supply chain

adidas Closes Communication Gap Between Supply Chain Workers & Factory Management

Posted on by spr1324lvancrey

Recently, adidas Group has made changes in managing its supply chain that allows for better communication between factory management and supply chain workers. During 2012, adidas Group conducted a mobile phone communication pilot project at one of its major footwear suppliers in Indonesia. The project emphasizes the fact that many workers in Indonesia use mobile phones regularly and that this form of communication can improve relations between factory management and supply chain workers.

The use of mobile phones to communicate between factory management and supply chain workers allows workers to send an SMS text message anonymously to a hotline when there are issues in which they are concerned about. The factory Human Resources or compliance staff manages this hotline. Workers’ concerns can be investigated quickly and workers can easily communicate issues directly to factory management. This allows these issues to be detected and addressed early. Not only does this system allow workers to communicate their concerns to management anonymously, it also allows management to have a better understanding of the supply chain workers, which in turn helps them better manage the supply chain. This system is also useful in empowering employees because they have direct contact with factory management. Supply chain workers have a chance to voice their concerns regarding their working environment and their concerns will be heard directly by management.

During the beginning of this project, workers began to communicate matters related to Human Resources, like staff reductions, working hours, and insurance. Some workers went the extra step and asked questions, as well as made suggestions to management. The pilot thus far has shown positive results from both the workers and factory management. In order to gain worker feedback, surveys were administered, and a majority of the respondents enjoyed the new system and saw it as a valuable communication channel with factory management. The success of this project pilot in Indonesia has led adidas Group to implement the project to four other Indonesian factories and one Vietnam factory. adidas Group intends to further extend this service to other adidas Group suppliers in future years. They feel that this is an effective form of communication and that it closes the communication gap that can exist between workers and factory management.

adidas Group Board member Glenn Bennett, who is responsible for Global Operations, explained that, “Protecting the interests of global workers involved in manufacturing our products is an on-going priority for the adidas Group as we constantly strive to improve workers’ conditions in our suppliers’ factories.”

With mobile phone usage on the rise around the globe, how could this form of communication change supply chain management? Are there any negative effects that could result from this form of mobile phone communication between management and workers?

 

Sources:

http://finance.yahoo.com/news/adidas-group-shows-leadership-supply-120504917.html

http://blog.adidas-group.com/2013/05/marking-a-new-milestone-in-the-management-of-our-supply-chain-–-the-sms-worker-hotline-project/

Image: http://upload.wikimedia.org/wikipedia/commons/thumb/2/20/Adidas_Logo.svg/200px-Adidas_Logo.svg.png

 

 

Changing the Game in Prescription Drugs: Walgreens and AmerisourceBergen

Posted on by spr1323amueller

In March of this year, Walgreens and AmerisourceBergen announced a partnership to take over part of Walgreens prescription drug distribution. This partnership will give both companies a leverage in size and help them better compete in the already large industry. President Obama’s Affordable Care Act will extend health care coverage to a lot of people who previously did not have it. For the pharmaceutical industry, this means a lot, and companies will be fighting to keep prices low. “To win, companies must capture enough new volume to offset the effect of pricing pressure on profit margins” (Cahill).

The news of this merger is very relevant to Operations Management, because of the changes it will mean for Walgreens supply chain. Previously, Walgreens had used Cardinal Health Inc. for some of their distribution needs, but not nearly to the extent of the new AmerisourceBergen partnership. However, the contract Walgreens had with Cardinal is up in August, and they will be using this opportunity to change how they run their distribution. For Cardinal, their stock price has already been falling.

In a quote from Crain’s Chicago Business, author Joe Cahill sums up what this means for Walgreens supply chain: ”Walgreen’s agreement to buy $28 billion worth of drugs annually from AmerisourceBergen will pump more volume through the wholesaler’s distribution network, boosting asset utilization and profitability. At the same time, wholesale costs should fall as the bulked-up middleman leans on suppliers.”

One of the main reasons for the merger, besides the cost-cutting, is their new-found access to specialty drugs. The company that has been known for their bulk prescriptions, is now able to sell drugs for, “cancer, rheumatoid arthritis and multiple sclerosis, which have higher profit margins but are also more expensive to keep on hand” (Humer and Wohl). Previously, Walgreens was not able to supply all of these drugs because their delivery trucks came from Cardinal only once a week. Now Walgreeens will be receiving daily deliveries from AmerisourceBergen (Japsen).

