“If you do not own your supply chain, you had better be partnering with it. Because just having a commercial relationship with your supply chain is very old-fashioned and unsustainable.”
Greg Solomon, CEO of McDonald’s South Africa, drove this important message home at the recent Franchise Convention, hosted by the Franchise Association South Africa (FASA) and sponsored by Absa.
Solomon unpacked supplier relationships, looking at how to take full advantage of them, how suppliers can help grow a brand and how suppliers need to adjust to the demands of an expanding brand.
McDonald’s is in 120 countries around the world and serves just over 70 million customers every single day at its more than 34,000 restaurants.
Here in South Africa, in June 2017 McDonald’s celebrated 250 restaurants in all nine provinces. Some 74% of all its restaurants operate 24/7. It has been voted as the Best Company to Work For by Deloitte three times in a row. McDonald’s serves over eight million customers every single month in South Africa. Solomon explains: “McDonald’s makes no profit from its supply chain. That is why we do not own our supply chain. The more sales our franchisees make, the more royalties we get.”
The McDonald’s business model is based on the simple principle of a three-legged stool: one leg is McDonald’s franchisees; the second, McDonald’s suppliers; and the third, McDonald’s corporation. Above of these three legs is the customer experience. The stool is only as strong as the three legs that form its foundation.
“When I talk so passionately and emotionally about the depth within our supply chain, you may think I am crazy, but we are equal, the corporation, the supply chain and McDonald’s franchisees. No one is higher than the other because then the chair becomes wobbly,” says Solomon.
He notes there is a difference, however, between making everybody happy and making everybody equally happy. “To make everybody equally happy takes compromise. There needs to be compromise on the franchise side, the supply chain side and on the corporation’s side. All this is centred around the customer.
It takes very robust, hard conversations and compromises from all parties to be able to create an environment that’s safe for good constructive criticism aimed to achieve best price, best service, and best quality. “
Locally, McDonald’s enjoys the depth of 20-year relationships with its franchisees, and likewise with its service providers and suppliers. Among them, a prime example is Finlar Foods. When McDonald’s first started serving in South Africa, co-founder and managing director of Finlar Foods, Terry Millar, had just left his job and was starting out in the beef business. Today, Finlar Food Supplies McDonald’s with all its chicken and beef and has grown with the brand to such an extent that there is no other beef and chicken supplier in the country that can supply it with the volume it requires. This supply chain has been co-created by McDonald’s and its visionary supplier.
“Vertigration, innovation and transformation down our supply chain are our biggest opportunities. This means not only giving contracts to big guys, but also starting off with people like the Terry Millar’s of the world and growing our supply chain,” says Solomon. He approaches the importance of deep supplier relationships by starting with the first meal of the day, breakfast. Innovating 13 years ago, McDonald’s started serving breakfast in South Africa. Solomon explains that most people consider breakfast to comprise of two eggs, a rasher of bacon and toast. Few would have thought about serving breakfast in a drive-thru or as fast food, never mind as a poached egg on an English muffin with a slice of turkey and bacon. Now, breakfast has grown to become 12% of McDonald’s total business.
“Innovation is an important thing and you cannot do it without a vertigrated and holistic partnership with your supply chain. For breakfast, we needed to source free-range eggs as well as English muffins, which is not a common bread source in this market that favours a soft bread roll or a slice of bread. The ability to source new products like these depends on the type of strategic relationships you have, and how deep the partnerships are in your supply chain.”
Solomon reports that with some of its key service providers, such as the electrical contractor who has been with McDonald’s for many years, there are no service level agreements or contracts in place that expire or renew on an annual basis.
“Our business relationship determines the terms and conditions of how we work together. We are only as good as our last month, or our last day. When you become inter-dependent on each other in this way, it denotes a very deep successful relationship,” says Solomon.
He adds that, when sourcing products, service providers become part of a business’s sustainability, good business journey and carbon footprint, so a supply chain has to be very integrated.