McDonalds
Ted Brush
Manager Equipment Purchasing and Engineering
McDonald's Australia Ltd
20 August 1998
Introduction
Good morning!
Over the past year or so I have been doing a lot of reminiscing, partly because I am now well past that magic age for men and partly because of losing my dad just over 12 months ago. As I've done that, I have begun to see ever more clearly that probably one of the biggest lessons we can learn from the past is that the future, in many ways, will most likely not be anything like we expect it to be.
Not a very profound statement I guess, still it isn't that long ago we were wondering at McDonald's if we would ever be able to open 500 hundred restaurants in Australia.
This year, with over 650 restaurants and heading for over $1.6 billion in sales, our eyes are firmly fixed on the future.
In my area of our business, the management of part of our supply chain, and our engineering group, the challenges are coming thick and fast and I want to share with you some of the thinking and processes that are behind our success and some of the ways in which we are heading into the future.
I need to warn you at this point that there are no magic formulae, no 'canned' solutions that you will be able to just take out of the box and apply. Rather, I want to focus on the thinking processes that allow flexibility and thereby bring, hopefully, success. After all, that is why we are all here , we want to be more successful at what we do.
Today, over one million Australians will eat at a McDonald's restaurant - maybe a few less with you here and not able to take your families I guess! Still, that's a lot of people, and a lot of Big Macs, Fries and drinks.
An Overview of McDonald's
How did all this come to be?
McDonald's was founded in the US in 1955 by a man named Ray Kroc. In 1955, Ray was 52 years old - he had diabetes, arthritis and a number of other complaints. He also had very little money; in fact he made his living selling milk shake mixers and claimed his only major asset was attitude!
The whole thing started a year before, 1954, when Ray received an order from a fast food operation in San Bernadino California, run by the McDonald brothers - Richard and Maurice (or Dick and Mack as they came to be known). Ray received an order for the unheard of number of 8 of his shake mixers.
Unable to comprehend the need he flew to California, scoped out the operation and was fascinated. He asked the brothers about their plans for expansion. He was told there were none, the brothers were content with the success they already enjoyed.
By 1960, Ray had opened some two hundred restaurants across the US. In each restaurant the operations, building, architecture, kitchen style and menu remained the same.
In 1961, Ray bought the McDonald brothers share of the business for $3,000,000 and by 1973, just 18 years later; Ray celebrated his 70th birthday by giving $7,000,000 to his employees and charity.
Ray died in 1984 leaving the McDonald's System in the hands of his management team.
Today, there are over 23,000 McDonald's restaurants in over 100 countries.
McDonald's Australia has been a similar success story. We opened our first restaurant at Yagoona here in Sydney in late 1971 and served around 3,000 customers a month. In our twenty third year, 1994, our corporate revenues exceeded $1 billion for the first time. By the end of this year, we will have increased our restaurant base by more than 50% over the 1994 levels (in just four years!) and our revenue this year will exceed $1.6 billion, while, as I said at the beginning, we will serve over 1 million people today alone.
If you consider that IBM took forty-six years, and Xerox Corporation took sixty-three years, to reach their first billion dollars - then you would have to say we have done pretty well.
Key Success Areas
The real question, of course, is why has McDonald's been a success? Why is it that so many Australians will eat at McDonald's today?
Maybe because it's quick, or easy, maybe because it's affordable or just because they enjoy the taste. Any one or more of these reasons could apply to any individual or group at any point in time - but all of these reasons go to make up the McDonald's experience. The McDonald's experience is the first, and major key to our success.
QSC&V
Many of you will have heard of QSC&V. Now QSC & V is not some kind of secret weapon or some marketing hype that some guy with a pony tail, open neck shirt and gold chains invented to convince us he is worth his stipend.
QSC & V stand for quality, service, cleanliness and value and it is a core part of our business.
Quality means no shortcuts. We MUST deliver quality products to ensure our customers keep coming back. If people didn't keep coming back, our statistics show that we would be out of business in just two weeks!
Service means exceeding our customers' expectations, each time, every time.