This partnership does not only mean new things for Walgreens, but AmerisourceBergen as well. This contract will be worth $400 billion over the ten years that it is in effect. It is becoming increasingly more difficult for small companies to compete in this economy for this type of industry. This partnership really allows Amerisource Bergen to focus their efforts on, “generic and branded prescription drugs around the world” (Japsen). Being able to concentrate their efforts in specific areas, allows AmerisourceBergen for further cost-cutting

Thoughts for discussion:

Do you think rival CVS/Caremark will begin to change or rethink their distribution after this news?

What does this mean for other pharmaceutical companies? Are the industry giants, the only real players now?

Will other companies take note of Walgreens change in supply change?

Sources: http://www.chicagobusiness.com/article/20130323/ISSUE10/303239984/the-one-word-reason-for-walgreens-amerisourcebergen-deal#ixzz2RocEDyrl

http://www.forbes.com/sites/brucejapsen/2013/03/19/walgreens-amerisourcebergen-play-creates-worlds-largest-drug-buyer/

http://www.reuters.com/article/2013/03/20/us-amerisourcebergen-walgreens-idUSBRE92I0EP20130320

“Inventory Is Evil”

Posted on by spr1323nnadeem


Apple, Inc. is one of the largest, most innovative companies in the world, selling not only electronic gadgets for users of all skill levels, but also how it manages inventory and forecast for its demand. The company has devised new inventory management strategies that have become a benchmark in the electronic industry and examples to many other companies worldwide.

These newly implemented benchmarks not only minimized inventory costs, but simultaneously helped Apple smoothly sail through high profile product launches without giving scope to competitors or allow them to catch up with competitively similar products. The case not only covers inventory management techniques at Apple, but also provide basis for calculating the internal fund requirements of the company based on projected sales.

In the electronics business, companies desire to minimize inventory storage as much as possible to avoid the risk that it won’t move to consumer hands. However, when a company underestimates the anticipated demand of a product and produces fewer units than expected, this results in a shortage of inventory, leading to a loss in both customers and market share. Therefore, a fundamental practice for a manufacturer is to keep as little inventory on hand as possible. As Apple’s agenda is perceived, they try to keep the right balance of inventory in all of their stores to satisfy customers demand.

Marketing products quickly saves the company storage costs and avoids the devaluation of products due to the continuous improvement of technology both internally and by new innovations from competitors. The best way to keep the inventory at minimized level is to invest and focus on supply chain and marketing continuously. To increase production, it is wise to hire contractors for manufacturing equipment instead of owning one. By doing so, the company will focus on promoting the inventory management in order to sell that specific line of products speedily at the fixed price.

Tim Cook, the manager of Apple, believed inventory loses somewhere between 1-2% of its value each week under standard conditions, the same way milk goes bad soon after the carton is opened. Operating under this philosophy, he put Apple in front of other competitors, such as Dell, by improving the way of moving inventory, where he claimed that “inventory is evil”.

There are a few ratios that show how quickly companies can liquidate inventory. For instance, the “days of inventory” ratio measures a company’s performance and provides a better idea to investors of how long a company takes to turn its inventory into sales, with shorter periods being better. Likewise, “inventory turnover,” shows that a low turnover can mean poor sales and thus products will be sits in a warehouse losing their value; on the other hand, high turnover means strong sales and relatively empty warehouses.

 

 
What sort of inventory management practices can other companies learn from Apple, Inc.?

 

 

 

Sources:
H., Victor. “Apple’s Secret Sauce for Success Is Inventory Management.” Phone Arena. N.p., 29 Mar. 2012. Web. 28 Apr. 2013.
http://www.phonearena.com/news/Apples-secret-sauce-for-success-is-inventory-management_id28558

Niu, Evan. “Does Apple Have a Little Inventory Problem?” (AAPL). N.p., 5 Mar. 2013. Web. 28 Apr. 2013.
http://www.fool.com/investing/general/2013/03/05/does-apple-have-a-little-inventory-problem.aspx

“What Is Apple’s Inventory Management Secret? | QuickBooks Manufacturing Blog.”QuickBooks Manufacturing Blog. N.p., 17 Apr. 2012. Web. 28 Apr. 2013.
http://quickbooksmanufacturing.wordpress.com/2012/04/17/apple-inventory-management-secret/

 

Be GREEN, or be SQUARE!

