McDonald’s and the Challenges of a Modern Supply Chain

• Steve New

FEBRUARY 4, 2015

 Loading...

Recently, McDonald’s, the world’s iconic largest food service provider, has been (forgive the cliché) through the grinder. Poor performance has led to the departure of its CEO and plenty of critical attention in the business pages. Part of this story relates to the provenance, or origins, of its products: Chains that provide more upmarket “fast casual” dining such as Panera, Chipotle, and Shake Shack have brands that speak of freshness, health, and trustworthy sourcing.

In 2010, I wrote an HBR article predicting increased interest in supply-chain transparency: firms needed to develop strategies for knowing and explaining where stuff comes from. Since then the idea of product provenance has steadily crept up the corporate agenda and is now a compulsory issue for boards and governments. In the UK, for example, legislation is in progress that would build on the California Supply Chain Transparency Act, potentially applying to wider range of firms. Across Europe, the 2013 horsemeat scandal generated widespread panic about contaminated meat. In a wide range of industries — electronics, software, toys, aerospace — provenance is increasingly a critical concern.

McDonald’s woes offers three lessons for others about supply-chain transparency.

Transparency needs a long game; reputational problems don’t mend fast. Few firms have faced such reputational challenges as McDonald’s. In the 1990s, an ill-judged legal case, the McLibel trial, saw the corporation acting against a tiny environmental group in one of the longest civil cases in UK history, with terrible reputational consequences. The movies Super Size Me and Fast Food Nation cemented the view that the corporation was complicit in promoting bad health, bad environmental practice, and food that was just, well, disgusting.

Faced with these challenges, McDonald’s has not been idle. It has taken on its critics and made substantial changes to both its practices and its communication. Indeed, in the UK, the official government review of the horsemeat scandal, the Elliot Review, singles out the McDonald’s supply chain for praise. In the United States, a series of documentary-style promo films with celebrity presenter Grant Imahara have tried to give customers a clear and unvarnished account of sourcing and production processes. You may still not like the firm or its products, but you can’t deny it has made serious efforts.

The trouble is bad reputations aren’t lost that easily. A generation of cynical middle-class customers have already decided that McDonald’s is a tarnished brand. Supply-chain transparency is that kind of challenge: It’s rarely the top thing on consumers’ minds, but it is an issue that sticks in the imagination. And when newer, less tarnished players like Chipotle arrive, consumers can tacitly exercise the prejudices and cross the street. The lesson for other firms: If you have problems in your supply chain, don’t let the critics get there first.

Global operations need consistent global standards. Despite the great strides that McDonald’s has made in some markets, its progress and practices have not been uniform. Last year McDonalds — and other major food companies — were plunged intoa food safety scandal in China. This is a case of your defense being as strong as your weakest point. Bad headlines about foreign operations tell consumers, “This company still can’t be trusted.” And such bad news doesn’t just reduce the impact of your good work elsewhere; it means that its credibility is fundamentally undermined. So firms need to be cautioned: Supply-chain transparency initiatives are not a normal program to be rolled out region by region.

Sometimes transparency has paradoxical consequences. Let’s return to those videos with Grant Imahara. “Look,” they declare, “it’s real wholesome meat!” Imahara holds up great chunks of flesh from the conveyor as if to say, “Appetizing!” But even hard-core carnivores like me blanch queasily at this amount of dead animal. OK, you’ve convinced me there is no pink slime, but you’ve reminded me that this whole process is kind of horrific. That’s one of the curses of transparency of provenance: I might now approve of your food-safety practices, but you’ve just reminded me of things that, deep down, I don’t want to know. This is a paradox that firms in a wide range of industries will inevitably need to grapple with. (Question: What does an unethical shirt factory look like to a naïve consumer? Answer: Appalling. Question: What does an ethical shirt factory look like? Answer: In truth, still pretty appalling.)

It may be that McDonald’s future lies in yet further reinvention of the brand. The Corner, one of its experiments, is a “McCafé” that looks and feels nothing like a McDonald’s restaurant. But even then, the provenance agenda is not going away: The new CEO (who holds an honorary visiting position at Oxford’s Saïd Business School, where I teach) will need to tough out the current problems and stick to the mission of ever-greater openness.