply chain. Booz-Allen’s
supply chain management approach called for an overarching supply chain strategy
and control architecture to align functional activities with business objectives (see
Figure 1.4). There are three levels of SCM: strategic, tactical, and operational.
Figure 1.4 Three levels of supply chain management

Source: Keith Oliver et al. (2001)

 10

Strategic SCM deals with future planning than in looking at market

evaluation, capacity issues, new products, and technology changes. This planning is
addressing issues that may be factors several years out. This is accomplished at the
executive management level. An effective supply chain begins here. At this level of
supply chain management, large scale decisions will be made that affect the entire
process. Some of the strategic choices made here include, a site and purpose for the
organization, choosing suppliers, vendors, logistics handlers, and other members of
the supply chain, inventory and product management, innovation and
improvements, required IT systems, and others. Decision to adopt supply chain
software would be made at this level. After implementing the software, strategic
decision would be made easier as there have been quick access to the information
needed to make informed decisions and spot trends or patterns in the organization.
Tactical SCM involves a shorter planning cycle. It is more concerned
demand planning, inventory planning, and supply planning. This is determined at a
less senior level than Strategic SCM. Processes are defined at this level of supply
chain management and play a huge role in controlling the cost of operations and
minimizing risks. Supply chain software can provide the insight and control needed
to make sure the ordering, purchasing, inventory levels and logistics are set up to
provide the maximum profit possible while also satisfying customer demand.
Operational SCM is current planning activities measured in at most
weeks. Operational SCM involves the majority of the operations. It includes
demand fulfillment, scheduling, production, transport, and monitoring. This is the
level at which managing the actual production processes and day to day activities
required that keep the supply chain active. This includes forecasting, scheduling,
monitoring logistics, settling damages or losses with suppliers, vendors, or clients,
and managing inventory and the comings and goings of materials and finished
products. Supply chain software can help schedule the production process, forecast
sales, manage changes, handle vendor agreements, as well as process customer
orders and choreograph the movement of products to and from warehousing, among
other things.
 11

There are many decisions that are made when looking at SCM. They follow
the above categories. Strategic decisions are made over longer periods of time and
linked to a corporation’s strategy. Operational decisions are more short term and
look at day to day activities. Four major decisions are considered. They include
decisions on location, production, inventory, and transportation. A geographically
strategic placement of the production facilities is key to creating a successful supply
chain. Decisions on what products to be produced have to be made wisely and
strategically. Also, where these products (which locations) will be manufactured is
very important to SCM. Inventory decisions and management is critical. Some
inventories are necessary to hedge against uncertainty, but this comes with a
cost. Managing these inventories efficiently will be of benefit to the
corporation. Transportation decisions include cost versus benefit. Air
transportation is costly, but fast and reliable. Other modes of transportation may be
cheaper, but the sacrifice is having to hold inventories due to delays that may
occur. If the above decisions are made with careful and strategic thought as well as
with concern for integration, the supply chain should be efficient and successful.
1.1.2.3. Objectives of supply chain management
The fundamental objective is to "add value" (Sotiris Zigiaris, 2000). That
brings us to the example of the fish fingers. During the supply chain management
'98 conference in the United Kingdom in 2000, a participant in a supply chain
management seminar said that total time from fishing dock through manufacturing,
distribution, and final sale of frozen fish fingers for his European grocery-products
company was 150 days. Manufacturing took a mere 43 minutes. That suggests an
enormous target for supply chain managers. During all that time, company capital is
almost literally in this case-frozen. What is true for fish fingers is true of most
products.
Examine any extended supply chain, and it is likely to be a long one. James
Morehouse, a vice president of consulting firm A.T. Kearney, reports that the total
cycle time for corn flakes, for example, is close to a year and that the cycle times in
the pharmaceutical industry average 465 days. In fact, Morehouse argues that if the
supply chain, of what he calls an "extended enterprise," is encompassing everything
 12

from initial supplier to final customer fulfilment, could be cut to 30 days, that would
provide not only more inventory turns, but fresher product, an ability to customise
better, and improved customer responsiveness. "All that add value," he says. And it
provides a clear competitive advantage.
Therefore, supply chain management becomes a tool to help accomplish corporate
strategic objectives including:

 Achieving optimum utilization of resources primarily through business

process integration under which interdependent and interrelated departments
are linked.
 Attaining sustainable growth and profitability by making strategic
partnerships with suppliers, contractors, customer service specialists, product
distributors, logistics providers, financial institutions.
 Managing business process integration to serve the business or vested
interests of all stakeholders (stockholders, officers/managers, production
engineers and workers, employees, suppliers-contractors, wholesalers-
retailers, banking community, and finally customers).
1.1.2.4. Functions of supply chain management
Supply chain management is a cross-function approach including managing
the movement of raw materials into an organization, certain aspects of the internal
processing of materials into finished goods, and the movement of finished goods out
of the organization and toward the end-consumer (Andreas Wieland, 2008). As
organizations strive to focus on core competencies and becoming more flexible,
they reduce their ownership of raw materials sources and distribution channels.
These functions are increasingly being outsourced to other entities that can perform
the activities better or more cost effectively. The effect is to increase the number of
organizations involved in satisfying customer demand, while reducing management
control of daily logistics operations. Less control and more supply chain partners
led to the creation of supply chain management concepts. The purpose of supply
chain management is to improve trust and collaboration among supply chain
 13

partners, thus improving inventory visibility and the velocity of inventory

movement.
To be more specific, supply chain management involves five main functions:
aligning flows, integrating functions, coordinating processes, designing complex
systems, and managing resources.
Aligning flows: As money, materials, and information are passed between
customers and suppliers, supply chain management keeps them flowing up and
down a supply chain.
Integrating functions: Supply chain management connects the activities of
logistics, purchasing, and operations to ensure that they focus on goals that benefit
overall performance.
Coordinating processes: Supply chain management increases profitability by
aligning the processes used to plan, source, make, deliver, and (when necessary)
return a company’s products and services.
Designing complex systems: Simulation tools can predict how a supply chain
will behave and show how small changes can cause major disruptions in the flow of
materials.
Managing resources: Supply chain managers are responsible for using
people, processes, and technology to meet the needs of customers.
1.2. THE OPERATION OF SUPPLY CHAIN MANAGEMENT IN
PRODUCTION AND BUSINESS ACTIVITIES
Supply chain management is a process used by companies to ensure that their
supply chain is efficient and cost-effective. A supply chain is the collection of steps
that a company takes to transform raw materials into a final product (Dawei Lu,
2011). The five basic components of supply chain management discussed below
are: Planning, Sourcing, Manufacturing/Executing, Distributing/Delivering and
Return.
 14

Figure 1.5 Five basic components of supply chain management

Source: holisolscs.ae (2016)

1.2.1. Planning
The initial stage of the supply chain process is the planning stage. A plan or
strategy need to be developed in order to address how the products and services will
satisfy the demands and necessities of the customers. In this stage, the planning
should mainly focus on designing a strategy that yields maximum profit.
For managing all the resources required for designing products and providing
services, a strategy has to be designed by the companies. Supply chain management
mainly focuses on planning and developing a set of metrics.
1.2.2. Sourcing
After planning, the next step involves developing or sourcing. In this stage,
companies mainly concentrate on building a strong relationship with suppliers of
the raw materials required for production. This involves not only identifying
dependable suppliers but also determining different planning methods for shipping,
delivery, and payment of the product.
Companies need to select suppliers to deliver the items and services they
require to develop their product. So in this stage, the supply chain managers need to
construct a set of pricing, delivery and payment processes with suppliers and also
create the metrics for controlling and improving the relationships.
One of the mission critical tasks of purchasing function is to identify and
select the suppliers. This is particularly true in terms of strategic components and
bottleneck components. In both of these categories, suppliers are by no means
ascertained. The quality of the suppliers and the righteousness of their selection will
 15

have direct implications on the supply chain’s long-term competitiveness. The

processes of going about selecting suppliers can be suggested as follows, but by no
means comprehensive and universal:
 Set up selection criteria
 Initial contact
 Formal evaluation
 Price quotation
 Financial data
 Reference checking
 Supplier visit
 Audits, assessments or surveys
 Initiation test
Apparently, these processes are mainly around setting and taking measures
against the criteria. However, there are three significantly different approaches
toward supplier selection. The first is based on the product that the supplier can
deliver. This approach will normally check the product prototype to see if the
quality and technical specifications can be met and the delivery terms are
satisfactory. The second is based on the capability that the supplier displays. It
typical checks whether the supplier has the design and development capability,
strategic investment in technology and skills, and up to scratch management. This
capability approach is often used for long-term supplier selection and can be done
well before the idea of component is taking shape. The third is the combination of
product and capability selection. It applies to when a strategically important new
part is to be outsourced to a new supplier. Not only the supplier must comply with
all the product specific requirements but also should have the capability of making
future generation of the products in the long run, so as to sustain the supply chain
development. Some frequently used criteria for capability filtering are as follows:
 Total quality management policy
 BS 5750/ ISO 9000 certification or equivalent
 Implementing latest techniques e.g. Just-In-Time
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 In-house design capability

 Ability to supply locally or world-wide as appropriate
 Consistent delivery performance, service standards and product quality
 Attitude on total acquisition cost
 Willingness to change, flexible attitude of management and workforce
 Favourable long term investment plan
Finally, the supply chain managers can combine all these processes for
handling their goods and services inventory. This handling comprises receiving and
examining shipments, transferring them to the manufacturing facilities and
authorizing supplier payments.
1.2.3. Manufacturing/Executing
The third step in the supply chain management process is the manufacturing or
making of products that were demanded by the customer. In this stage, the products
are designed, produced, tested, packaged, and synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the activities
required for manufacturing, testing, packaging and preparation for delivery. This
stage is considered as the most metric-intensive unit of the supply chain, where
firms can gauge the quality levels, production output and worker productivity.
1.2.4. Distributing/Delivering
The fourth stage is the distributing stage. Here, the products are delivered to
the customer at the destined location by the supplier. This stage is basically the
logistics phase, where customer orders are accepted and delivery of the goods is
planned. The delivery stage is often referred as logistics, where firms collaborate for
the receipt of orders from customers, establish a network of warehouses, pick
carriers to deliver products to customers and set up an invoicing system to receive
payments.
1.2.5. Return
The last and final stage of supply chain management is referred as the return.
In the stage, defective or damaged goods are returned to the supplier by the
customer. Here, the companies need to deal with customer queries and respond to
their complaints etc.
 17