Posted on by suhanip301s12

More and more customers now are looking for companies to be transparent, but it’s kind of hard to be competitive and sustainable at the same time.  Companies are now using value chain processes to get the job done fast.  They are not only focusing on suppliers but also taking into account By-Product-Synergy, which is “taking waste from one part of the production process and using that waste in order to generate a new product.” But how can companies become more sustainable if only “80 percent of management uses just 20% of the available opportunities?!”  The remaining 80 percent is where management needs to focus the rest of their energy.

It’s crucial for management to set goals and assess their risks, thereafter they can easily seek out opportunities for future improvement.  The first step to become a transparent company is to implement a sustainability program, and of course to develop a strategy.  The next step is to identify the companies “main processes and map data throughout the value chain.”  By using life-cycle-assessment software, the companies will have a more clear idea of how to lower their costs.

A similar approach was taken by ThyssenKrupp (FWB: TKA), a German elevator company.  Since ThyssenKrupp uses a considerable amount of steel in the manufacturing process, they thought the operational aspect had the greatest environmental impact. To their surprise,  the “company’s elevators themselves left a greater carbon footprint then their manufacture or any of the company’s other operations.”

As a result, ThyssenKrupp dramatically changed their product line after implementing a sustainability program.  They made the following changes to their products and services:

  • Elevators use LED lights which reduce energy consumption by 80%, and automatic fan and light shutoff which reduces CO2 emissions by 193,000 tons per year.
  • Getting rid of harmful chemicals used to manufacture the elevator.
  • Using petroleum based biodegradable fluid, with a vegetable-based option called “enviromax.”
  • Elevators are equipped with regenerative technology, meaning that the energy generated from the braking system is put back into the building.

In a way the article gives motivation to other companies who are taking their first steps towards becoming a transparent company.  It gives them few ideas and pointers on “unlocking supply-chain opportunities.” It’s important for different industries to decipher various ways to be more environmental friendly.  After all, there is more to being sustainable than just showing off your environmental initiatives.

Do you think ThyssenKrupp can take additional measures to make their company more sustainable?  Or better yet, are there any companies that you want to see become transparent in the near future? How would they need to change there operations?

Links:

http://www.thyssenkruppelevator.com/Sustainability/products-services

http://www.greenbiz.com/blog/2013/04/26/whirlpool-thyssenkrupp-supply-chain-transparency?page=0%2C1

https://opsmgt.edublogs.org/2012/06/28/transforming-waste-into-profit/

 

Is the Oil-Tanking Industry Sustainable?

Posted on by spr1322cleahy

Due to the poor economy, the oil industry is having a rough time enduring transportation costs from country to country.  For decades, oil tankers have been the main source of transportation, carrying up to two million barrels of oil between the Middle East, Asia, and the United States. Unfortunately for the oil tanking business, operation costs over the past few years have been much more expensive than they have been in the past.  This increase in price makes the shipping of the popular and much demanded natural resource nearly impossible and not worth it.  Unlike what is usually the case, globalization in this situation for example is more costly to this particular industry than it would be to drill into our own soil.  The only problem is that we find a larger supply of oil in foreign countries than we do our own.

To get an idea of how much this is costing the oil firms, analysts look at the forecasts from previous years.  This collection of data has shown that the industry has lost more than $26 billion dollars in the past four years, and operation costs are higher than ever.  To operate one of these extremely large vessels, it costs anywhere from ten to twelve thousand dollars per day.  In 2007, operation costs peaked at $309,601 per day.  That is unbelievable! Because these carriers are only making roughly $7,000 a day, there is a huge deficit.  While such oil companies continue to lose so much money daily, they cannot possibly stay in business.  The supply chain is not working in favor of firms; therefore, sustainability of the business comes into question.  So what should these oil tanking firms do?  How can they cut costs?  Is it possible to adjust the supply chain or is it a lost cause?

I think that at such a loss like this, the amount of ships in operation should decrease drastically, causing less expenses to be paid.  That is the only way they can keep their heads above water, although they are already sinking in debt.  New York’s Overseas Shipholding Group filed for bankruptcy last year, and I am sure they will not be the last to do so.  I feel for these dying companies because many of them entered into contracts before the economic crisis occurred, and now they are stuck in a failing industry, losing more than they gained from the contracts to begin with.

Other possible options for consumers that effect the oil firms is innovation.  It is not uncommon to see on TV or read in the newspaper alternatives to oil resources.  At the Chicago Auto Show every year, concept cars are on display that use battery powered systems to replace oil.  These are more cost efficient and do not require the use of oil tankers.  What do you think will be the result of the oil industry failing?  How do you think consumers should react to this? How do you think the government should react to this?

