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McDonald’s and KFC Corporate Responsibility Report (Assessment)

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Introduction

Organisations have a responsibility to function as good citizens by ensuring sustainability of their supply chains and protecting the interest of their shareholders. They have to establish mechanisms of enhancing corporate governance. An organisation can also protect shareholders from losing their investments by ensuring that risks that lead to a reduction of competitive advantage are proactively mitigated.

In the fast-food industry, such risks include changing the attitude and sensitisation on the sustainability of fast-food organisations and sourcing strategies from consumers and communities in which the organisations operate.

An effective supply chain arm of an organisation ensures that products and services are availed just whenever they are required in a manner that will ensure that the increasing number of products that need to be availed in the market is sustainable (Bakshi & Fiksel 2010).

Supply chain management entails overseeing the movement of goods and services, finances, and information from the point of production to wholesalers and then to consumers. It also encompasses coordination and integration of flow of materials among organisations.

Supply chain management plays an important function in an organisation since ‘organisations increasingly find that they must rely on effective supply chains or networks to compete in the global market and networked economy’ (Ketchen & Hult 2006, p. 574).

From this perspective, this paper deploys the concepts of supply chain to discuss various supply chain sustainability issues in the US fast-food industry with reference to KFC (Kentucky Fried Chicken) and McDonald’s.

It first offers some background information on the organisations. It then discusses the subject of sustainability in their chain supplies within the fast-food industry. The subject is later compared with approaches that are deployed by KFC and McDonald’s to enhance good corporate citizenship with reference to their supply chains.

Overview

Background to McDonald’s

McDonald’s stands out as one of the biggest global fast-food retailers that offer fast foods in more than 119 customers all over the globe. McDonald’s restaurants and franchises, which stand at about 33, 500, continue to grow as the organisation penetrates new markets in Asia (Wilhelm 2010).

This immense success of McDonald’s is attributed to a number of factors such as its incredible emphasis on engagement of consumers, appropriate leaderships that fits the business of the organisation, and exceptional investments of the organisational resources in brand management.

The franchise business model of the company has managed to ensure that products and services that are offered at the franchises are consistent with services that are offered at the company-owned restaurants.

McDonald’s focuses on the development of business models, which pay attention to employee concerns. The organisation uses employees to deliver organisational value by offering healthy, safe, and hygienic foods (Gogoi & Arndt 2003).

This observation suggests that the main strategy of success for McDonald’s is to use its people to deliver services at outstanding high service rates so that customers do not waste their time waiting for services since such a move undermines the purpose for which fast-food restaurants are established. To achieve this goal, the organisation advocates a bureaucratic formal management structure.

Background to KFC

KFC is an organisation that specialises in fried chickens. It also operates within the fast-food industry. It is headquartered at Louisville, Kentucky. The organisation takes the second position after McDonald’s in terms of size as measured by its sales levels (Novak 2014). By December 2013, KFC had over 18,800 outlets that were dispersed across the globe in over 118 nations.

The organisation is also a subsidiary of the Yum Brands, which also owns organisations such as Taco Bell and the Pizza Hut fast-food chains. Similar to McDonald’s, the organisation also follows the franchising model of operation. Indeed, its founder, Harland Sanders, realised that the organisation would function under this model in 1952 when he opened the first franchise at Utah.

KFC focused on popularisation of chicken in a market that was dominated by hamburger consumers. KFC is one of the major fast-food organisations that endeavour to internationalise by opening new outlets across the globe. In 1960, it opened branches in the UK, Jamaica, and Mexico. In 1987, it was amongst the first western-based organisations that opened new business branches in China.

With its specialisation in chicken, it received tremendous welcome in the Chinese market since Chinese people prefer chicken to beef (Novak 2014). Amid undergoing various corporate transformations in a bid to establish a competitive advantage, KFC has not gone without challenges that are articulated to the need to enhance sustainability in its supply chains.