This stage often tends to be a problematic section of the supply chain for many
companies. The planners of supply chain need to discover a responsive and flexible
network for accepting damaged, defective and extra products back from their
customers and facilitating the return process for customers who have issues with
delivered products.
1.3. FACTORS THAT INFLUENCE THE SUPPLY CHAIN
PERFORMANCE
The SC networks are composed of interdependent relationship developed with
the goal of deriving mutual benefits (Chen and Paulraj, 2004A). These relationships
are based on the theory of strategic management, which stresses the “collaborative
advantage” (Kanter, 1994) as opposed to “competitive advantage”. The relationship
aspect is critically important to the effective management of the SC. As a result, the
relationship between the companies in the SC plays a key role in the SC overall
performance. The concept of SCM and the relationship between the members in the
SC were more adversarial than cooperative. As a result, the production costs were
high, the product development cycle was long, order fulfilment was long,
transportation costs were high, etc. After manufacturers realized the benefits of the
cooperative relationship, their performance increased. Consequently, this gave a
bigger boost to the performance of the entire SC more than just the sum of the
increased performance of the individual members. According to Lambert and
Cooper (2000), the overall performance of the SC is a synergy of the integrated
companies in the process of SCM. Based on the literature of SCM, the relationships
between the members of the SC incorporate some key aspects that have an influence
on SC performance, which are:
• Longevity of the relationship (i.e. long-term or short-term)
• Supply base reduction
• Supplier involvement
• Information sharing
• Cross-functional teams
• Trust and commitment
 18

i. Longevity of the relationship and performance implications

Suppliers contracts have increasingly become long-term, buyer-supplier are
creating strategic alliances. Consequently, the overall performance of the SC has
increased. One way to explain this is by implementing the transaction cost theory
(Williamson, 1979). The transaction cost emerges from the assumption of
opportunism behaviour and bounded rationality (Williamson, 1975). According to
Williamson (1975), some economic agents are rational by intention, but subject to
shortcomings that influence their decisions. Due to these shortcomings, some
economic agents will pursue opportunistic behaviour like stealing, lying, cheating,
distorting, misleading, etc (Williamson 1975 and 1979). In the case of short-term
relationship, the supplier has incentives to engage in opportunistic behaviour since
it can achieve short-term benefits. Burt and Collins (2006) argue that in the long-
term relationship or strategic alliances both the supplier and buyer have made
specific investment in their relationship. In this case none of the party engaged in
the relationship do not have incentives to pursue opportunistic behaviour because
the short-term benefits of these behaviours, are smaller than the net present value of
the benefits generated by the long-term relationship. As a result, the SC
performances increase in terms of product quality, cost reduction, etc. Some other
benefits of the long term-relationship that influence the SC performance are:
• Increased intensity of buyer-supplier coordination (De Toni and Nassimbeni,
1999).
• According to Kotable et al (2003), suppliers will become part of a well-
managed chain, through long-term relationships and will have a long lasting effect
on the competitiveness of the entire chain.
ii. Supply base reduction and performance implication
According to Newman (1988), the contemporary buyer - supplier relationship
has shifted from contracting a large number of suppliers to the use of fewer
qualified/certified suppliers. This shift has multiple benefits in terms of SC
performance (Chen and Paulraj, 2004B):
• Reduced inventory management cost
• Increased economies of scale based on order volume
 19

• Reduced time of order fulfilment due to dedicated capacity

• Work-in-process inventory from suppliers, and
• Volume consolidation and quantity discount
The two words that best summarises the above benefits are increased
efficiency and reduced cost of the SC.
iii. Supplier involvement and performance implications
The practice of involving the supplier to the product development process,
according to Burton (1988), is attributed to the fact that supplier’s accounts for 80%
of product lead time problems and 30% of quality problems. Some of the benefits of
involving the supplier in the product development process to the SC performance
are (Cuthil et al, 1997):
• Reduced time of product development
• Increased product quality, and
• Cost reduction
iv. Information sharing and performance implications
Information sharing changes the way the SC is managed and these changes
may lead to, among other things, lower inventories (Simchi-Levi et al, 2003).
According to Simchi-Levi et al (2003), one can design and operate the SC much
more effectively and efficiently by effectively use of information available in the
SC. One of the benefits of sharing information in the SC is the reduction of the so-
called bullwhip effect. It is important to explain the bullwhip effect than understand
the role of information sharing in reducing it. Simchi-Levi et al (2003) describe the
bullwhip effect as the modest change of customer demand that be distorted and
amplified toward the upstream end of the supply chain resulting in large variation of
orders placed upstream. This means that even if the customers demand for specific
product does not fluctuate much, inventory and back-order levels fluctuate
significantly across the SC.
v. Cross-functional teams, trust and commitment and performance
implications
SCM encompasses a wide range of activities because of this; expertise is
required from various functions (Chen and Paulraj, 2004A). According to Ellram
 20

and Pearson (1993), cross-functional teams contribute to cost reduction, supplier

selection, improved communication, products design and total quality initiatives. As
a result, SC performance should improve with the increase use of cross-functional
teams. Trust and commitment is a factor that does not have a direct impact on SC
performance. However, cooperation relationships arise directly from trust and
commitment (Morgan and Hunt, 1994). Without these two key elements, the
relationship between SC members will be inefficient in the best case and will cease
to exist at worst case. In a situation where trust and commitment misses in the
relationship, both of the parties will have initiatives to engage in opportunistic
behaviour (Williamson, 1975 and 1979). As a result, the SC performance should
decrease.
1.4. SUSTAINABLE SUPPLY CHAIN MANGEMENT IN
ENTERPRISES
1.4.1. Defining sustainability in supply chain management
To address inconsistent definitions of sustainability in existing literature of
supply chain management, Carter and Rogers (2008A) came up with the concept of
‘true sustainability’. They argued that consideration of environmental and social
issues should be “coupled with economic objectives” and incorporated in
company’s strategic long-term planning (Carter and Rogers 2008A). Such definition
of sustainability is though not new and based on the well-known idea of triple
bottom line (TBL) perspective.
Seuring and Muller (2008) have also noticed high diversity of sustainability
comprehension in supply chain management and referred to “the triple bottom line
approach, where a minimum performance is to be achieved in the environmental,
economic and social dimensions. This can be comprehended as being in line with
the notion of order qualifiers a company has to fulfill before it is able to even
compete for orders”.
Such explicit aligning of economic goals and sustainability concerns creates a
business case for acceptance and adoption of sustainable supply chain management
(SSCM) practices (Carter and Rogers, 2008A). In literature review carried out by
 21

Seuring and Muller (2008), majority of revised papers also refer to the win-win
situations of SSCM implementation.
However, other 72 publications in the same literature analysis share lots of
criticism, pointing out on variety of tensions occurring between three aspects of
TBL. For instance, Newton and Harte (1997) argued that ‘easy wins’ stressed in the
literature should not be misperceived as long-term outcomes. Yet, studies pointing
out on long-term positive correlation between environmental and economic
performance are not available (Seuring and Muller 2008). On the opposite, Gold et
al. (2010) granted their votes for sustainability in supply chain to be source of inter-
organizational competitive advantage.
Trying to incorporate the notion of sustainability based on the TBL concept
into supply chain management practices, Carter and Rogers (2008A) provided the
following definition of SSCM as “the strategic, transparent integration and
achievement of an organization’s social, environmental, and economic goals in the
systemic coordination of key inter-organizational business processes for improving
the long-term economic performance of the individual company and its supply
chains”.
Similar definition proposed by Seuring and Muller (2008) where SSCM is
defined as “the management of material, information and capital flows as well as
cooperation among companies along the supply chain while taking goals from all
three dimensions of sustainable development, i.e., economic, environmental and
social, into account which are derived from customer and stakeholder requirements.
In sustainable supply chains, environmental and social criteria need to be fulfilled
by the members to remain within the supply chain, while it is expected that
competitiveness would be maintained through meeting customer needs and related
economic criteria”.
Interesting distinction between three interrelated elements of supply chain is
highlighted by Preuss (2005), e.g. flow of goods and materials, information flow
and supply chain relationships. Thus to achieve SSCM practices, optimal level of
sustainability performance should be attained in managing all of these three
constituent elements of supply chain. Preuss (2005) concluded that while companies
 22

are increasingly referring to sustainability improvements along supply chain in

environmental policy documents, the reality revealed suboptimal level of
performance in regard to sustainable supply chain management, “namely in the
management of the transformation of materials, the management of information
flows and the management of supply chain relationships” (Preuss,2005).
To conclude, sustainable supply chain management could be understood as the
linkage between supply chain management and environmental, social, and
economic issues, gains increasing interest in research and business.
1.4.2. Activities in sustainable supply chain management
1.4.2.1. Sustainable Design and Packaging:
The first activity in implementing SSCM is developing sustainable design
strategies for the product and for the package. This activity also includes designing
products in a way that could be recycled or remanufactured. Navin-Chandra (1991)
was the first researcher to explain the need for a sustainable design to eliminate the
impact of product waste. Baojuan (2008) asserts that sustainable design has an
important impact on resources and environment. He believes that “It would
optimize the relevant designing factors, besides the functions, quality, development
cycling, and costs.” Sustainable design will lead to achieve a successful recycling
process. Also, it helps organizations to earn customers’ respect, save money and
lead to better products. In the middle of the 90’s, interest in implementing
environmental packaging, choosing suitable raw materials according to
environmental standard, and attention for recycling were observed. Baojuan (2008)
believes that sustainable packaging can be achieved by using sustainable design to
reduce package materials.
1.4.2.2. Sustainable Purchasing:
Developing SSCM requires implementing sustainable purchasing strategies.
Liang & Chang (2008) confirm that sustainable purchasing leads to reducing waste
and hazardous materials by using environmental raw materials. Also, sustainable
purchasing plays a significant role in SSCM because it assists organizations in
reducing the source of pollution and waste by using strategies such as recycling,
scrapping, dumping, or sorting and using biodegradable packaging.
 23

1.4.2.3. Sustainable Production:

Production is the second activity that is important in developing SSCM.
Environmental production can be achieved by using clean production method, new
technology, and reducing raw materials and resources to reach low input, high
output and low pollution. Lean manufacturing or the Just-in-time technique is the
first production strategy that achieved environmental goals or named as
environmental production. Srivastava (2007) asserts that “lean manufacturing is an
important consideration in reducing the environmental impact of the production
phase”. Liang & Chang (2008) believe that lean production is helpful in improving
environmental performance of manufacturers through activities such as waste
reduction and minimizing hazardous wastes. King & Lenox (2001) affirm that “lean
production leads to improvements in environmental implementation and it assists
organizations in reducing the marginal cost of pollution. Rothenberg, PiI, &
Maxwell (2001) identify that lean plants aim to minimize waste products and
buffers in environmental technology and management. Recycling is another
production activity that helps in developing SSCM. Baojuan (2008) confirms that
recycling helps organizations to improve the environmental image in front of their
customers. Sustainable products lead to achieve sustainable in recycling for the
products and some parts. Another activity of implanting sustainable production is
reverse logistics, which is accepting products for remanufacturing and recycling
purposes. Economic factors such as reducing production costs also helped
organizations to adopt reverse logistics.
1.4.2.4. Sustainable Transportation:
Sustainable transportation is another important element in developing effective
SSCM. Many factors including fuel sources, type of transport, infrastructure, and
operational and management practices should be considered in developing
environmentally-friendly transportation systems. Kam, Christopherson, Walker, &
Smyrnios (2006) believe that these factors and the dynamics that connect them,
“determine the environmental impact generated in the transportation logistics phase
of the supply chain.”
 24