You might be interested to know that when we first started operating in Australia the 'experts' told us that we would not be able to get young Australians to provide the kind of service that would meet our expectations. It was un-Australian!
Today, even other McDonald's operations from around the world come to Australia to bench mark us to determine why we are doing so well. One of the things we are most proud of is that in the McDonald's world wide system our staff are acknowledged as the best of the best with service ratings and productivity factors higher than that of even the developing countries, despite their comparative labour rates! Young Australians are very, very good indeed!
The bottom line to the service equation is our investment in people at every level. We employ over 50,000 people in Australia today. And we will invest in excess of $20 million on training and career development.
Cleanliness means a facility that you would be proud to call your own
It's often been said that the only restaurant you notice is a dirty one! Certainly that has been my experience, and probably yours.
Value means more than just low price. Without the rest of the experience of clean facilities, good quality food and great service, our customers do not perceive value. Something to apply to any business.
Marketing
The second major key to our business success is our marketing.
Innovative marketing strategies clearly drive a business such as ours. But our marketing programme is not simply about food. We use it to enhance our customers experience, we use it to build the overall perception of McDonald's in the market place as the eat out restaurant of first choice and we use it to let people, who perhaps have not yet experienced McDonald's, know what we can do for them and how the McDonald's experience continues to evolve to satisfy what our customers are asking us for.
Community Involvement & Licensees
Another two other areas we also regard as keys to our success are our community involvement and our licensees.
Time won't permit me to go into these areas in any detail this morning, however it is clear that, whatever we can do for the community that is good for it, will in the long run be good for us. Whether that be McDonald's Junior Tennis and the other sponsorships we are involved in, or the hundreds of educational, environmental, artistic and other programmes that get off the ground every year because of the assistance of McDonald's and our franchisees, we are proud to a part of the Australian community.
Our licensees are the second last key to success I want to mention this morning. It's appropriate because about 80% of our restaurants in Australia today owned and operated by Australian business people.
To be a McDonald's licensee means a total focus on the McDonald's business. We have very high standards and high expectations. The net result is nearly 300 Australians committed totally to making their little piece of McDonald's a success. They are in day to day contact with their customers, their staff and their suppliers.
Suppliers
That's quite a list and I confess I have just skimmed over the detail. But there is one key factor in our success that I have yet to mention and that is our suppliers.
It goes without saying that our suppliers are one of the three stakeholders in the McDonald's system. The corporation and our licensees being the other two, making up what we have traditionally referred to as a three legged stool.
Partnership, What Is It?
The term 'Strategic Partnership' has floated around a lot over the past few years. It goes further than McDonald's of course. The term has become a bit of a trendy one lately so I thought it would be a good idea to explore a little more just what it is that I mean when, as a McDonald's person, I refer to our desire to be in partnerships with our suppliers.
Partnership conjures up all kinds of images. We are married to partners, work with partners, dance with partners and play games with partners.
However you look at it, the fundamental tenets of partnership are of common purpose and of sharing. Sharing the good and the bad, the risks and the rewards, the ups and the downs.
It also implies an equal responsibility and accountability for what happens in a relationship, or to a relationship.
Like dancers we tread on each other's toes from time to time, but the final result can be harmony of movement and a result greater than that which one of us alone could achieve.
Partnerships are not a panacea for poor management, they are not a substitute for lack of leadership or poor planning and they are certainly not some kind of magic formulae that guarantees success in the market place. Partnerships in business require a lot of work.
Partnerships in business relationships are like a marriage. Success and happiness can't be guaranteed. BUT , you can work at it and put in place processes to try and minimise the down side , that's what it is all about, minimising risk and capitalising on strengths for mutual benefit.
Suppliers & The Planning Process
So how do you establish supplier partnerships?
The first broad area I want to address is that of planning. If success is your aim then a plan to achieve it is an obvious place to start. More specifically, you need to ensure that your Purchasing, or Supply Chain Management areas have a plan that is aligned with your organisation's direction and that will enable them to manage your supply base to achieve your corporate aims.
Let me share some ideas on reviewing plans at this point. I suggest just four basic questions.
