A competitive advantage in the context of procurement by an organization such as McDonald’s refers to its ability to offer customers quality goods or products with more value relative to competitors. Overall, a competitive advantage is built over time and involves complex contributions from different departments in an organization. An organization’s procurement department is a key contributor to its competitive advantage. An effective procurement process allows the selection of optimal suppliers and aligns them to the organization’s mission (Britt, 2022). Such a process can also lead to tangible cost improvements and supply flexibility and agility. Costs improvements in the procurement process while being a key performance indicator to procurement professional also leads to an organization’s competitive advantage by allowing the implementation of strategic procurement.
Achieving a competitive advantage through procurement requires optimization of the procurement process to reduce inefficiencies, mitigate risks, and offer quality products. The procurement process involves seven stages including organizational needs identification, supplier market assessment, gathering information about the provider, purchase strategy formulation, actualizing purchasing plan, negotiation and bid selection, and turn-around strategy implementation (Acquisition International, n.d). These stages in the procurement process can help McDonald’s achieve a competitive advantage.
Achieving a competitive advantage through organizational need identification requires a company to be able to forecast its needs before they arise (Biedron, 2020). For a multinational such as McDonald’s, this involves the use of data and artificial intelligence to predict the organization’s needs. Using artificial intelligence eliminates the labor-intensive and often untimely needs identification process.
Like any company in the restaurant business, McDonald’s has its specific suppliers of various products selected after fulling certain conditions regarding prices, quality, and timely delivery. To realize a competitive advantage in this stage, McDonald’s should seek favorable terms from bulk suppliers, ensure suppliers do not miss supply deadlines and provide clear quality regulations.
At the initiation of the procurement process, McDonald’s must ensure that the selected suppliers meet its selection criteria and other legal, and regulatory criteria. This ensures that the company does not suffer unnecessary financial or reputational loss which would erode its competitive advantage due to problems emanating from non-compliance with quality, legal, and regulatory requirements.
With more than 33,000 outlets in more than 110 countries, McDonald’s delegates the procurement function to various subsidiaries and franchisees (CNN Business, 2022). However, the company is very specific about the quality of food and beverage served in these outlets and often conducts audits to ensure compliance. This creates a competitive advantage by ensuring a product in the USA tastes the same as a similar product in Asia or Europe.
For a behemoth such as McDonald’s actualizing the procurement plan would be a massive undertaking if goods were centrally procured. However, with each restaurant free to procure goods from approved suppliers, the only difficulty which can arise is not ordering the products on time. The semi-autonomy afforded to outlets and franchisees by McDonald’s ensures a competitive advantage by making the company’s supply chain agile.
Fortunately, all McDonald’s suppliers are pre-approved by the company with franchisees and McDonald’s outlets being required to source their needs directly from them. For a company to qualify to be a McDonald’s supplier, it must meet certain legal, regulatory, and quality criteria (Khan, 2018). Further, the suppliers are audited regularly to ensure compliance which creates a competitive advantage by making sure quality is maintained at all times.
For all intents and purposes, a process is not effective if the turn-around for goods ordered from suppliers is poor. Improving the turn-around strategy requires McDonald’s to have effective communication with suppliers. Proper communication ensures that goods orders are received when sent, orders sent on time, and communication on inventory level relayed to suppliers in real-time. Luckily, advances in technology allow the integration of supplier systems with their clients which ensures real-time monitoring of the inventory levels and timely supply when a certain inventory level is breached.
Strategic procurement is a procurement process that allows an organization to plan ahead of time to receive goods on time, in the quantity and quality ordered, and on budget. Further, strategic procurement requires careful optimization of the procurement process. Compared to regular procurement, strategic procurement requires deliberate actions to find efficiencies across spend categories, supply risk minimization, and greater emphasis and bringing to the fore pricing and forecasting. The ultimate goal of procurement process optimization is to achieve competitive advantages that allow an organization to enjoy greater procurement process’ Return on Investment (Peterson, 2021). Ultimately, achieving a competitive advantage in the procurement process involves controlling and managing costs. In essence, creating an organization’s competitive advantage is a process that creates value by balancing cost savings with product quality and compliance (Lysons, & Farrington, 2020).
The strategic procurement process is key to the establishment of an organization’s competitive advantage when optimize properly and comprises seven stages. However, the seven stages also pose serious risks to an organization if they are not implemented properly. For example, a needs analysis mechanism that does not consider McDonald’s organizational structure, structural needs, and procurement strategy risk an inadequate needs analysis (Weigel, & Ruecker, 2017). McDonald’s needs should be stated accurately, within budget, and under a realistic schedule. Additionally, there is an elevated risk of inefficiency in contract management. Efficient contract management is an amalgamation of communication, management, and relationship-building skills. If for any reason McDonald’s is unable to manage a contract effectively, the resulting damage could be detrimental to the entire organization.
Another potential risk that McDonald’s could face is poor supplier selection (Willie, 2022). Despite measures by the company to ensure only the best suppliers are pre-qualified, unscrupulous suppliers could still beat the mechanisms in place and be pre-qualified to provide goods and services to McDonald’s outlets. Such a scenario creates financial and reputational risks for the entire organization and could lead to the loss of McDonald’s competitive advantage (Deshpande, 2022). A significant loss in the company’s competitive advantage could herald the end of the profitability era. In addition, the company could fall prey to disorganized supplier relationships. McDonald’s management has a fiduciary duty to shareholders to maintain good relationships with all stakeholders. If the relationship with suppliers were to fall apart, it would mean the disintegration of the company’s supply chain loss of McDonald’s competitive advantage. Finally, supply chain disruption due to external factors is another risk that could face McDonald’s and is directly associated with the procurement process. The external factors that could lead to supply chain disruptions include pandemics, war, forces of nature, or supplier labor problems.
Reference List
Acquisition International (n.d). “7 Steps of Strategic Procurement Process.” Acquisition International. Web.
Biedron, R. (2020). “How Strategic Procurement Can Give You Competitive Advantage.” Planergy, Web.
Britt, H. (2022). “Strategic Procurement and Creating a Competitive Advantage.” Una, Web.
CNN Business. (2022). “McDonald’s Company Profile.” CNN Business, Web.
Deshpande, A. (2022). “How to Manage the 7 Most Common Procurement Risks.” Procurement Automation, Web.
Khan, N. A. (2018). Public procurement fundamentals: lessons from and for the field. Emerald Publishing.
Lysons, K., & Farrington, B. (2020). Procurement and supply chain management. Pearson Limited
Peterson, R. (2021). “How your procurement process can give you a competitive advantage.” CCJ Party. Web.
Weigel, U., & Ruecker, M. (2017). The Strategic Procurement Practice Guide: Know-how, Tools and Techniques for Global Buyers. Web.
Willie, F. (2022). “Five Most Common Procurement Risks and How to Manage Them.” Ignite Procurement, Web.