1.4.3. The importance of SSCM

Integrating environmental practice in SCM activities will help organizations
achieving many advantages. Many researchers explore the advantages of the SSCM.
Hock & Erasmus (1990), Liang & Chang (2008), Carter & Easton (2011), and
Carter and Rogers (2008B) believe that applying SSCM will help in reducing
environmental risks, pollution, and improving environmental performance. Also,
they assert that by applying SSCM, organizations will achieve marketing
advantages, improve corporate image and organizational reputation. Cost reduction
is another important advantage for implementing SSCM. In addition, Farahani,
Asgari, & Davarzani (2009) believe that it is important to integrate suppliers in a
participative decision-making process, and protecting brand reputation and
addressing corporate social responsibility. Carter & Easton, (2011) summarize the
benefits of using SSCM by reducing packaging through using more effective design
for reuse and recycling, lowering health and safety costs, reducing turnover and
workforce costs due to safer warehousing and transport, improving product quality,
and lowering disposal costs. Certain environmental and social initiatives help
organization in having the closest relationship to consumers by sponsoring
environmental activities and providing grants for local environmental projects and
activities.
 25

CHAPTER 2. ANALYSIS OF MC DONAL’S SUPPLY CHAIN MANAGEMENT

MODEL
2.1. ABOUT MC DONALD’S
2.1.1. Overview
Mc Donald’s Corporation is the world largest chain of fast food restaurant
with the highest brand value of 126,004 million USD (Statista, 2019) (see Figure
2.1), with 37,855 restaurants in 120 countries (Mc Donald’s, 2018). About 210,000
people work at the fast-food chain making Mc Donald’s one of the largest
employers in the world (Mc Donald’s, 2019). Mc Donald’s serves 68 million
customers per day, which is greater than the population of France. According to
IBISWorld, in 2014, Mc Donald’s had the largest share in the fast food restaurant
industry of 17% in the U.S. The closest competitor, Yum! Brands (or YUM), had a
market share of 11% (Adam Jones, 2014).
Figure 2.1 Brand value of the 10 most valuable fast food brands worldwide
in 2018 (in million U.S. dollars)

Source: Statista (2019)

 26

i. Products
Mc Donald’s offers a uniform menu that includes fries, the Big Mac, chicken
sandwiches, chicken nuggets, hamburgers, the quarter pounder with cheese, salads,
wraps, desserts, soft drinks, and other beverages. However, to ensure that they
connect with the international markets, Mc Donald’s offers locally relevant food
menus as well. For example, they serve gazpacho in Spain, the black and white
burger in China, and the Veg Pizza McPuff in India.
ii. Company values
Mc Donald’s delivers an experience to theirs customer through theirs
trademark “quality, service, cleanliness, and values (or QSC&V).” To deliver this
experience they use what is called a “Plan to Win” strategy supported by theirs
three-legged stool approach. Plan to Win is a strategic initiative that focuses on
customer experience through the five Ps–People, Product, Place, Price, and
Promotion. “Three-legged stool” of owner/operators, suppliers, and company
employees, is their foundation, and balancing the interests of all three groups is key.
Without these three legs, the stool won’t stand firm.
iii. Business segments
Mc Donald’s and theirs competition, Yum! Brands and Burger King use the
franchise model as well as the company-operated model - the two most common
models in a restaurant industry to operate their restaurants across the world. About
93% of Mc Donald’s' restaurants are franchised and only 7% are company owned
restaurants (Mc Donald’s, 2018). Mc Donald’s categorizes theirs markets in four
segments - U.S., Europe, Asia or Pacific, Middle East, and Africa, and other
countries and corporate.
iv. Competition
According to the Annual Report of Mc Donald’s (2018), Mc Donald’s
restaurants compete with international, national, regional and local retailers of food
products. The Company competes on the basis of price, convenience, service, menu
variety and product quality in a highly fragmented global restaurant industry.
In measuring the Company’s competitive position, management reviews data
compiled by Euromonitor International, a leading source of market data with
 27

respect to the global restaurant industry. The Company’s primary competition,

which is referred to as the informal eating out ("IEO") segment, includes the
following restaurant categories defined by Euromonitor International: quick-service
eating establishments, casual dining full-service restaurants, street stalls or kiosks,
cafés, 100% home delivery/takeaway providers, specialist coffee shops, self-service
cafeterias and juice/smoothie bars. The IEO segment excludes establishments that
primarily serve alcohol and full-service restaurants other than casual dining.
v. Financial performance
The Annual Report (Mc Donald’s, 2018) showed that the Company's 2018
financial performance continued to demonstrate that the Velocity Growth Plan is
working. By focusing on the aforementioned three pillars, and the identified growth
accelerators, the Company has achieved 14 consecutive quarters of positive global
comparable sales. In 2018, global comparable sales increased 4.5% and global
comparable guest counts increased 0.2%.
In addition to improved comparable sales and consolidated guest count
performance, the Company achieved the following financial results in 2018:
• System-wide sales increased 6% (6% in constant currencies).
• Operating margin, defined as operating income as a percent of total revenues,
increased from 41.9% in 2017 to 42.0% in 2018.
• Diluted earnings per share of $7.54 increased 18% (18% in constant
currencies).
• Cash provided by operations was $6.97 billion.
• Capital expenditures of $2.74 billion were allocated mainly to reinvestment
in existing restaurants and, to a lesser extent, to new restaurant openings.
• Free cash flow was $4.23 billion.
• Across the System, about 1,100 restaurants (including those in their
developmental licensee and affiliated markets) were opened.
• The Company returned $8.5 billion to shareholders through share
repurchases and dividends for the year and increased the cash return to shareholder
target for the 3-year period ending 2019 to about $25 billion.
 28

2.1.2. Mc Donald’s establishment and development history

The establishment and development of Mc Donald’s is formed from the 40s
and lasts until now. According to the expansion of Mc Donald’s and the
development history is divided into three phases:
Phase 1: US market (1954-1970):
In 1952, two McDonald brothers began their restaurant franchise. And the first
Mc Donald's franchisee was Neil Fox.
In 1954, entrepreneur and salesman Ray Kroc was fascinated by Mc Donald’s.
He saw its potential and popularity. After reviewing the operating system at Mc
Donald’s, he approached two Mc Donald brothers to convince for franchising.
In February 1955, Kroc established Mc Donald’s system joint venture
company, creating a legal structure for his franchise brand. Kroc opened his 9th Mc
Donald’s restaurant in Des Plaines, Illinois on April 15.
In 1960, Kroc's company was changed to Mc Donald’s Group.
In 1961, the Mc Donald’s brothers agreed to sell all Mc Donald’s franchise
rights to Kroc for $ 2.7 million.
In 1970, when the parent company's business situation in the US declined, Ray
Kroc started a new campaign full of determination and succeeded in promoting the
presence of Mc Donald’s brand worldwide. .
Phase 2: Expansion to Europe market (1970 - 1999):
In 1971, Mc Donald’s started selling instant London sandwiches with 3,000
stores opened in London. After that, thousands of restaurants opened around the
world gave Mc Donald’s an additional 27% of revenue each year.
Phase 3: Focusing on developing Asian markets (2000 – now)
By 2000, Mc Donald’s collected $21 billion from 28,707 restaurants located in
outside markets, which accounted for 53% of the company's total revenue of $40
billion. According to their potential market, Mc Donald's market penetration level is
only one restaurant for 500,000 people. In addition, Mc Donald’s serves less than
1% of the global population.
 29

2.2. SUPPLY CHAIN MANAGEMENT OF MC DONALD’S

2.2.1. Components in Mc Donald’s supply chain
The supply chain of Mc Donald’s consists of suppliers, distributors,
restaurant outlets (retailers) and its customers.
The structure of supply chain is evident from the diagram as indicated below:
Figure 2.2 Supply chain of Mc Donald’s

Source: Monica Salazar Orellana (2018)

 Suppliers
The core suppliers of the company can be categorized into two major types
including tier 1 suppliers and tier 2 suppliers. In respect to tier 1 category, there are
suppliers that provide processed products such as potato, vegetable, chicken, hash
browns etc. The tier 2 comprises of suppliers that are mainly growers and
processors such as potato, poultry items, chicken etc. Both these suppliers accounts
for meeting out the requirement for materials in respect to Mc Donald’s. These
supplier accounts for providing needed materials to the company in serving its
customers.
100% of Mc Donald’s sourcing are from local enterprises. The Company has
always been committed to sourcing its requirements from local suppliers and
farmers. This assurance is rooted in the philosophy of their company's founder, Ray
Kroc. He firmly believed in mutual benefits arising from a partnership between Mc
Donald’s and the local businesses, thus ensuring that Mc Donald’s commitment to
growth was mirrored by that of its partners.
 30

In keeping with this belief, they have carefully identified local businesses that
take pride in satisfying customers by presenting them with the highest quality
products. Adherence to Local Government regulations on food, health and hygiene
were a top priority. All suppliers adhere to their local government regulations on
food, health and hygiene while continuously maintaining Mc Donald’s recognised
standards.
Mc Donald’s today purchases more than 96% of its products and supplies
from local suppliers. Even their restaurants are constructed using local architects,
contractors, labour and maximum local content in materials. The relationship
between Mc Donald’s and its local suppliers is mutually beneficial. As Mc Donald’s
expands in each country, the supplier gets the opportunity to expand his business,
have access to the latest in food technology, to get exposure to advanced
agricultural practices and the ability to grow or to export.
 Distributors
The materials are being shipped through logistics services providers to the
Distribution Centers (DC). Upon requirements for such materials at restaurants,
they are being ordered to the DC which leads to their transportation via logistics
management systems across the company. There is a fleet of refrigerated trucks that
accounts for supplying fresh materials in the form of processed foods items to the
company’s DC. There are multi-temperature trucks that account for providing the
delivery of all kinds of products to the restaurants.
 Restaurants outlets and customers
The processed foods as delivered to the company are then processed finally for
their consumption by the final consumers through Mc Donald’s outlet.
Mc Donald’s supply chain process can be broken into three different process
cycles, each performed at the interfaces between two consecutive stages of s supply
chain. These three process cycles are namely “Customer Order”, the
“Replenishment Cycle”, and the “Procurement Cycle”.
 31

Figure 2.3 Process Cycles of Mc Donald’s supply chain

Source: Monica Salazar Orellana (2018)

The Customer Order Cycle is created when the customer interacts with the
employee in the restaurant and places his order, prior to making payment for the
meal. Right after his order has been taken, orders from the counter will deliver back
into the kitchen located in the restaurant itself, where the kitchen staff will gather
different goods and components (e.g. buns, lettuce, cheese, beef patties) to put
together to form the end-product (e.g. cheese burger). In the Customer Order cycle,
demand is external.
The Replenishment Cycle will connect the retailer and the distributor and is
usually initiated due to the retailer’s need to replenish lack of goods in restaurant for
future demand. Such a cycle may be triggered at Mc Donald’s when they are
running out of stock of cheese. The Replenishment cycle is similar to the Customer
Order except that the retailer is now the customer.
The Procurement Cycle will connect the distributor and the supplier, the
distributor will need to get suppliers from the suppliers, to further distribute the
goods to the various retail restaurant outlets. In general, the scale of an order
increases whilst the frequency of an order decreases in the supply chain when
moving further away from the customer.
 32