Firstly, do you have a clearly stated vision? Does you vision statement clearly outline the future you desire for your organisation?
Think about it this way , if your own people do not know unequivocally where your organisation is ultimately headed, you certainly can't expect your suppliers to work it out either. The people who manage your suppliers are leading the relationship from your organisation's point of view, and like leaders in any arena in life, they need to know where it is they are leading your suppliers.
Secondly, you need to have a very clearly defined mission , this is your organisation's, or your department's purpose for being, it defines the business you are in.
Again, if your people don't know what it is they are supposed to be doing, then they probably won't do it! Neither will your suppliers! Let's face it, suppliers who don't know what you're about, or where you're going, aren't likely to contribute a whole lot.
The third area I want to touch on with respect to planning is that of the inclusion of suppliers into your strategic plan. The question is , are your suppliers a success factor for your business , are they a strategic area in your plan?
Your suppliers and their success is vital and an integral part of your own success.
Successful suppliers, and I'll enlarge upon this later, are an obvious, but often-overlooked factor, in your own success. There are all the usual issues of costs associated with replacing suppliers and of managing poorly performing suppliers, these are obvious. I believe the bigger cost is in the lost opportunities that you don't see. A supplier who is less than the best in their field is clearly not going to be able to propel you to be number one. Less than successful suppliers are not simply a drain on your resources, they cost you the ideas, and other benefits, that another, more successful supplier might have contributed to your business to enhance your success. Worse still, they may not survive to give you the guarantee of supply you need to succeed yourself.
Moving from your own planning process, I want to touch on your suppliers' plans. So the fourth question is , where are your suppliers' plans at? Have you seen them? Where do you fit in? What opportunities could you be missing?
Remember suppliers cannot be expected to align their plans with yours unless you have shared your plans with them, and unless you have walked them through your plans in some detail. They need to buy into your purpose and be given a place and a way to contribute.
To sum up this area , I think planning goes a bit like this.
A few weeks I found myself in the bar of a small country pub. While I was sitting there I overheard a couple of the locals arguing. Finally one of them, call him Mike, said, ãI don't care what anyone says, you can lead a horse to water but you can't make it drink.ä At that his companion, I'll call him Bill, thumped his glass onto the table and said ãOK mate, you and me are going outside, and I'm going to prove to you that you can lead a horse to water and make it drink.ä I got up followed them.
We kind of stumbled around in the paddock beside the pub and Bill couldn't find a horse. Finally, he disappeared and came back a few minutes later with a cow. ãOK Mikeä he said ãlet's go down to the creek with this cow. I'm going to prove once and for all that you can lead a cow to water and you can make it drink. Follow me.ä
At the creek Bill unveiled his plan. ãMike, I want you to hold this cow's nose in the water while I go to the south end and suck. Well, they went to it. After a couple of minutes, Bill yelled at Mike. ãMike, you haven't got it quite right, can you lift her nose just a bit - all I'm getting back here is mud!
We need to get our planning processes right, because if we don't all we'll get is mud!
Managing Supplier Relationships
Having gotten to the point of both having a plan, and one that is hopefully mutually compatible, the next step is to come to terms with what you want to achieve together with your suppliers. It would have been difficult to imagine Bill and the reluctant partner, the cow, having a deep and meaningful review of what they were going to try and achieve together. Fortunately, in real life, your suppliers are usually somewhat more articulate than that cow was. Unfortunately, you can still end up with a bad taste in your mouth!
Let me share with you some ideas on how you can take your supplier relationships into the future. I want to do that by going over general expectations of suppliers and then go from there.
The first broad expectation I'd suggest for a supplier is that they need to be leaders in their market segment. I mentioned this earlier on, but let me reiterate, suppliers who are not leaders in their markets are unlikely to be able to support you to become leaders in your market place.
Being a leader is a good place to be in life. It's where we all want to be! After all, the lead dog in a husky team is the only one that gets fresh air and different view every day!
