Trust and Collaboration: McDonald’s Supply Chain Strategy

Vitasek, K.100x100By: Kate Vitasek, Author, researcher, educator and innovator of the Vested®business model.

It’s apparent that for strategies to be taken seriously involving Supply Chain Management (SCM) and Business Process Outsourcing (BPO) a company’s Corporate Social Responsibility (CSR) plan must be an integral part. All of the moving parts must work together in an ethical and socially responsible way.

This is especially true for service provider, IT outsourcing and supply chain relationships. Just look at the huge and ongoing work regarding human and labor rights that the apparel and footwear industry is doing to correct unsafe, low-pay, sweatshop conditions that have come to light recently in countries such as Bangladesh, Vietnam and China.

Driven by globalization, supply chains are rapidly evolving and gaining in complexity across every industry sector, and the vendors in those supply chains are often a moving target as multinational corporations search for low cost suppliers. Concerns also center on how labor standards and working conditions can best be monitored and enforced throughout the chain.

These are business processes and serious issues that CSR plans must account for clearly and realistically. Fortunately, there is good news: companies are catching on to the fact that their supply chains must be anticipatory, adaptive and environmentally aware to be sustainable. They know that suppliers need to be brought into the corporate sustainability discussion in real ways, not just as P.R. frosting.

They must do CSR right and would do well to emulate the approach of companies who employ the Vested® shared principles of trust, collaboration and flexibility. McDonald’s is one case in point.

Suppliers need to be brought into the corporate
sustainability discussion in real ways, not just as P.R. frosting.

McDonald’s

“From my perspective, the heart of an outstanding supply chain is trust and transparency, features that contribute to natural resilience and provide a level of nimbleness not possible in more guarded systems,” says Kurt James, V.P. of supply chain, McDonald’s Japan.

James said the McDonald’s supply chain is designed to be “efficient, adaptive and collaborative,” traits that have enabled the company to enter new markets at a scale and pace that is unmatched by its competitors. “We talk about the supply chain at McDonald’s as a shared system, rather than as our system. This mentality of joint ownership allows us to work as one efficient organization with our suppliers, planning for the future and adapting to the present in a cohesive and integrated way,” James adds.

Traditional supply chains can crack under the pressure of unforeseen political, environmental, or competitive changes, but the McDonald’s “three-legged stool” philosophy and cooperative approach can absorb the shocks produced by the unforeseen while quickly adapting to frequently changing demands, specifications, and volumes. James said it’s flexibility and resilience based on trust.

McDonald’s deeply-ingrained culture for long-term, win-win relationships with suppliers dates back to its inception, when founder Ray Kroc established a culture of trust and loyalty.

In May McDonald’s issued its “Best of Sustainable Supply 2014,” which honored 36 suppliers and 51 projects that “represent real innovation toward a more sustainable supply chain.” McDonald’s received 585 submissions, nearly 40 percent more than for the previous “Best of” report.

McDonald’s executives and industry experts recognized sustainable accomplishments across eight platforms: Climate Change and Energy; Water; Waste; Land and Biodiversity; Human Health and Welfare; Animal Health and Welfare; Community Impact and Economics.

Photo courtesy of Institute for Human Rights and Business

Photo courtesy of Institute for Human Rights and Business

“Innovation is key to our CSR and sustainability journey, and McDonald’s suppliers have an impressive track record of innovating for what we call sustainability’s three Es: ethics, environment, and economics,” said Jose Armario, executive vice president, McDonald’s Global Supply Chain, Development & Franchising. McDonald’s approaches supply chain management through the three Es—and they are the theme of McDonald’s 2012-2013 corporate social responsibility & sustainability report: “Our Journey Together For Good.”

“We are committed to working toward a tomorrow where quality food and balanced choices are accessible and affordable to all. Where the food we serve is sustainably sourced from thriving farms. Where environmental protection and efficiency are universal. Where people from all walks of life are valued for their unique contributions to a shared global community,” says Don Thompson, McDonald’s president and CEO, in the report.

These are not mere words:

  • 100 percent of the fisheries that McDonald’s sources whitefish from are verified sustainable.
  • 99 percent of supplier facilities signed the company’s Supplier Code of Conduct.

Sustainable sourcing is vitally important to McDonald’s and its supply chain. The CSR report says: “By sourcing our ingredients and packaging sustainably, we aim to create value for our business and society. We are committed to doing what we can to help protect oceans and other valuable ecosystems, promote resource efficiency, and support the economic viability of farming, fishing and responsible land management so that resources are adequately available for generations to come.”

In addition, the company oversees the three Es at each level of its supply chain: raw material production, processing, and distribution. “Among other things, this means working with suppliers to innovate and implement best practices for sustainable ingredients, requiring that our suppliers protect human rights in the workplace, and safeguarding food quality and safety through best practices in animal health and welfare.”

Innovating sustainability’s 3-E’s:
ethics, environment, and economics.

Steps that McDonald’s has taken to strengthen supply chain sustainability, include partnerships with nongovernment organizations (NGCs), a Supplier Code of Conduct, and increasing supplier capacity in emerging economies. It has initiated supply chain goals and protocols for measuring, identifying and scaling sustainable beef production; sustainable logistics through system-wide continuous improvements in logistics efficiency, including the increased use of biofuels; promoting environmental best practices at supplier facilities through a Global Supplier Performance Index and the Supplier Code of Conduct.

  • The Performance Index tool includes corporate social responsibility and sustainability—along with innovation, contingency planning, business strategy and other topics—and helps McDonald’s evaluate suppliers on a variety of measures including environmental, social and other metrics. This helps clarify what is meant by CSR & Sustainability leadership. The formal evaluation, which takes place every 1 to 3 years, is complemented by quarterly reviews.
  • The Supplier Code of Conduct is the cornerstone of McDonald’s Supplier Workplace Accountability program and sets clear guidelines that help suppliers understand its expectations and how to live up to them. Every supplier is required to sign the Code. In November 2012, McDonald’s launched an enhanced Supplier Code of Conduct, the result of a two-year process that included benchmarking with a number of organizations that lead in this area, consultation with external experts in supplier workplace accountability, a human rights gap analysis and dialogue with suppliers.

The resulting system is one of unparalleled connection, collaboration, and mutuality. What is noteworthy along the McDonald’s CSR path is not sustainability goals this year or next, and what the companies can do by themselves: it’s about sharing vision and collaboration to achieve a long-term culture of sustainable social and environmental change—and how they go about it with their partners.

About the Author: Kate Vitasek is an international authority for her award-winning research and Vested® business model for highly collaborative relationships. Her work has led to five books, including: Vested Outsourcing: Five Rules That Will Transform Outsourcing, and Getting to We: Negotiating Agreements for Highly Collaborative Relationships.

A faculty member at the University of Tennessee, World Trade Magazine named her as one of the “Fabulous 50+1” most influential people impacting global commerce.

 

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