2.2.2. Operation of Mc Donald’s supply chain management

i. Planning
There are two main aspects the Company focused on in term of planning are
demand forecasting and time estimation to acquire goods which ensure that the
products required are provided on time with the highest quality.
Firstly, in term of demand forecasting, in 2004, Mc Donald’s has developed a
research plan and system called "Manugistics" to forecast demand for menu items.
The ordering process involves holding a small buffer stock. This is extra
amount of inventory held to meet any unexpected higher demand. Inventory
manager uses a web based communication software called ‘Weblog’ to view and
amend store order proposals. Each time of ordering, weblog creates a proposed
order to analyse and amend if necessary. Weblog helps managers to view what
quantity have been ordered, how much is the current stock level and how much
stock is due to be delivered at a particular time. The system automatically generates
a delivery note that gives the exact quantities and descriptions of the delivery. The
manager has to click confirm on weblog when they finishes selecting amount of
inventory they needed to use. Without safety stock, customer will suffer. Other
reasons for maintaining safety stock include providing safeguard against issues such
as poor quality, production problem and transportation, delivery charges. Also, if
organisation maintains too much inventory, it would incur significant holding cost.
This is because they will need more staff, equipment and storage space to handle
high inventory levels. However, holding small stock can be dangerous as it may
cause problem in some uncertain demand and lead business to stop its operation.
Secondly, estimation in term of time required to acquire goods is also focused
by Mc Donald’s. Managers must predict the time required for goods transfer
between difference locations. If a truck takes four or five days to travel between a
supplier’s premises from location X to location Y, dedicated Mc Donalds’ trucks
will accomplish it in two days due to non-stop running of the fleet.
The restaurants give a three-day to one-week forecast to the Distribution
Center (DC). The DC, in turn, has a three-month rolling forecast with the suppliers
which enables them to plan their production schedules meticulously.
 33

For extensive long-term planning, Mc Donald’s has devised the 31Q system,
in which:
 3 stands for the three years that the fast food chain will keep checking its
plans
 1 represents the detailed forecast of the next year
 Q symbolizes the quarterly monitoring of these forecasts
Suppliers are included in the budgeting process, briefed on the new products
and restaurants to be launched.
Using this information, the suppliers roll out their production schedules. The
schedule for the next year is carefully fixed and then stringently monitored. Mc
Donalds’ supply chain network is everything cracked up to be – each cog in the
wheel is set precisely in place to ensure spot on distribution. Every restaurant
manager knows the exact time of arrival of each product which enables the supply
chain team to work backwards to ensure timely distribution.
ii. Sourcing
They has developed a set of standards for raw materials that they require
suppliers to meet as “The Supplier Code of Conduct”. This is a prerequisite for
anyone who wants to become a Mc Donald’s supply partner, including standards
applicable to the working environment, impacts on living environment, business
ethics and most recently and human rights. One year the supplier will be "visited"
by Mc Donald’s twice to check, regardless any unexpected checks. Mc Donald’s
also designed a program to allow supply partners to apply to become an input
supplier to Mc Donald’s. Mc Donald’s will send its staff directly to quality
inspection and monitoring as well as farming processes choose the best suppliers.
iii. Manufacturing
All Mc Donald’s® products, from the selection of ingredients through
preparation and cooking, comply with the most stringent food safety and quality
standards. Every procedure is monitored thoroughly to ensure that they serve top
quality, tasty food. Hazard Analysis and Critical Control Point (HACCP) - a
systematic, preventive approach to ensure food safety that identifies, evaluates and
controls all hazards and Good Manufacturing Practice (GMP) monitoring food
 34

preparation locations, processes, environments and hygiene are applied. These

stringent manufacturing processes ensure that all food prepared is high quality
hygienic and safe.
All of the products will be processed and being checked under the Metal
Detection System before packed, cased and labelled and frozen at -180C.
iv. Distributing
 Cold Chain
Cold Chain is a unique concept used by Mc Donald’s in supply chain
management especially in distributing stage which is a temperature-controlled
supply chain. An unbroken Cold Chain is an uninterrupted series of storage and
distribution activities which maintain a given temperature range. It is used help
extend and ensure the shelf life of products such as fresh agricultural produce,
processed foods, photographic film, chemicals and pharmaceutical drugs. This
concept of Cold Chain in food industry and that too on such a large scale was
started by Mc Donald’s only. It benefited both farmers as well as the consumers, as
they are getting the fresh, best quality and great value food. With this concept, Mc
Donald’s cut down its wastage and able to maintain its freshness and nutritional
value of raw material.
Steps involved in the Cold Chain including:
 Procurement
 Warehousing
 Transportation
 Retailing
All the above activities took place in temperature controlled atmosphere.
Mc Donald’s finding the factor of cold room being vital ensured that even
before vegetables from farms entered the refrigerated zones, they were locked in a
pre-cooling room to remove field heat. Vegetables were placed in the pre-cooling
room within half an hour of harvesting where rapid cooling decreased the field
temperature of vegetables to 2ºC within 90 minutes. Then a large cold room (a
refrigerated van) was used for transportation to the Distribution Centers. In the van,
 35

the temperature and relative humidity of crop was maintained at 1-40C and 95 per
cent, respectively and the flavours and freshness are locked.
At the suppliers' level, care was taken to guard against any possible
contamination or interruption in the Cold Chain that can break the link and have a
detrimental effect on the quality of the product.
By transporting the semi-finished products at a particular temperature, the cold
chain ensured freshness and adequate moisture content of the food. The specially
designed trucks maintained the temperature in the storage chamber throughout the
journey. Drivers were instructed specifically not to switch off the chilling system to
save electricity, even in the event of traffic jam.
 Multi-temperature vehicles
An “innovative feature” that has been added to Cold Chain is that the same
truck can carry products at different temperatures, that ranges from frozen products
at low temperature of -180C to -250C, chilled products from 1-40C and dry
products at required temperatures. Mc Donald’s is the only company whose supply
chain network having this features as a result of successful experimentation.
Need for Multi-temperature vehicles: store numbers and distances increases,
so there was a need of multi-temperature vehicles which could carry all three
temperature products. Truck containers were introduced with two side doors along
with one rear door. The side doors are there to unload products without moving the
products kept in other temperature zones.
2.3. SUSTAINABLE SUPPLY CHAIN MANAGEMENT OF MC
DONALD’S
Thanks to the application of sustainable supply chain management practices,
Mc Donald’s has been gaining a numerous awarding achievements which is not
only contributes to the success of its own as today but also influences the local
governments business environment positively.
 36

2.3.1. Practices
The Mc Donald’s supply chain is comprised of many different local and
regional supply chains around the world that are tied together globally by strategic
frameworks and policies and the Mc Donald’s Worldwide Supply Chain
department.
To guide the creation and oversight of issues related to sustainability, an
additional global governance structure was created in 2007 called the Sustainable
Supply Steering Committee (SSSC). The SSSC is responsible for guiding Mc
Donald’s toward their vision for sustainable supply by identifying global priorities
and ensuring progress in ways that complement local priorities and efforts in term
of resource and logistics. These are two main vital aspects that Mc Donald’s
focuses on and has gained a lot of success.
2.3.1.1. Sustainable resource management
Mc Donald’s long-term vision is to source all of their food and packaging
sustainably. This overarching goal addresses all levels of the supply chain from the
farms, forests and oceans that produce their products to the front counter of their
restaurants. For Mc Donald’s, sustainable sourcing must address what they call the
3 E’s of sustainability: ethics, environmental responsibility, and economic viability.
In 2009, they established a more comprehensive and proactive commitment to
ensure that, over time, the agricultural raw materials for their food and packaging
originate from sustainably managed land. They called this their Sustainable Land
Management Commitment.
In 2013, they expanded this commitment to address all 3 E’s at the raw
material production level, not just the environment. With regard to raw materials,
their initial six global priority products are beef, coffee, palm oil, packaging/ fiber,
fish and seafood, and poultry.
a) Beef
i. Visions
Beef is Mc Donald’s global top sustainable sourcing priority. Currently, there
is no broadly accepted and credible definition of sustainable beef. Their top priority
for was to create global principals and standards for how Mc Donald’s will measure
 37

sustainable beef while also advocating as part of the Global Roundtable for
Sustainable Beef (GRSB) for industry-owned principles and standards.
They support beef production that’s environmentally sound, protects animal
health and welfare, and improves farmer and community livelihoods, and they have
done so for over a decade. This global movement is gaining extensive momentum
through conversations, collaborations, pilot programs, and global and local
roundtables, and is helping influence not just beef in Mc Donald’s supply chain, but
beef production around the world.
Demand for meat is expected to grow substantially in the coming decades,
meaning they need to collaborate within the industry to find solutions to produce
more with less impact. Their work on climate change mitigation and conserving
forests are examples of how they’re helping to drive change.
Since the release of their global commitment to sustainable beef in 2014,
they’ve released a Beef Sustainability Report, which sets out their strategy, aims
and achievements so far. It’s designed to empower beef producers to broaden their
beef sustainability efforts within and beyond their supply chain, while helping to
strengthen beef farming communities, conserve forests and other habitats, reduce
greenhouse gas emissions of beef production and protect animal health and welfare.
ii. Actions
 Responsible Use of Antibiotics
Mc Donald’s has an antibiotics policy for beef that is focused on responsible
use. Through this policy and in collaboration with their suppliers, producers and
farmer partners, they will reduce the overall use of medically important antibiotics -
as defined by the World Health Organization (WHO) - in their beef supply chain.
Similar to many of their beef goals, this policy also focuses on the top ten beef
sourcing countries, which represents more than 85% of Mc Donald’s global beef
supply.
As a first step, Mc Donald’s committed to developing “pilot tests” in the
Company’s top 10 beef sourcing countries in order to gather current baseline usage
data from which they will establish market specific reduction targets by the end of
2020.
 38