A supplier who is a leader in their market will not be necessarily be the lowest cost supplier, nor will they necessarily be the biggest. They will represent the best value however. You could go on and choose a whole plethora of ways of defining a successful supplier - your ideal supplier. What you really need to do is to come up with your own picture of what an ideal supplier for you looks like and look for companies that will go as close as possible to fitting that picture.
The second expectation I believe you should have of a relationship with your suppliers is that the relationship will be a mutually profitable one. Without a mutually satisfactory profit situation, no supplier is going to last long enough to be of any benefit to you (or their own shareholders).
A relationship that is not win win usually motivates the losing side to either adjust their deliverable services or quality so that they can remain afloat. Worse still, it can create a survival situation where a supplier decides that if it's you or them, it's not going to be them. You are then faced with an adversarial relationship in which the supplier is simply out to get what they can from you and your interests don't come into the picture. The next thing you do is to invoke the ãGolden Ruleä - you know the one - ãHe who has the gold makes the rulesä. Finally, you pull out the baseball bats and by this point the relationship is in a firmly downward spiral - just like water down the plug hole - and often about as retrievable!
The next expectation I'd suggest is for suppliers to understand your strategic direction and for them to align their own business plans to yours - again, a mutual success formula.
At this point I'm touching on points I made earlier on. A strategic partnership cannot exist in an environment where suppliers are not able to proactively address their customers' needs. They will always be waiting for you to tell them what to do. I realise this is not always an easy step to take. Issues of confidentiality and trust are of major significance, but you can't have a partnership without alignment at this kind of level. You might find it interesting to ask your suppliers what they value most from you - I would be willing to bet that trust would be as high on their agenda as yours. If you can't trust your present suppliers, perhaps you should consider whether or not you have the right ones!
The next expectation I'd suggest is a mutual, long-term view of your business together. Short term relationships between companies, are a bit like short term relations between people, they lead to a focus on what you can get from each other rather than what you can do together. Let's face it, no supplier likes a customer who is a 'Wombat' - they all know about their habits!
As a consequence working over an extended period with suppliers with whom you have established a long term partnership, with whom you can work together to resolve opportunities and grow, and who will bring their own developments to the table, to grow your business as well as their own, are the best choice in the long run.
The final thing I want to mention as an expectation of suppliers is that they need to deliver the promise. You see it doesn't matter which supplier lets you down, your customers will only perceive that you have not met your commitment to them. For example, in McDonald's, our customers see the same adds on television wherever they are, suburban Sydney, Alice Springs, Kalgoorlie, kick the tin along, wherever, and they don't even think about who didn't deliver the buns or whose piece of equipment has broken just in time for their visit to the restaurant. They just think we let them down.
All that is pretty idealistic I know. Let me reassure you that I know that in the real world you sometimes struggle to find the horse. People who are working for you will settle for second best, suppliers will betray your trust, sometimes you will get that mouthful of mud.
Let me try and turn some of the idealism I've expounded into some practical ideas. None of us wants to make the same mistakes Bill made and we know that good intentions rarely deliver the promise on their own. What should you do?
Again, let me make some suggestions, which from our experience help deliver the 'goods'.
Firstly, have a very clear picture of what it is you want your suppliers to do for you and therefore what sort of people you are looking for to deliver the goods. Go to some trouble. Define the characteristics of an ideal supplier - the perfect company for you to deal with. Then go on and describe the defining behaviours for those characteristics. Make sure you know what they need to do to demonstrate they are the ideal supplier for you.
From these characteristics and defining behaviours you should be able to derive a very simple score sheet that will enable you to establish the 'quality', or otherwise, of your existing supplier base. In addition, you will have a filter to apply to any potential new suppliers you may look at. That way, hopefully you won't settle for a cow when you wanted a horse - or more importantly, get mud when you wanted fresh water!
At McDonald's we call this our Supplier Quality Index and it is a simple tool that can be provided to any of the suppliers' 'customers' and feedback sought. It is also a good way of getting the emotion and subjectivity out of the evaluation of the supplier's performance because you are asking for and providing feedback against a standard and not just relying on ãgut feel' - something all too easily influenced by the mood of the moment.