Sources:

http://online.wsj.com/article/SB10001424127887323741004578418652461117968.html

https://www.google.com/search?hl=en&site=imghp&tbm=isch&source=hp&biw=1440&bih=686&q=oil+tankers&oq=oil+tankers&gs_l=img.3..0l7j0i5l3.1094.2780.0.2865.11.9.0.2.2.0.99.568.9.9.0…0.0…1ac.1.9.img.jaBIJkaaITU#imgrc=UIoFamHBsuSHxM%3A%3B47hJKcJOVD494M%3Bhttp%253A%252F%252Fwww.shippingherald.com%252FPortals%252F0%252FVessels%252Foil-tanker.jpg%3Bhttp%253A%252F%252Fwww.shippingherald.com%252FAdmin%252FArticleDetail%252FArticleDetailsTankers%252Ftabid%252F102%252FArticleID%252F8877%252FNordic-American-May-Double-Oil-Tanker-Fleet-as-Asia-Spurs-Demand.aspx%3B1190%3B1074

 

 

JIT – Just-in-Time or Just-in-Trouble?

Posted on by w13walney

The importance of managing risk through the supply chain has become painfully evident as a result of natural disasters which have occurred in recent months and years. Despite the obvious human cost and tragedy that ensued, catastrophes caused by the earthquakes, tsunamis, flooding, factory explosions and volcanic eruptions have all impacted enterprises who source globally, and who have embraced Lean/JIT practices at least to some degree.

The supply chain effects of these catastrophes have lead to a JIT rethink, but it is clear that many companies have failed to put in place back-up plans to cope with emergencies like the Japanese catastrophe. They were content to place all their eggs in one basket like Japan or China owing to low production costs while ignoring the obvious risks of natural disasters. But even where companies had a disaster-recovery plan in place, room for maneuver depends largely on the nature of the industry.

The production philosophy born on the factory floors of Japanese car companies is a global management practice and has saved companies billions of dollars. The idea behind JIT, or lean manufacturing, is to have the supplies a firm needs at the exact moment that they are needed. Most of the companies, with production systems based on just-in-time inventory management, understand keeping minimum inventory has its risks.

The problem for many global corporations is that they are mesmerized by cheap production costs in disaster-prone countries. They know the natural disaster risks but feel that their infrequent occurrences on a major scale justify the risks. Nature is not the only threat to the supply chain; there are also significant political risks to be considered in many politically unstable countries.

The rising production costs in China will favor a shift of production back to countries concerned to have a more secure source of supply unaffected by natural disasters. There are, however, other reasons favoring a production shift back to regions close to their markets, like flexibility to react to market changes more responsively.

There are number of avenues open to risk mitigation strategies to deal with large scale disruptions of supply chains, including:

–        Challenge suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that they are unable to produce product at their main plant.

–        Eliminate sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably too few, but having five suppliers is too many in terms of achieving economies of scale.

–        Analyze where suppliers are located, and limiting the number of critical component suppliers that are geographically situated in a risky area.

–        Review insurance policies and consider taking-out contingent business interruption insurance that protects against losses relating to the inability of suppliers to deliver.

Experts have been recommending for years that manufacturers diversify their supply base. After all, recent history is full of examples of widespread supply chain disruptions and their consequences for manufacturers reliant on too few sources, such examples are: attacks to WTC and Hurricane Katrina in USA, flooding in Thailand, factory explosions in Germany, volcanic ash from Iceland and earthquake and tsunami in Japan.

References:

Japanese Earthquake-Tsunami Show Flaws In Just-In-Time

http://nhne-pulse.org/flaws-in-just-in-time-production/

Reducing Risk in The Automotive Supply Chain

http://businesstheory.com/reducing-risk-automotive-supply-chain-2/

Japan’s earthquake must force JIT supply changes

http://logisticswithballs.blogspot.com/2011/04/japans-earthquake-must-force-jit-supply.html

Auto companies relook at just-in-time mantra

http://articles.timesofindia.indiatimes.com/2011-05-18/india-business/29555380_1_shekar-viswanathan-toyota-production-system-tsunami

 Japan One Year Later: What Did Supply Chain Practitioners Learn from the Tsunami?

http://supplychainalmanac.com/2610/japan-one-year-later-what-did-supply-chain-practitioners-learn-from-the-tsunami/

Hurricane Sandy Causing Problems for Small Businesses

Posted on by f1224mtorelli

When compared to major corporations, small businesses have it rough.  They don’t have the staff, resources, or logistical capabilities of larger companies.  Imagine, then, the nightmare that so many small business owners awoke to after Hurricane Sandy devastated the East Coast.  It’s for this reason that I’ve decided to discuss small businesses and the logistical difficulties they are facing after Hurricane Sandy – especially in regard to their supply chains.  The following New York Times article is one of the few I found that exposed the grim reality so many small businesses will face in the coming months.  Below is a synopsis.