By 2022, they will be reporting progress toward their antibiotic reduction

targets across all top 10 sourcing countries.
 Farmer-to-farmer initiatives
The farming community has a vital role to play in informing the development
of industry tools for benchmarking, decision-making and measuring progress, as
well as inspiring other farmers and developing new practices. They have pioneered
various programs in partnership with their suppliers to support knowledge sharing
between farmers, such as BEST Beef (Germany), Mc Donald’s Sustainable Beef
Network (U.K. and Ireland), the Agro-Ecological Strategy (France) and the Young
Farmer Program (in several countries), and actively participate in other programs
including the Novo Campo project (Brazil).
 Forest-friendly burgers
They want their customers to have the confidence of knowing the beef they
use only comes from farms that meet the criteria outlined in their Commitment on
Forests. They’ve pledged to eliminate deforestation from their beef supply chain by
2020 by focusing on countries with identified deforestation risks. This commitment
makes them one of the first global restaurant brands to take a stand to ensure forests
are protected while beef is produced.
 Traceability
Knowing where food comes from is important to today’s consumer. Their
food safety requirements help them ensure the quality and safety of their ingredients
from farm to the front counter. In all countries where they source beef, they have
traceability from the abattoirs through the processing plant and to Mc Donald’s
restaurants. They audit the processors that supply their beef annually and 100% of
them pass their strict requirements for food safety.
In many of these countries, traceability systems also exist to track further up
the supply chain to the individual farms where animals are raised.
b) Coffee
Globally, they’re committed to responsible coffee sourcing, and they’re
focusing their efforts in two primary ways intended to drive ethical, environmental
 39

and economic outcomes in their coffee supply chain including : buying coffee from
certified or verified sustainable sources and investing in farmer training.
i. Buying certified (and verified) coffee
Globally in 2012, about 25% of their total coffee bean purchases were from
Rainforest Alliance Certified™, Fair Trade USA or UTZ Certified farms. The
majority of their certified coffee purchases are from Rainforest Alliance Certified™
farms, including 100% of their espresso in the US and Canada, and all of their
coffee in Australia and New Zealand. Mc Donald’s markets in Europe source 100%
of their coffee - with the exception of decaf - from farms that are Rainforest
Alliance Certified, UTZ Certified, or Fair Trade International.
ii. Investing in farmer training
Mc Donald’s USA, Mc Donald’s Canada and their franchisees are investing
over $6 million in a farmer technical assistance program.
While their goal to advance coffee sustainability is global in nature, their
efforts begin locally. Mc Donald’s is collaborating with TechnoServe, an
international non-profit and leading provider of agricultural technical assistance, as
well as Sustainable Commodities Assistance Network, to train up to 13,000 farmers
in Guatemala and Central America.
This effort includes providing farmers with technical assistance and training to
produce coffee in a more sustainable manner. Through these efforts, Mc Donald’s
endeavours to strengthen local economies, preserve biodiversity and give farmers
the tools they need to improve their production. When farmers can deliver a more
consistent, high-quality bean, it increases the chances that their yield can be sold for
a higher price, helping to improve their livelihood. It also helps their business
because by supporting the development of sustainable farming practices Mc
Donald’s hopes to ensure coffee's long-term availability in the region.
c) Palm Oil
i. Visions
Palm oil is the world’s most versatile and widely used oilseed. They use it as
frying oil in some countries, while direct suppliers use it to par-fry some chicken
 40

and potato products. It can also be found in baked goods, sauces and confectionary
items.
This ingredient is the basis of livelihoods of millions of farmers and
communities. It requires less land than other major oil-producing crops due to its
substantially higher oil yield. However, with demand growing, natural forests have
been replaced by palm oil plantations, leading to reduced biodiversity, increased
carbon dioxide emissions and even the displacement of communities. They know
that their brand carries a great deal of visibility and influence, which is why palm
oil has been a key focus since 2011 when they joined the global Roundtable on
Sustainable Palm Oil (RSPO).
ii. Actions
 Supporting sustainable production
In 2017, 100% of palm oil used globally for restaurant cooking or by their
suppliers to par-fry chicken, potato and globally managed bakery and sauce
products was RSPO-certified sustainable or covered by RSPO credits, the minimum
level of verification currently required according to their Global Sustainable Palm
Oil Policy. In 2017, they reached an important milestone when the U.S. – their
largest market for palm oil – moved to 100% RSPO Mass Balance certified palm oil
for all national products. This reflects their commitment to physical supply chains
of certified sustainable palm oil.
In 2017, 100% of palm oil used globally for restaurant cooking or by their
suppliers to par-fry chicken, potato and globally managed bakery and sauce
products, was certified as supporting sustainable production. Their volumes of mass
balance certified oils increased from 11.6% in 2016 to 36% in 2017.
 Contributing to industry transformation
In 2016, they launched their Global Sustainable Palm Oil Policy, and held
webinars and training sessions with all suppliers, as well as their market and
product category teams that use palm oil around the world. They also selected
suppliers that were best positioned to meet their future needs, in part based on their
ability to show them that they can meet their sustainability expectations. In doing
so, sustainability became even more integral to the way they do business.
 41

 Transparency on progress
They communicate annually through the RSPO Annual Communication of
Progress and their website. They also continuously update their Sustainable
Sourcing Guide, which outlines their priorities and expectations for suppliers,
including for palm oil. To help inform their reporting methodology, they use the
Reporting Guidance for Responsible Palm, developed by a wide range of
organizations and published in 2017. It aims to provide common reporting guidance
for companies throughout the supply chain, thereby increasing understanding,
transparency and accountability for responsible palm oil production.
d) Fiber/Packaging
i.Visions
Mc Donald’s aims to continually improve the overall sustainability of their
packaging. The objectives of their sustainable packaging efforts are to: optimize
weight and simplify the number of materials used in their packaging, design
recoverable packaging with viable end-of-life options and increase use of recycled
or renewable materials from certified sources.
Manufacturing and transporting packaging for over 37,000 restaurants in more
than 100 countries requires significant natural resources, including water, trees and
fossil fuels. How can they work to ensure the impact on the planet is as small as
possible?
ii. Actions
They aim to source 100% of fiber-based packaging from certified or recycled
sources by 2020, and as of 2016 they are 64% of the way toward their goal.
About 2% of their packaging, by weight, is currently foam, they believe this
small step is an important one on their journey. These actions represent successes
that will continue to raise the bar for their system and their industry.
 Mc Donald’s Joins Starbucks & Closed Loop Partners to Develop a
Recyclable and/or Compostable Cup
In 2018, Mc Donald’s joined forces with Starbucks as a convening member of
the ‘NextGen Cup Consortium and Challenge’ to develop a global recyclable and/or
compostable cup solution in collaboration with Closed Loop Partners. The NextGen
 42

Cup Challenge will be open to supply chain leaders, innovators, solution providers
and anyone with promising solutions to recover single use cups. Mc Donald’s has
committed $5 million to the challenge and awardees will receive acceleration
funding up to $1 million based on key milestones.
In 2014, they printed the Sustainable Packaging Coalition (SPC) logo,
approved by the U.S. Federal Trade Commission, on their paper carryout bag, and
have since printed it on other items, such as Happy Meal cartons, plastic McCafé
cups and plastic carryout bags. Recognizing the power of on-packaging logos, their
supplier HAVI worked with the SPC and the Biodegradable Products Institute to
come up with a How2Compost logo, which they now show on their compostable
packaging.
 Unlocking the value in waste paper and plastic
There is significant value hidden in discarded paper and plastic food
packaging like cups, takeout containers and paper carryout bags. They’ve set
themselves the challenge of unlocking this value by partnering with the Foodservice
Packaging Institute in North America. After several years of thorough research and
work with communities, material recovery facilities and end markets, the Institute’s
dedicated plastics and paper working groups have launched community partnerships
in Washington, D.C., Chattanooga and Louisville. With financial and technical
support from the Institute, residents are now able to recycle paper and plastic
foodservice packaging along with other recyclables in their curbside collections.
 Cutting paper, not trees
They have a global commitment to eliminate deforestation from their global
supply chains. Their Commitment includes conserving forests and high
conservation value areas, avoiding the most negative impacts of deforestation, and
promoting responsible production through their fiber sourcing policy that benefits
people, communities and the planet. By 2020 they will have Forest Stewardship
Council (FSC) certification in all high-risk countries to protect their fiber-based
consumer packaging supply chain from deforestation.
In 2015, their Brazilian operations achieved full certification under FSC, with
the exception of coffee cups, and Mc Donald’s Canada moved to 100% Programme
 43

for Endorsement of Forest Certification-certified hot cups. Their restaurants in the

U.S. completed a transition to FSC-certified fiber for all hot cups in 2016, which
now proudly show off the FSC logo.
e) Fish
i. Visions
With expert guidance from the Sustainable Fisheries Partnership, their
Sustainable Fisheries program defines sustainability standards that guide all of their
purchases worldwide for wild-caught fish. The program has been in place since
2001 and today all of their whitefish used in the Filet-o-Fish is wild-caught from
sustainable fisheries.
Since the early 2000s, they’ve continued to support the improvement of the
fisheries they source from and continue to work with the Sustainable Fisheries
Partnership, who review each of their fisheries in their supply chain against their
standard on an annual basis. Additionally the majority of the fish that they serve are
also sourced from Marine Stewardship Council (MSC) certified fisheries.
ii. Actions
 Sustainably managed wild-caught fisheries
Take a glimpse behind the scenes at Espersen, Mc Donald’s fish supplier in
Denmark, which supplies restaurants in 42 countries. Espersen has been processing
cod and haddock for Mc Donald’s for more than 40 years.
Globally, all of the whitefish for Mc Donald’s Filet-O-Fish is sourced from
sustainably managed wild-caught fisheries, assessed and verified annually against
the Mc Donald’s Fisheries Sustainability Standard by the Sustainable Fisheries
Partnership. In addition, Mc Donald’s displays the MSC certification logo in the
U.S., Canada, Brazil, and many of their European markets.
 Certifying their restaurants
All Mc Donald’s restaurants in Europe, Brazil, Canada and the United States
are certified against the MSC Chain of Custody traceability standard. This means
that every fishery supplying their DC and restaurants must have a valid certificate
confirming that fish comes from MSC-certified sustainable fisheries.
 44

 Protecting fragile marine environments

As part of an industry-led voluntary agreement brokered by Greenpeace to
protect fragile arctic marine habitats, they announced they would no longer source
fish caught in vulnerable or not yet explored areas of the Barents and Norwegian
seas in 2016. This was a proactive response to concerns that, due to climate change-
related ice melt, fishing boats may be able to operate in previously un-fished areas
around the sensitive Svalbard Archipelago.
 Teaching the next generation
To underscore their commitment to sustainably managed fisheries and make
the topic accessible for children, Mc Donald’s U.S. created “Reel It In!” – a card
game about the importance of sustainable fishing that all generations of Filet-O-Fish
fans can understand. Click here to find out more and download it to play.
f) Poultry
i. Visions
Chicken has been a part of Mc Donald’s menu since the McChicken sandwich
was first introduced in 1975 and is a priority for their Global Animal Health &
Welfare team.
Food made with quality ingredients is one of their top priorities, and part of
their vision to source all of their food sustainably. That’s why for more than a
decade they’ve been working with suppliers, animal welfare organizations,
scientists and industry experts on their chicken sustainability journey.
While they don’t raise chickens themselves, the health and welfare of the
chickens in their supply chain is important to them. This is why they’re committed
to sourcing chickens raised with improved welfare outcomes. In light of the possible
impact on antibiotic resistance in humans, which is increasingly recognized as an
important societal issue, they require the responsible use of antibiotics in their
chicken supply chain.
The United Nation’s Food and Agriculture Organization estimates that meat
production – including chicken, pork and beef – will need to more than double by
2050 and global animal feed production will have to increase by 70% if they are to
meet the growing population’s demands. Unless action is taken to make production
 45

more sustainable, this elevated demand will increase the risk of environmental and
ethical issues. For example, chicken feed currently uses a lot of soy, and converting
land to grow soy is widely believed to be a major cause of deforestation. Feed
production on existing cropland also provides challenges, such as preserving soil
health and reducing the impact of fertilizers.
They are committed to taking a holistic, outcomes-based approach to chicken
sustainability: from antibiotics to welfare to feed sustainability. They believe the
innovation and flexibility that this approach will unlock are crucial for tackling
some of the long-standing challenges in sustainable chicken production.
ii. Actions
 Responsible use of antibiotics
Building on their 2003 Global Vision for Antibiotic Stewardship in Food
Animals, starting in 2018 they began to implement a new broiler chicken antibiotics
policy in markets around the world, which will require the elimination of antibiotics
defined by the WHO as Highest Priority Critically Important Antimicrobials
(HPCIA) to human medicine. Additionally, the routine preventative use of
antibiotics will be prohibited. To make sure this policy can be effectively
implemented, they are taking a tiered approach.
Since 2016, no chicken served in the U.S. is treated with antibiotics important
to human medicine. In 2017, they released their new Chicken Antibiotics Policy for
markets around the world.
 Welfare on the farm
As part of their broader chicken sustainability journey, in 2017 they made a
global commitment to source chickens raised with improved welfare outcomes. This
means: measuring key farm-level welfare outcomes on an ongoing basis, setting
progressive targets and reporting on progress and developing state-of-the art welfare
measurement technology.
These commitments apply to markets across the globe, which impact more
than 70% of their global chicken supply and will be fully implemented on or before
2024. Together, they believe these commitments provide the ability to deliver
sustained, measurable improvements in the welfare of millions of birds across their
 46