Sustainability in the Fast-food Industry

McDonald’s and KFC managers remain susceptible to challenges of enhancing sustainability in their supply chains while doing their businesses in a modern globalised business arena.

Faced with modern problems that are associated with the production and distribution of products, supply chains managers in the two organisations deserve plausible information about the implications of supply chain and logistics strategies on physical and environmental participants in a bid to create socially corporate organisations.

This plan is pivotal in helping to resolve various challenges that relate to supply chain management in business environments that are characterised by changing trends because of globalisation, intensive competition, and the need for securing and protecting the environment within which the organisations are established.

There is also a need for ‘reliable, flexible, and cost-effective business systems that are capable of supporting customer differentiations’ (Bullinger, Kuhner & van Hoof 2002, p. 3533).

More than it has been experienced before, McDonald’s and KFC supply chain management personnel encounter a myriad of complex and dynamic supply chain problems, trends, and developments, which are incredibly hard to predict. To resolve this stalemate, the deployment of sustainable supply chain strategies is critical.

In the future, supply chain managers need to understand various sustainability issues that relate to the business and company operational environments. Paying attention to the principle of corporate social responsibility encompasses one of the issues that constitute a sustainable supply chain management.

Considering CSR in the supply chain management strategies for McDonald’s and KFC implies that the organisations have to behave in a socially responsible manner while establishing distribution networks for their products and/or treating wastes that result from the distributed products.

For the last one decade, concerns of environmental sustainability have transgressed from ‘an obscure fringe concept to a mainstream concern at the highest level of corporate governance’ (Maloni & Brown 2006, p.35). These changes have taken place following changes in the business environment, excessive anxiety for climatic changes, and concerns of energy security from various stakeholders and advocacy groups across the globe.

Maloni and Brown (2006) also note regulatory directives compel organisations to conduct an analysis of how their products affect their operations.

This claim means that apart from the need to serve their own interest and the interest of the owners, McDonald’s and KFC have to deploy the adopted supply chain management approaches to demonstrate their concern to the protection and preservation of the environment within which they are established.

McDonald’s and KFC pay incredible focus on CSR in their derivation of strategies for ensuring sustainable supply chains, especially following the heavy emphasis from green movements across the globe for an organisation to produce and distribute green products in the effort to curb environmental degradation.

Adopting green strategies for supply chain management is not only a measure of ensuring sustainable supply chain management, but also a gauge of ensuring that an organisation behaves and acts in a socially responsible manner.

Guaranteeing sustainable supply chains calls for the deployment of a number of principles. The principles must be directly related to the concerns of people who consume the products. Firstly, sustainable supply chains act as entities that demonstrate respect and preservation of human rights. This claim means that they must guarantee their commitment to the prevention of abuse of human rights.

In this extent, Maloni and Brown (2006, p. 41) reckon, ‘supply chain management entities deserve to ensure that there is no forced labour, child labour, or discriminatory practices’. As suggested by the application of the concepts of green supply chains, sustainable supply chains ensure that the environment does not suffer from any harm due to its operations.

The above claim suggests that sustainable supply chain entities need to encourage the implementation of various eco-friendly technologies. One of such strategies involves phasing out paper documentations and paper-based product packaging (Leclerc 2012).

The most preferred direction is the one that will ensure that supply chain approaches become cost effective to the extent of making an organisation experience competitive advantage.

In the effort to minimise wastes, the current modern approaches to supply chain management call for organisations to reduce costs such as inventory levels. Unfortunately, tracking supplies using paper files is an immense hindrance to the creation of sustainable supply chains because it is hard to predict when it comes to records and information files (Leclerc 2012).

Although one of the green approaches to the creation of sustainable chain supplies that are driven by perspectives of green supply chains is through recycling of paper, a more effective way is the creation and embracement of technological ways of maintaining supplies data through mechanisms such as holding data in soft form.