______________________________________________________________________

A small business owner stands amongst the devastation caused by Hurricane Sandy.  Click the image to be taken to the article.

The article begins with a story that perfectly illustrates the dire circumstances so many business owners found themselves in after Hurricane Sandy passed through the East Coast.  Kristy Hadeka and Sean Tice – co-owners of Brooklyn Slate Company, a company that produces slate cheese boards – had been preparing for the holiday season when Sandy hit.  As a small business, the company depends on the revenue generated during this time of the year.  According to the article, holiday sales typically make up 75% of the company’s annual revenue.  Instead, they found themselves dealing with a litany of other issues – a depleted staff, damaged inventory, halted UPS shipments, and even customer emails requesting arrival times for orders.  Kristy and Sean even had to locate missing merchandise that was being transported to a Whole Foods store in Massachusetts.

Another small business, Linda the Bra Lady, had a similar experience. While the company did not experience any physical damage, co-founder Carl Manni explained that they did suffer financially as a result of the storm.  Manni explained that due to damage sustained to several of his vendors’ warehouses, he was unable to procure the inventory he needed to fill online orders.  He consequently had to back out of the orders – a decision that will cost him approximately $50,000 for this week alone.

Outside of lost inventory and stifled supply chains, the looming issue is that many of these business owners did not have insurance that covered a disaster of this nature.  Consequently, many small businesses will have to file for bankruptcy if they do not receive disaster relief funds from the government.

Ultimately, I feel that small businesses have a much harder time dealing with catastrophes of this nature.  Whereas large retailers can reroute their supply chain or reorganize resources to soften the punch Sandy packed, small businesses do not have the necessary resources to reroute orders or replace inventory – especially given the current state of the economy.

* The information provided in this post was drawn from the following New York Times article:

http://www.nytimes.com/2012/11/08/business/smallbusiness/after-the-storm-business-owners-assess-damage-and-ponder-lessons.html?smid=pl-share

Questions to Consider

  1. How do the logistical challenges faced by small businesses differ from those faced by major corporations?
  2. In the aftermath of Sandy, who has the rougher road – large corporations or small businesses?
  3. Put yourself in the shoes of a small business owner, how would you have reacted to a disaster of this nature?
  4. Should the government help small businesses recover from this disaster?

Hurricane Sandy’s Effect on Shopping

Posted on by f1212shana

 

After the devastating hit on the American East coast from Hurricane Sandy, so many conflicts have risen. Not only are people left without power and home, but business owners are having a tough time figuring out how and when to get products shipped to them from across the Atlantic. As mentioned in the article, “The New York area’s port system is the largest on the East Coast, and the third largest in the nation. Last year, it handled $208 billion in cargo”. Not only are the ports destroyed by Hurricane Sandy, but other modes of transportation are effected as well. The train rails, for example, are covered in debris and damaged by the debris.

As a result, many business owners are not receiving any of their shipments that were requested because there is no mode of transportation to reach them. Also, the holiday season is when entities gain the most profits. This has a huge ripple effect because if businesses are not getting any of their goods, then their customers and business to business transactions won’t receive products needed. In turn, no business will get sufficient profits and customers will not receive their desired good. I can only imagine the frustration on everyone’s minds.

With all this trouble, there is some positive attitude coming from business owners. Robert Van Sickle, the owner of Polka Dog Bakery, states that he considers, “Repackaging the [dog] biscuits and donating proceeds to storm relief efforts.” This is a thoughtful gesture that many business should think about keeping in mind. If owners are not able to get parts of products to complete their good, then he or she should donate it to those who could be in need. This way, not only are they giving back to the community, but the community will recognize their effort in helping, which could result in gaining customers and gaining loyalty from their current customers.

This scenario helps me link back to the leadership triad. Business need to work with the foundation/ condition they are given to try to squeeze as much profit as possible. If people don’t have power, maybe they need to post up printed ads all around the city to get the attention of consumers or have employees going from one house to another giving away coupons to their merchandise, just so they can bring customers through the door and allow those who have a limited budget to be able to purchase merchandise that he or she wants. This results to a customer focus by creating such strategic planning. With this storm, businesses need to focus and think about their local customers more than ever by giving the helping hand and showing how appreciated he or she is for being a loyal customer.