global supply chain. It will enable producers and suppliers, operating across diverse
geographies and climates, to develop their own tailored solutions to meeting their
progressive welfare outcome targets.
These latest commitments build on their existing position that all chickens
used for meat in their global supply chain are required to be reared only in cage-free
systems.
 Welfare at slaughter
Mc Donald’s requires that abattoirs must pass a rigorous animal welfare audit.
All their facilities providing chicken raw material globally are compliant with Mc
Donald’s requirements. They don’t accept abattoirs as suppliers that fail to meet
these standards.
 Taking the pressure off tropical forests
As part of their commitment to eliminate deforestation from their global
supply chains, they worked with Greenpeace to establish and support the Soy
Moratorium, a voluntary agreement between retailers, NGOs and traders to prevent
soy being grown on Amazon land deforested after 2008. In the first decade since its
inception in 2006, deforestation has fallen 86% in the municipalities covered by the
Moratorium (accounting for 98% of the soybeans in the Amazon biome).
In 2015, along with Greenpeace and Cargill, they were recognized for this
work by the Keystone Policy Center for Leadership in the Environment. In 2016,
they supported the indefinite extension of the Moratorium, which will now remain
in place until it is no longer needed.
Further significant progress is being made in Europe, where they’ve set a 2020
target for chicken suppliers to ensure their soy volumes in chicken feed are covered
by sustainability certifications. In 2017, approximately 65% of the soy volumes
used in the feed of chickens supplied to their restaurants in Europe was covered by a
combination of ProTerra and Roundtable on Responsible Soy certification.
 Developing alternative chicken feeds
In 2017, approximately 65% of the soy volumes used in the feed of chickens
supplied to their restaurants in Europe was covered by a combination of ProTerra or
Roundtable on Responsible Soy Certification. Besides, they’ve been working with
 47

their suppliers and research institutes to support the development of novel

alternative protein feeds, to reduce their reliance on soy for chicken feed and
thereby help alleviate pressure on forests. This includes studies on insects and algae,
and how these feeds will impact chicken health and welfare. While their early
results are encouraging, developing these new and innovative supply chains is a
long-term project that may run up to 10 years.
2.3.1.2. Logistics management
Mc Donald’s logistics network transports their food products more than 250
million miles every year. As well as ensuring thousands of products arrive at Mc
Donald’s restaurants each day safely and in the best condition, their logistics
providers are working to minimize the environmental footprint of their distribution
activities by reducing the distances their products travel, moving toward alternative
fuels and making product journeys as efficient as possible.
i. Visions
Their vision is to work with their suppliers to achieve world-class logistics
operations with the lowest-possible environmental footprint. They have a twofold
approach to reducing greenhouse gas emissions:
 Using fewer miles and less fuel through continuous routing improvements,
innovations like engine-less cooling and air deflectors, and ongoing trucker training
 Increasing the use of alternative fuels with lower emissions
ii. Actions
 Lower carbon deliveries
Mc Donald’s encourages logistics providers to use the most carbon-efficient
fuels for transport throughout their supply chain. This includes the use of alternative
fuels, such as renewable natural gas created from bio-waste, biofuels, hydrogen,
natural gas, propane and electricity. Where possible, the biofuels Mc Donald’s uses
are generated from by-products rather than crops grown for food.
HAVI, one of Mc Donald’s logistics suppliers, has announced a five-year joint
plan with vehicle maker Scania in 2017 to improve its carbon footprint. It aims to
significantly reduce the number of diesel-powered vehicles it uses, and convert
around 70% of its fleet to alternative fuels in a number of European countries by
 48

2021. The CO2 emissions created by deliveries to Mc Donald’s restaurants will be

monitored in real time, and are expected to fall by 15 - 40%, depending on route,
fuel used and traffic conditions.
In 2018 another logistics supplier, Martin Brower, has started using renewable
natural gas in its delivery vehicles in the U.S. This fuel is up to 70% cleaner than
diesel, and the world’s first commercially available transportation fuel made
entirely from organic waste.
In 2017, the Company and their logistics providers became signatories to
BSR’s Sustainable Fuel Buyers’ Principles, supporting growth in the market for
low-carbon vehicles.
As part of their efforts to accelerate the de-carbonization of the supply chain,
their logistics providers also generate renewable electricity with solar panels in
some of their DC. In Belgium, a provider has installed a wind turbine.
 Fuelled by fries
In many countries, including the U.K., Switzerland, Portugal and the United
Arab Emirates (UAE), biodiesel which has been derived from used cooking oil of
the Mc Donald’s restaurants is used by their logistics suppliers to fuel their delivery
trucks.
In the U.K., 97% of Mc Donald’s restaurants recycle their cooking oil in this
way (the remaining 3% recycle their oil for different uses), and around 50% of the
U.K. fleet runs on biodiesel from their used cooking oil; the rest of the fleet uses
biodiesel generated in other ways. Over 11,700 tonnes of CO2 emissions were
saved from using biodiesel when compared to ultra-low-sulphur diesel (ULSD).
And that’s not all – the plant that converts the waste to oil also runs on energy
generated from kitchen food waste, such as coffee grounds and eggshells.
In the UAE, Mc Donald’s passed a major milestone in 2015 when its
suppliers’ fleet of logistics trucks travelled 5 million kilometres running on 100%
recycled vegetable oil from Mc Donald’s UAE outlets.
 Freight performance award
In 2017, Mc Donald’s U.S. received a 2017 SmartWay Excellence Award for
outstanding environmental performance and leadership. The SmartWay Excellence
 49

Award, reserved for the top performing SmartWay partners, is the Environmental
Protection Agency's highest recognition for demonstrating leadership in freight
supply chain energy and environmental performance.
Their freight partners were recognized for achieving 98% of miles, or ton-
miles, as SmartWay shipped, with strong performance in areas such as data
reporting and validation, educational and collaborative work, and community links.
2.3.2. Achievements
According to the ESG Report (Mc Donald’s, 2017), by applying the practices
as mentioned above, Mc Donald’s has been achieved a number of successful results
which will be pointed out as below.
1. Higher food safety and control
Due to the continuous effort in applying a large number of standards and
requirements in sourcing as well as production, Mc Donald’s achieved:
 Stable global-scale procurement of all raw materials, including domestic
sources
 Seamless quality and sanitation control from farm to restaurant, including
traceability: Standards are placed in each stage to realize seamless quality and
sanitation control from production, processing plant logistics to restaurant. Also,
internal inspection including a self-check system and external inspection by a third
party institution are implemented. Further, traceability is established to trace history
of the entire production process.
2. Waste countermeasures and environmental conservation
 Food waste recycling rate in 2017 of 50.1% which was much higher than
food-service industry average of 24%
 71.1% of all paper containers and packages are Forest Stewardship
Council (FSC) certified
 Greenhouse gas emissions reduced: CO2 emissions equivalent to 56,037 t-
CO2/100 million register count, which is reduced by 1.3% compared to 2016
 50

3. Energy conservation
 132,186 pieces of energy efficient equipment was bought by Mc Donald’s
Corporation and its Franchisees in 2018. This is estimated to save about 142
gigawatt hours and USD 14.2 million in energy costs.
 Mc Donald’s 2020 Aspirational Goals includes 50% increase in energy
efficiency of Company-owned restaurants. So far an increase of 20% has been
achieved.
 Since 2010, US-based Mc Donald’s outlets that have used LED lighting
have achieved an estimated average reduction of 7% in energy usage each year.
Within the scope of its 2020 Aspirational Goals, Mc Donald’s aims to increase
amount of in-restaurant recycling to 50% and minimize waste.
4. Responsible sourcing
Responsible sourcing efforts of Mc Donald’s are conducted in collaboration
with Global Forest & Trade Network (member), Global Roundtable for Sustainable
Beef (founding member), GTPS – Brazilian Roundtable on Sustainable Livestock
(member), Roundtable on Sustainable Palm Oil (member), Sustainable Agriculture
Initiative Platform (member – Europe), U.S. Roundtable for Sustainable Beef
(founding member).
 Fruits, vegetables, low-fat dairy or whole grains served in Mc Donald’s
restaurants increased by 30 per cent comparing to 2017.
 More than 96 of the GRSB‘s membership voted to approve final principles
and criteria for sustainable beef.
 100% of the fisheries and 32% of coffee sources used by Mc Donald’s are
verified sustainable sources.
2.4. EVALUATION OF SUSTAINABLE SUPPLY CHAIN
MANAGEMENT OF MC DONALD’S
The previous parts have provided a wide range of information about Mc
Donald’s sustainable supply chain management. It is undeniable that there have
been a lot of significant influence to the environment and community by the
practices of the Company in term of sustainability of supply chain management.
There is no circumstance where any firm could develop with merely advantages
 51

without making mistakes in the global competition. Mc Donald’s is not exceptional.