Indeed, within the last few years, KFC and McDonald’s have strategically focused on programmes for creating sustainable supply chains. This process involves transformative mechanisms that are meant to outline various comprehensive road maps for detailing approaches that are implementable to ensure that business partners remain committed to the achievement of green technology in supply chains.

In this context, Aronsson and Brodin (2006) confirm that sustainability in the current supply approaches that are deployed by McDonald’s initiates with simple but also significant practices that seek to optimise supply chain decisions. The beginning point is ensuring that inventories are availed at the right places at the right time and in the appropriate quantities.

Effective and socially responsible supply management approaches require synchronisation of supply practices to ensure improved operations in transportation efficiencies right from the consumption of fuels to carbon emissions. This process has the aftermath of reducing carbon prints for many organisations.

Carbon prints form one of the methodologies of determining the extent to which an organisation has embraced sustainable supply chains. Such prints are computed using inventories of greenhouse gas emissions within a company, product and facility, or any other alternative entity.

Such gases include methane, nitrous oxide, and carbon dioxide among others as defined by the Kyoto Protocol (The United Nations 2014). Each of these gases contributes a given proportion to global warming.

Development of successful relationships and closer alignment of strategic decisions in supply chains is important for sustainable supply chains. Financial communities have recognised that sustainability is central to the improvement of shareholder value upon their expansion of cash flows. It is also important in the development of resource exploitation, client contentment, and brand appreciation (Maloni, & Brown 2006).

These critical aspects help in building the competitive advantage of an organisation. Indeed, competitive advantage is one of the supply chain management strategies that act as critical success factors for sustainability in any organisation, including KFC and McDonald’s.

Different organisations may choose to pursue different types of competitive advantages. Some valid generic mechanisms of achieving excellence and market success include differentiation and cost leadership.

The significance of these strategies in relation to sustainable supply chain is pegged on the idea that the most significant strategies for supply chains are the ones that translate into low costs to an organisation and in terms of social costs. Consequently, sustainability in a supply chain can be enhanced in an organisation by aiming to be the lowest cost leader within any industry.

These cost leadership strategies include ‘economies of scale, proprietary technology, and preferential access to raw materials’ (Ciliberti 2009, p.119). From the perspectives of deferential strategy, organisations seek to supply unique products in any industry.

Such products deserve to create value to their consumers. From this line of thought, perspectives of green sustainable supplies have emerged in the discipline of supply chain. They constitute a major supply chain issue at McDonald’s and KFC.

Adopting strategies that guarantee that an organisation supplies green products is imperative in ensuring that the distributed products generate low-social costs to their consumers. Such costs include a reduction of the extent of global warming by cutting down the emission of greenhouse gases (Orsato 2006).

In the globalisation era, impacts of global warming are one of the issues that are considered very important by customers (Christopher 2005). Hence, sustainable supply chain management concepts that are deployed by KFC and McDonald’s persuade organisations to become green.

Sustainability Issues at McDonald’s and KFC

Within the last four decades, Americans have become large consumers of fast foods. Cheeseman (2013) says that they spend a total of $6 billion in 1970 on purchasing fast foods. This figure escalated to $142 billion in 2006. This situation has made the US a fast-food nation. Fast-food organisations are cheap. They often result in excessive food wastes and accumulation of packaging waste.

Cheeseman (2013, Para. 2) confirms, ‘Cheap food comes with steep hidden costs to the people who produce it, sell it, and eat it, to the environment, and to future generations.’ Can KFC and McDonald’s operate sustainably? Can they constitute good examples of corporate citizens in the US fast-food industry?

Both McDonald’s and KFC supply chains experience several issues, which make it difficult to enhance their sustainability. For instance, both organisations are immensely concerned with their environmental impacts. For take-away foods, they must wrap customers’ food.

The manner of disposal of these wrappings is an issue of great concern to the organisations, especially because the companies operate in nations that have different policy frameworks to guide in the disposal of products and product-associated wastes.