What are your thoughts about the situation? What are some strategies you would utilize to bring customers into your store to get rid of inventory and make as much revenue as possible without having any new products coming in?

 

To read more about the article visit this link: http://www.nytimes.com/2012/11/05/business/a-storm-battered-supply-chain-threatens-the-holiday-shopping-season.html?pagewanted=1&_r=0&ref=business

Save Money. Live Better…and Greener

Posted on by f1221gcontreras

           The largest retailer in the world, Walmart, has a track record that displays their commitment to sustainability.  It is now aiming to improve this track record and in doing so may be the catalyst that the industry needs to shift towards sustainability as a whole.

As we all know, one of Walmart’s strengths is their supply chain management.  The multinational corporation has 100,000 suppliers and it has enough clout in the industry to pressure them into following their directives and initiatives.  This has been evident and will now be put to the test.  Walmart is beginning to include sustainability in its merchants’ performance reviews, which will be used to determine pay raises and potential promotions.

When put into perspective, these merchants are responsible for multibillion dollar buying decisions and are responsible for what stores have on their shelves.  Therefore, the inclusion of sustainability scores in performance reviews will undoubtedly shift some of the emphasis on price to sustainability when making buying decisions.

An example of this concerns the laptops that are carried at Walmart stores.  An estimated 30% of laptops sold at Walmart have advanced energy saving settings.  Walmart does not find this adequate.  Therefore the company’s laptop buyer set a goal to increase the percentage of laptops sold with advanced power settings from 30% to 100%.  Company research indicates this shift alone will reduce CO2 emissions by hundreds of thousands of metric tons and save the consumers money on electric bills.

Because Walmart’s buyers are now going to put a greater emphasis on sustainability, it will behoove the suppliers, in order to retain Walmart’s business, to do the same. The suppliers in order to meet the stricter criteria must find new methods to reduce waste in their own operations.  This will encourage leaner competition both among competing suppliers and the buyers of other companies as well.

Walmart’s Sustainability director, Jeff Rice, believes that although sustainability will not be all that is looked at when evaluating merchants, it will have enough weight to effect behavior.

It will be interesting to see the effects of this initiative not only on the company but the industry as a whole.  When the industry leader makes a dramatic change in operations it will most likely be emulated by the other players in the industry in order to keep up and compete.

I believe that Walmart must be commended for its efforts.  This is because sustainability is not always the most profitable route to take in the short run.  At times it may not even be economically feasible.  However, taking Walmart’s success in managing its supply chain into consideration, I believe that Walmart will be able to reduce waste and make its supply chain “greener.”

Any thoughts on this? Do you believe that this initiative is risky? If so, is it worth the risk?

McTurnover Rate

Posted on by f1231saddison

All companies are responsible for some type of inventory management. The inventory turnover rate and amount of inventory simply varies by the company and its’ industry. Also, most companies have different ways of keeping track of their inventory and how often they do so.

In this tough economy, McDonald’s is one of the only restaurants that have strived in profitability and success. The company has been doing many things right in the past few years, including handling their inventory. This article compares McDonald’s inventory to Wendy’s, their biggest competitor.

Inventory in the food industry is much different than inventory in a clothing store, for example. McDonald’s, along with any other restaurant, cannot have food sticking around in the store for too long. This is due to the fact that the food can spoil and the last thing any restaurant owner wants is for a customer to become sick from their food. Also, McDonald’s does not want to waste money. Any ingredients in the store that are not being used before their expiration date are a lost cost to the business. These two factors make it very important for McDonald’s to correctly calculate how much inventory they should keep in the store at all times.

Between the years of 1999 and 2000, “McDonald’s had an inventory turnover rate of 96.15”. This is compared to Wendy’s inventory turnover rate of 40.073. This means that the average item at McDonald’s stayed in inventory for approximately four days before being sold. For Wendy’s, it took about ten days for a product to leave the shelves.

In this situation, McDonald’s inventory turnover rate was obviously better than Wendy’s. This means that it took less time for McDonald’s to turn a profit compared to their competitor. Also, it means that customers were getting fresher food than those who opted to visit Wendy’s.

With such a great inventory turnover rate, there is little that McDonald’s can do to improve in this department. However, in the years to come, it would not surprise me if the fast food giant set a new high standard.

http://beginnersinvest.about.com/od/analyzingabalancesheet/a/mcdonalds-vs-wendys.htm