They have both strengths and weaknesses and it is crucial to be aware of their
characteristics to draw out some lessons for Vietnamese enterprises.
2.4.1. Strengths
Firstly, their model is based on a culture of partnership and collaboration
which makes it possible for them to serve consistently safe and high quality food. It
is important to Mc Donald’s that their suppliers operate sustainable and profitable
businesses and benefit from their partnership with them.
Secondly, they source their products in a responsible and ethical manner that
contributes to the development of sustainable agriculture and food manufacturing
processes. They support production that’s environmentally sound, protects animal
health and welfare, and improves farmer and community livelihoods.
Besides, Mc Donald’s creates itself a close supply chain to ensure the global
spread of sustainability practices impact. They manage the complex web of direct
and indirect suppliers by working with direct suppliers who share their values and
vision for sustainable supply. They hold them to clear standards for quality, safety,
efficiency and sustainability. They expect them to extend those requirements to
their suppliers. They also partner with them to identify, understand and address
industry-wide sustainability challenges and achieve continuous improvement.
Overall, Mc Donald’s and their suppliers are collectively focused on three areas of
responsibility to ensure sustainability: ethics, environment, and economics:
 Ethics - They envision purchasing from suppliers that follow practices that
ensure the health and safety of their employees and the welfare and human
treatment of animals in their supply chain.
 Environment - They envision influencing the sourcing of their materials and
ensuring the design of their products, their manufacture, distribution and use to
minimize life-cycle impacts on the environment.
 Economics - They envision delivering affordable food, engaging in equitable
trade practices, limiting the spread of agricultural diseases, and positively impacting
the communities where their suppliers operate.
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2.4.2. Weaknesses
First of all, building a sustainable resource requires a great effort and financial
support that not all of suppliers can afford. Especially in developing countries, when
the economy is not really strong, technology has not been invested much, Mc
Donald's needs to spend a large amount of money to build and develop from the
beginning for its supply chain.
Besides, as standards that Mc Donald’s requires suppliers to meet are
extremely too high for local enterprises in some countries especially in Vietnam to
meet, leading to the limitation of co-operation between the Company and the local
entities. Therefore, it might be costly for them to import goods from their DC
instead of taking the advantage of resource available in the country they operate.
Sustainable supply chain requires collaboration between core suppliers and the
Company. When a supplier has a financial problem or any similar problem, it will
seriously affect the resource supply of the Company. Moreover, the common
orientation of development goals is necessary to have long-term cooperation
between suppliers and the Company, however, not all suppliers will meet that
condition, so Mc Donald's has overlooked many potential suppliers to cooperate.
 53

CHAPTER 3. ANALYSIS OF SUSTAINABILITY OF VIETNAMESE FOOD

SERVICE INDUSTRY SUPPLY CHAIN MANAGEMENT AND
RECOMMENDATIONS
3.1. OVERVIEW OF VIETNAM’S FOOD SERVICE MARKET
3.1.1. General
According to the latest report of Euromonitor, in 2017 Vietnam’s Hotel,
Restaurant an Institutional (HRI) food service sector consisted of over 558,000
outlets including over 440,000 street stalls/kiosks; nearly 8,000 fast-food outlets;
85,000 full-service restaurants; 24,000 cafeterias/bars; and more than 12,500 hotels
and resorts.
3.1.2. Market share
The two channels currently account for the majority of Out-of-home visits by
consumers across all demographic groups in Vietnam which are Full Service
Restaurants (FSR) and Quick Service Restaurants (QSR).
Figure 3.1 Market share of FSR and QSR across demographic groups - % visits

Source: Decision Lab (2018)

Starting from Q3 2017, Full service restaurants officially took over as the
largest Foodservice channel in Vietnam. Meanwhile, Quick service segment
continued to slip away from its past heyday.
 54

In recent years, the food and beverage industry (F&B) in Vietnam has
witnessed a significant shift in the market share of Western dishes to Asian dishes
according to the Market Research Report Decision Lab Vietnam. Vietnamese food
still dominates Vietnam's F&B market with a market share of 81%. But the
convenience of shops in the street, in alleys, makes Vietnamese Food Chain
Restaurant (FCR) not a top priority for consumers. Fastfood takes the second large
market share following Vietnamese food but the growth rate of this group decreased
by 17% compared to last year and is on a downward trend.
Figure 3.2 Market share of key sub-segments in FSR - % visits

Source: Decision Lab (2018)

Consequently, the market pie has shifted significantly: further away from
Western foods and heavily toward Asian-centric cuisine.
Figure 3.3 Market share of Non-Vietnam cuisine in year end 2018 - % sales

Source: Decision Lab (2018)

 55

The number of customers of fastfood groups such as hamburger, fried chicken, and
pizza tends to shift to restaurants that sell hot pot dishes (hotpot), Japanese food and
barbecue (BBQ). Within Full service channel, Casual restaurants serving BBQ and
Japanese dishes are the ones with highest growth rate in 2018. Meanwhile, Quick
service outlets have been suffering from declining visits from all consumer groups,
especially the lower middle class and people aged 25+. It is plummeting footfall
that has damaged Quick service restaurants over the past 2 years.
Figure 3.4 Traffic growth of key sub-segments in FSR

Source: Decision Lab (2018)

3.1.3. Big players
i. Local players
The leading three players in full-service restaurants, namely Golden Gate
Trade and Services Jsc, Redsun ITI, and Mon Hue Restaurant Co Ltd, are all local.
In 2018, they continued to gain value share and record high current value growth
ii. Chained pizza full-service
In 2018, chained pizza full-service restaurants recorded the fastest current
value growth amongst all types of full-service restaurants. Leading brands such as
Pizza Hut and The Pizza Co invested heavily in new outlets.
 56

iii. Fast food chains

Most chains are, for the moment, coming from the US. And some arrived only
a few years ago such as Subway (first appeared in 2010), Dunkin’ Donuts (2013)
and Mc Donald’s (2014). However, few foreign brands such as Jollibee, Lotteria,
and KFC who were early market entrants are performing much better in comparison
to new players such as Mc Donald’s, Burger King or Subway. Besides, other
overseas brands are on the way such as Korea. And of course, Vietnam is trying to
develop its own chains. Wrap & Roll is a good example.
3.2. DEVELOPMENT ORIENTATION OF FOOD SERVICE IN
VIETNAM
In the past two decades, there has been a series of fluctuations and events such
as globalization, bilateral/multilateral trading agreements, technological advances,
food and resource shortages, etc. The traditional "market" concept (mainly
including customers and suppliers) and the "bottom-line" of the business (profit-
making) have been expanded, including additional "elements" though irrelevant to
financial (non-financial), but determine the success or failure of businesses in the
long term.
Business management language is supplemented with the concept of
"stakeholder", "sustainable development", and "corporate social responsibility"
(CSR). Under the pressure of multilateral competition (due to globalization), the
price of raw materials keeps increasing (due to unsuitable exploitation and abuse of
natural resources) and social problems, Vietnamese businesses will have to deal
with an increasingly narrow profit margin, if there is no suitable solutions, it can
lead to a risk of bankruptcy. That solutions must be based on "sustainable values"
by building, developing and strengthening relationships with non-traditional
"related factors". That correlation includes product and service providers,
consumers of products and services and suppliers of materials.
Globalization has placed supply chains in Vietnam to face new challenges, not
only requiring better economic performance but also social and environmental
responsibility. Therefore, supply chains are shifting from a common business
 57

perspective to a more sustainable business model consisting of three interdependent

elements: economic, social and environmental.
With the development of globalization, the competitiveness of an enterprise
depends more on the competitiveness of the supply chain. In a global competition,
the operation of a business is no longer determined by decisions and actions taking
place in the enterprise; instead it will depend on making decisions and taking
actions carried out throughout the supply chain.
Sustainability has emerged as an important issue affecting businesses and
societies. The rapid development of developing economies is putting pressure on
the earth's natural resources. Stakeholders are also increasingly putting pressure on
companies requiring not only to provide economic benefits but also to address the
environment and society, also known as corporate sustainability or social
responsibility.
Recently, the food service sector contributes significantly to the gross
domestic product (GDP) of many developing countries especially to Vietnam.
Revenue from food service is estimated at VND 539.5 trillion, accounting for
12.3% of total 2018 revenue of service and up 9.1% compared to the same period in
2017 (General Statistics Office of Vietnam, 2018). Therefore, the food service
industry plays an important role in the economies leading to the essentials of a
sustainable supply chain management for it. Combining the economic, social and
environmental aspects applied to both the individual supply chain linkages for the
food service industry as well as with the entire chain will help companies
consolidate the supply chain.
3.3. ANALYSIS OF CURRENT SITUATION OF SUSTAINABILITY OF
SUPPLY CHAIN MANAGEMENT OF VIETNAMESE RESTAUANT
ENTERPRISE
Currently, there are two main aspects that should be taken into consideration
in term of sustainability practices in supply chain management of Vietnamese food
service entities which are resources and logistics. There are both strengths and
weaknesses as follow.
 58

3.3.1. Strengths
3.3.1.1. Resources management
In recent years, there were a number of food suppliers, manufacturers co-
operating with the restaurants that operate sustainable with the responsible and
ethical manner that contributes to the development of sustainable agriculture and
food manufacturing processes.
i. Construction of a standard processing complex for food safety purpose
In the end of 2011, Vissan Co., Ltd., one of the top nationally recognized food
manufacturers in processing, and trading of fresh meat, processed foods, related –
meat products, started construction of a food processing complex in the Mekong
Delta province of Long An to replace its inner-city facilities that are being shut
down. The project is believed to be the nation’s largest industrial complex in the
sector of food processing with a closed process from purchase, slaughter to
processing and packing. It also includes a spice processing factory as well as a
warehouse system which meets domestic and international standards on food safety,
said Van Duc Muoi, general director of Vissan.
ii. Fresh fish supply chain development project
Three hundred farming households were supported in terms of the clean
aquaculture techniques, 70 of them were certified by Metro GAP, and 20
distributors and suppliers in Mekong Delta benefited from the fresh fish supply
chain development project implemented by Metro Cash & Carry Viet Nam and
financed by the Viet Nam Challenge Fund. Those were the figures provided during
a seminar summing up the project in Viet Nam. The main output of the project is
the fish entrepôt in Can Tho, which has capacity of 4,500 MT/year and storage
capacity of 15 MT. Fresh and processed fish caught in the Mekong Delta are
gathered at the entrepôt before being delivered to Metro.
iii. Establishment of value chain “clean breeders – clean food – clean
processing – warehousing and distribution”
The move by Masan Consumer, a Vietnamese consumer goods manufacturer,
of buying 40% of Proconco, an animal feed manufacturer - is believed to change the
face of the Vietnamese animal feed market which is being controlled by foreigners.
 59

Masan Consumer would set up a value chain of “clean breeders – clean food – clean
processing– warehousing and distribution” by 2013, before its launch of a new
brand into the market by 2014. Analysts said Masan Consumer is following the
model that helped Thailand based Charoen Pokphand Group develop strongly. CP
Foods began its development as a livestock feed processor. After that, it jumped
into the field of husbandry, then to food processing, and finally, it has successfully
developed a clean food brand – the brand of the products made from a closed
process.
iv. Establishment of Fresh Supply chain with the “3F” model: Feed –
Farm – Food
CP wants to focus more on food processing to protect its brand and enhance
product quality awareness. More than 90% of CP’s business in Vietnam currently
derives from animal feed, farming and aquaculture. The processed food business
accounts for only 3% of CP’s total revenue.
To build the processed food business, the company plans to expand sales and
distribution approaches targeting both domestic customers and foreign leisure and
business travellers. Its main distribution channels are CP Fresh Mart and CP Shop
outlets that sell ready-to-eat and frozen food, and its Five Star grilled chicken street
stalls. The company currently has 55 CP Fresh Mart shops in Vietnam with a plan
for at least 20% expansion per year, 530 CP Shop outlets and 110 Five Star kiosks.
With meat products, CP takes 50% of chicken egg market share, 30% of chicken
meat market share, and 7% of pork market share in Vietnam.
v. New measures to ensure food safety
Deputy Minister of the Agriculture and Rural Development Nguyen Thi Xuan
Thu has announced a raft of new measures to ensure food safety at a conference on
agricultural product distribution. Under the plans, four food types will soon be sold
with green labels to inform consumers that they meet the standards of the Good
Aquaculture Practices (VietGAP) and were produced under the Food and
Agricultural Products Quality Development and Control Project (FAQDC). The
four categories will be: vegetables, fruit, pork and chicken. The labels would also
 60

help ensure the food origins and hygiene, while preventing the appearance of fake
VietGAP products, she said.
Though there have been a significant number of enterprises applying
sustainable resource management, there were still a large number of small entities,
farmers whose products directly supplied to Vietnamese restaurants which are still
not under a standard products quality control due to the lack of knowledge as well
as the economic potentiality.
3.3.1.2. Logistics management
According to the survey conducted in 2015 (Vo Anh Dung, 2015), surveying
the status of warehousing of enterprises in Vietnam, showing results as shown in the
following figure. The surveyed enterprises mainly use warehouse system with large
area, can store as many goods as possible (81.8%) and near important traffic hubs,
at airports or seaports (72.7%) to reduce to energy consumed during the transport.
Most businesses also answered that their warehouse system is energy efficient
(81.8%) and environmentally friendly (72.7%). Survey results are shown in the
table below:
Table 3.1 Current situation of warehouse of Vietnamese enterprises