The next step I'd suggest is to put in place a formal Business Review System for your suppliers, if you haven't already got one in place. This process becomes the keystone of your relationship with each supplier. This is the process through which you share your perceptions of the gap between perceived performance and the ideal you have established. Let me warn you at this point that the first few times you do this you may find the discussion less than smooth! If you have not been in the habit of regularly giving constructive feedback to your suppliers you can bet that their perception of your motives won't be the same as yours. Even if you have, they may still perceive your approach as positioning to gain advantage of price or service levels or whatever.
Having gotten through this part of the exercise you now need a way forward. You need to grow your supplier to be the kind of supplier you want them to be the obvious aim at this point being to bring the suppliers actual performance in line with your ideal. I believe that, while that is the supplier's problem fundamentally, you are not partnering them if you don't assist in this process.
So get involved with your suppliers. Learn something of their business. Understand the external and internal factors that influence them and therefore the results you require.
Let them get involved with your organisation. Physically locate them handy to you if that makes sense. But make sure they know what you are doing and what they can do for you.
Make sure your customers are a focus for your suppliers. At the end of the day they are the people you are trying to satisfy!
Clearly they are going to need to put in place some distinct plans to bring themselves in line with your desire for them. You should have those plans shared with you and agree an ongoing review process. There needs to be clear timelines and accountability that both of you agree to. You may also have some things to do yourself - make sure you do them. If you don't then you can't reasonably expect the supplier to maintain their respect for you or to keep delivering their promises.
Apart from holding each other accountable for the agreed action plans there needs to be ongoing feedback from both sides as to the success or otherwise of the relationship. To do this you need to agree on specific performance indicators, specific, measurable parameters that are symptomatic of the success or otherwise of your interactions.
You might like to think in terms of very specific expectations at this point. If you do get to this level of detail don't make the same mistakes that Bill made. Make sure the expectations are realistic and achievable. You can't make a cow drink water the way I described - though I guess they just might take a deep breath!
Detailed expectations need to be clear. If they are not understood they won't be met.
Finally, detailed expectations need to be communicated and agreed. Having them without telling anyone is dumb - but it happens! Having the supplier buy in is also obvious - and necessary.
Whatever happens at this point your ultimate aim must be to have the suppliers manage their own day to day business leaving you free to focus on the strategic issues and opportunities that you have.
On the other hand your suppliers should be telling you when you let them down. Are you meeting your commitments to pay on time, are you not maintaining training levels you agreed to yet expecting the supplier to support your lack of training with their warranties, or whatever.
What Are the Benefits?
There are a number of major benefits from true partnerships , consider these:
You get a harmonious relationship. A relationship not fraught with the emotion that so often is involved in getting others to "perform" is vastly more efficient for all concerned and vastly more productive. You end up working shoulder to shoulder and don't expend energy 'banging heads'.
Whilever you and your suppliers concentrate on negotiating your ãpositionsä you are essentially putting energy into defending your position and trying to influence the other party to your way of thinking.
A developed and mature supplier relationship will work harmoniously because both parties clearly understand the expectations of the other and focus their energies constructively
You get long term stability. Without long term stability in a relationship you will inevitably have to spend a lot of time and energy in sourcing and negotiating with new suppliers. That is not conducive to lowest cost, best value supply because all your suppliers will be doing is ensuring they can get the fastest return possible just in case.
You are able to focus strategically.
With a supplier base that is sufficiently developed, with suppliers who deliver their promise to you as a customer, it is possible to concentrate on the bigger picture issues that affect you both without having to concentrate on the day to day.
A best practise supplier must be enabling you to do a better job too! In fact, they can add to your business because they will almost certainly know more about their business than you do and that is an invaluable resource.
Competitiveness in a world market place is going to be more and more of not just an opportunity, but a survival issue for Australia. Suppliers who are already players in the bigger arena can bring skills to you to assist your longer-term growth too.
Suppliers need to be managed on a system that rewards success and that is fact based. Then you are both accountable for the success of your relationship.
In conclusion, I need to repeat. Nothing I have said today can give you any sort of guarantee. What I can say, is that it is working for us.
Thanks for your attention this morning.