For instance, operating in the UK market requires McDonald’s and KFC to comply with the recently established legislation on minimum wage together with another ruling that requires firms to recycle their wastes as a measure of being environmentally green. Such legal provisions have the impact of raising the cost of running the business of both organisations.

Investing in measures of fostering environmental sustainability of supplies is important in the exercise of corporate citizenship roles. However, it leads to added costs, which attract low profitability. Since an organisation must balance all interests of the stakeholders, owners of the corporations become disadvantaged since high operational costs imply low returns on investments.

Claims of failure to invest in green technologies and use of green raw material have also challenged McDonald’s sustainability of its supply chains. For instance, in 1980s the company received criticisms for sourcing its beef for making hamburgers from ranches that had been developed on a newly cleared forest cover in the Amazon rainforest.

In the recent past, environmentalists sharply criticised McDonald’s over the wastes that were generated through its products and packaging. This concern made the company engage in partnership with EDF (Environmental Defence Fund) in the 1990s. The goal was to initiate a programme for phasing out the use of polystyrene food packaging to raise the number of recycled food boxes and containers.

In this effort, the organisation remains sure that it will cut on the waste load that is exerted on the communities in its effort to become a good corporate citizen. McDonald’s and the EDF successfully implemented a waste reduction plan to enhance sustainability in their supply chains. Business Ethics (2014) supports this assertion by adding that the company has led in terms of packaging in the tune of 300 million pounds.

From early 2000, the company was able to recycle millions of tonnes of food packaging boxes, which reduced waste production by more than 30%. Amid this effort, McDonald’s still experiences new challenges that relate to sustainability of its chain supplies.

For example, the Greenspace, a green organisation, criticises the corporation by claiming that Brazilian soy farming, which is deployed to feed chicken at McDonald’s, constitutes a major threat to the sustainability of the Amazon rainforest. Consequently, it responded by collaborating with the organisation in the implementation of a zero tolerance deforestation programme.

KFC operates in the fast-food industry just like McDonald’s. Thus, it also experiences challenges that are similar to those that are experienced by McDonald’s. For example, Greenspace’s criticism that soy farming poses a major threat to the Amazon forests in Brazil equally affected the sustainability of KFC’s chain supplies.

The challenges of associating McDonald’s fast foods with obesity and health challenges such as diabetes and heart attack also influence KFC (Barnett 2010). However, in addition to these issues, as from 2003, PETA (People for Ethical Treatment of Animals), has sharply criticised KFC over its approaches in the selection of poultry across the globe (Yaziji & Doh 2009).

Yaziji and Doh (2009) quote KFC by informing that more than 60% of its paper-based products are derived from highly sustainable sources. In the Chinese market, KFC came under criticisms for utilising a growth hormone and high levels of antibiotics in its poultry in a manner that violated the Chinese law (Hsu 2013).

Yum Brands, a subsidiary of KFC, which generates more than half of its sales revenue from the Chinese markets, responded by saying that the scandal had longer effects than the company had thought (Hsu 2013).

KFC and McDonald’s Approaches to Sustainability Issues

Upon noting the various sustainability problems in the supply of raw material and finished products, McDonald’s and KFC have now focused on developing organisational policies for enhancing their corporate citizenship. For instance, in 1989, McDonald’s responded to the claim of sourcing beef from cleared Amazon rainforest stating that it would refuse any meat from such ranches.

A zero tolerance policy that addresses the sourcing of poultry that are fed by soy that is grown in the newly cleared Amazon forest also constitutes another measure that helps in presenting McDonald’s as a corporation that is environmentally friendly and supporting the conservation of natural habitat.

McDonald’s has developed strategic plans for ensuring that its products align with the emerging concerns on healthy foods and eating habits. For instance, its strategic marketing plan has the objective of instilling a strong belief that including fruit salads as additional products that are served alongside the regular hamburgers and other products that are offered by the company responds to the call for people to embrace good eating habits.