Agreed Disagreed
(%) (%)
Large area warehouse, can store as many goods as
possible 81,8 18,2
Warehousing near important traffic hubs, airports and
seaports 72,7 27,3
Energy saving warehouse 81,8 18,2
Environment friendly warehouse 72,7 27,3
Source: Vũ Anh Dũng, 2015
 61

3.3.2. Weaknesses
3.3.2.1. Resources management
i. Low products quality control due to poor collaboration between
suppliers and enterprises in supply chain
Firstly, due to the poor collaboration between suppliers and enterprises in the
supply chain, it is impossible to ensure consistently safe and high quality food.
Because it is unusual for Vietnamese restaurants have the long-term relationship
with theirs suppliers, there are not any official standards agreed between a wide
range of suppliers and theirs consumers needed to be applied.
ii. Low-educated farmers – main suppliers in food service industry
Besides, major of suppliers in food service market in Vietnam are still farmers
who are low-educated. They are lack of experience and knowledge in term of
sustainable practices that causes harmful effect to environment as well as food
contamination. Though the customers which are restaurant enterprises do aware of
this issue, there have not been any solution yet.
3.3.2.2. Logistics management
i. Weak transport infrastructure
Although rail and sea transport are considered to be the least polluting and
environmentally friendly modes of transport, in Vietnam, roads are the main
connection between industrial parks and seaports. Frequent congestion situation on
important roads such as Highway 5 and Highway 51, vehicles consume a lot of fuel
and discharge more emissions into the environment.
In inland waterway transport, due to the shallow river-bed, it is impossible to
circulate container barges even though this is an environmentally friendly means.
Restrictions on the length of Vietnam's ports are also difficult if two vessels arrive
at the same time, leading to the condition that one vessel must dock at the port
causing fuel waste and increase the waste amount of the ship during the waiting
period.
 62

ii. High energy consumption and huge amount of emissions from

transportation means
In Vietnam, a large number of transportation means is one of the main reasons
leading to congestion on the roads. There are a large number of vehicles, while the
capacity of the transport infrastructure system is weak inevitably leading to
congestion. Transport vehicles keep consuming energy during the congestion,
leading to inefficient use of fuel as well as greater emissions of emissions into the
environment.
iii. Gasoline - the main fuel causing pollution
Most Vietnamese transporters use gasoline as their main fuel source for
transportation vehicles, even for the electric generation system of ships at ports. In
the process of burning fuel with gasoline, the emissions are very high compared to
other fuels such as alternative energy or electric energy. This is exacerbated by an
old, obsolete, less-maintained system of trucks, ships and trains. The more energy
consumed, the greater the amount of gas released into the environment. In fact,
Vietnam is a country heavily depends on fossil energy and the lack of technical
advances in inventing new, environmentally friendly energy sources.
3.4. RECOMMENDATIONS
In the eyes of shoppers and investors who are concerned about the
sustainability of the goods they buy and the companies they own stakes in,
consumer businesses are responsible for ensuring that their supply chains are
managed well. These companies are also in a strong position to influence their
suppliers. There are three approaches that can help consumer companies make their
supply chains more sustainable. These include identifying critical issues across the
whole supply chain, linking the company’s supply-chain sustainability goals to the
global sustainability agenda, and helping suppliers manage their impact.
3.4.1. Locate critical issues across the whole supply chain
To understand the impact of making consumer goods, companies must
determine how natural and human resources are used at every step of the production
process, whether in the supply chain or in direct operations. Companies must also
consider a wide range of environmental, social, and economic issues.
 63

Several organizations offer measurement frameworks and instruments that can

help companies find the most critical sustainability issues in their supply chains. For
example:
TSC Company has built a set of performance indicators and a reporting system
that highlights sustainability hot spots for more than 110 consumer-product
categories, covering 80 to 90 percent of the impact of consumer products. TSC
identified the hot spots and developed the performance indicators for them by
reviewing scientific research and consulting with more than 100 stakeholder
organizations.
World Wildlife Fund (WWF) offers more than 50 performance indicators for
measuring the supply-chain risks associated with the production of a range of
commodities, as well as the probability and severity of those risks.
The Sustainability Accounting Standards Board has developed standards that
help public companies across ten sectors, including consumer goods, to give
investors material information about corporate sustainability performance along the
value chain.
Carbon Disclosure Project (CDP) and the Global Reporting Initiative have
created standards and metrics for comparing different types of sustainability impact.
3.4.2. Link supply-chain sustainability goals to the global sustainability agenda
Once companies know where their supply-chain issues are, they can set goals
for lessening the resulting impact. Ideally, they will base their goals on scientists’
recommendations for bringing various types of sustainability impact under
thresholds that will maintain or improve human well-being.
For example, the Intergovernmental Panel on Climate Change, a scientific
body established by the United Nations, has defined global targets for reducing
greenhouse-gas emissions. They suggest that setting aggressive reduction targets
makes it more likely that companies will achieve these goals and realize greater
returns on their investments in reducing carbon emissions.
General Mills used this approach to set an emissions-reduction goal for its
entire value chain that corresponds to the internationally agreed-upon target of
lessening emissions by 41 to 72 percent, from 2010 levels, by 2050. With more than
 64

two-thirds of its total greenhouse-gas emissions occurring in its supply chain,

General Mills announced in late 2015 that it would endeavour to cut emissions
“from farm to fork to landfill” by 28 percent within ten years. To reach these goals,
the company is encouraging its agricultural suppliers to follow sustainable practices
and has pledged to obtain 100 percent of ten priority ingredients from sustainable
sources by no later than 2020.
Some suppliers have set sustainability targets of their own, ahead of receiving
mandates from their customers. For example, Cargill has committed to creating a
transparent, traceable, and sustainable palm-oil supply chain by 2020.
3.4.3. Assist suppliers with managing impact and make sure they follow
through
The purchasing power held by consumer companies and retailers gives them
significant influence over their suppliers’ business practices. Relatively few
companies in the consumer and other sectors use that influence to get their suppliers
to reduce sustainability impact.
Consumer companies and others should adopt more sophisticated and
effective methods for changing their suppliers’ practices. They should go from
disseminating codes of conduct, performing audits, and fielding questionnaires to
help suppliers design and implement sustainability programs that directly support
the companies’ own goals. For example, Campbell Soup Company, in collaboration
with the Environmental Defense Fund, offers farmers technologies, guidelines, and
products to help them optimize their fertilizer use and improve soil conservation.
Digital technology also help increase companies’ ability to assist large
numbers of suppliers. For example, in 2014, Walmart launched a program to help
thousands of its Chinese suppliers make their factories more energy efficient
through the use of an online tool. The program has enabled the average supplier to
reduce its energy consumption by an average of 10 percent. Unilever uses a
software tool, developed with the University of Aberdeen, to collect data on
whether farmers in its supply chain are using sustainable practices. Unilever offers
them the tool for free, with the aim of procuring 100 percent of its agricultural
content from sustainable sources by 2020.
 65

To reinforce efforts like these, companies should monitor suppliers’

sustainability performance and hold them accountable for it. Ultimately, consumer
companies can only achieve ambitious sustainability goals if they set high standards
for their suppliers’ performance and stop doing business with suppliers that fall
short - just as they do with other considerations, such as the cost and quality of
goods and the timeliness of shipments.
Consumer companies can also offer their suppliers incentives for improving
sustainability performance. To illustrate, Walmart has pledged that by the end of
2017, 70 percent of the goods it sells will come from suppliers that use the
company’s Sustainability Index. On Walmart’s e-commerce site, companies with
the highest Sustainability Index scores have their products tagged as “made by
Sustainability Leaders,” giving them an incentive to participate. Likewise, with the
International Finance Corporation, Levi Strauss established its $500 million Global
Trade Supplier Finance program to provide low-interest short-term financing to
those that rate highly on Levi’s own sustainability scorecard for suppliers.
Because supply chains overlap in many consumer sectors, companies should
recognize the benefit of collective action and begin working together to involve
their supplier networks in sustainability efforts. For example, the Consumer Goods
Forum (CGF), a global network of more than 400 retailers, manufacturers, and other
companies, made a collective commitment in 2010 to achieve zero net deforestation
by 2020. CGF members are pursuing that goal through the responsible sourcing of
four key commodities: beef, palm oil, pulp and paper, and soy. Another example is
the Accord on Fire and Building Safety in Bangladesh, which was set up after the
collapse of the Rana Plaza factory. The accord aims to improve safety at factories
by supporting independent inspections, remedial action, training, and disclosure of
inspection reports. More than 200 apparel companies have pledged to inspect all of
the 1,600 factories they work with. By December 2015, they had completed some
1,380 inspections.
Consumer companies should pay relatively scant attention to whether their
suppliers managed the social and environmental impact of their business activities.
Consumer companies could come to appreciate the extent to which their supply
 66

chains contribute to global sustainability challenges, as well as the effects that poor
sustainability management can have on their growth and profitability. A few leading
consumer businesses, along with civil-society institutions, could also create a
widening array of practices and tools for working with their suppliers to lessen
sustainability impact.
 67

CONCLUSIONS
After making research on the topic of Mc Donald’s - sustainable supply chain
management and recommendations for Vietnam, the writer draws out conclusions:
Firstly, sustainability issue is an important part of in supply chain management
which contributes a great impact on not only the food service industry but also the
whole economy in general.
Secondly, Mc Donald’s has been applying a wide range of practices in terms
of sustainable supply chain management in resources management as well logistics
management and attained a lot of achievement.
Last but not least, in Vietnam, though there have been a numerous number of
enterprises applying sustainable supply chain management, there were still a large
remaining part of enterprises lacking of knowledge and potentiality to apply
sustainable supply chain management. Besides, the issue regarding the logistics
management is still a big challenge to the Vietnamese enterprises also.
By analysing the supply chain management activities operated in Mc
Donald’s, we can see how these practices create a great influence to the
environment as well as the economy in the countries that they operate. With the
lesson learnt from the Mc Donald’s case study, the writer has some
recommendations to food service enterprises in Vietnam, for the way how to utilise
the sustainability practices in Vietnam including:
First of all, locate critical issues across the whole supply chain to find out the
solutions to control the impact of process making products into environment
Besides, link supply-chain sustainability goals to the global sustainability
agenda to lessen the resulting impact from theirs supply chain operations
Furthermore, assist suppliers with managing impact—and make sure they
follow through in which the entities create a widening array of practices and tools
for working with their suppliers to lessen sustainability impact.
Different solutions is match for different companies, so the companies’
managements should decide which options works best for their companies based on
their strength and weakness.
 68

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