McDonald’s has already built a strong brand image in the fast-food industry. Hence, inclusion of the product is a further indication of the company’s flexibility to meet the need of its customers. This situation has an effect in ensuring that its products and services are sustainable in the short and long-term.

Operating in an environment of criticism concerning McDonald’s degree of sustainability of supply chains makes it pursue various success strategies. In its mission statement, McDonald’s states that it focuses on people as most important resources that are available to enhance the success of its business objectives and goals (Wilhelm 2011). Other strategies include focusing on developing healthy meals.

This strategy is driven by health professionals’ increased emphasis that fast foods are associated with obesity and its associated ailments, including hypertension and diabetes. McDonald’s continues to implement its global business strategy, which is driven by the business slogan ‘play to win’.

This strategy is formulated to ensure that McDonald’s creates customer experiences that are consistent across all franchises and the company-owned stores. The corporation has also created a formal system that guides its operations in relation to five main facets, namely merchandise, cost, individuals, promotion, and position.

KFC struggles to address issues that influence the sustainability of its supply chain. For instance, in 2009, the company sort ways of reducing the amount of packaging by more than 1,400 tonnes (Environmental Leader 2009). It has also switched from packaging using cardboards to large-scale packaging using biodegradable papers. The fast-food organisation also stopped offering its eat-in foods in cardboards in 2008.

Its parent company, the Yum Brands, reported in early 2009 that it had already exceeded its target on CSR by a reduction of greenhouse emissions by 51,000 metric tonnes (Environmental Leader 2009). However, Idle (2011) notes that KFC has a long way to go in the implementation of its social corporate responsibility commitments.

He further asserts that it has incredibly lagged behind in terms of mass communication of its plans for enhancing sustainable supplies by investing in CSR. Nevertheless, the corporation’s CSR manager in the UK and Ireland confirms that its engagement in CSR has taken a long time to be embedded in its business model (Idle 2011).

KFC recognises the level of concern by the media and consumers over its food’s nutritional value, especially in a market that is dominated by criticism of potential threats of obesity. In a bid to present its supply chain as sustainable, KFC now endeavours to engage in training and development programmes in addition to apprentice programmes on sustainable supply chain (Idle 2011).

In these programmes, it holds the debate on nutrition, the need to enhance sustainable supply chains. It also explains to its staff how to become sustainable whilst not neglecting the meaning of being a sustainable organisation.

KFC notes its weaknesses in communicating sustainability efforts to consumers and other parties that have stakes in its operations. It asserts that these parties hardly inquired about sustainability or even talked about it (Idle 2011). Consequently, unlike McDonald’s, it found no need for talking about it.

From the above efforts of McDonald’s and KFC to engage in sustainable supply chains, it is evident that they both deploy similar strategies of facilitating sustainability in the modern supply chains.

Indeed, considering the two corporation approaches to sustainability, sustainable supply chain is a function of all persons and agencies that are involved in the whole supply chain until products of an organisation are consumed and/or until the wastes are disposed.

Green technology and green products communities will be interested to know whether products that are supplied by both McDonald’s and KFC through their supply networks meet the concerns of environmental protection. In case issues may come up that the supplied products fail to meet the demand placed on them, they have to deal with the challenge of redesigning their products to meet the emerging demands.

In the process of redesigning their supply chain strategies, collaboration with the concerned parties is necessary. Indeed, both organisations have some existing loyal customers who must be supplied with products and services.

To establish a balance of all the interested parties in the corporations’ products and services, they need to increase their communication and collaboration efforts to ensure that their supply chains remain sustainable.

Conclusion

Sustainability in supply chain management can be enhanced through programmed inter-supplier communication strategies. Such strategies cut across many sustainable supply efforts, including sending automated emails to inform customers on any new advances in terms of product evolution and/or tracking and linking of information via strategies such as instant messaging.

Communication is important for both McDonald’s and KFC in overcoming criticisms over the sustainability of their chain supplies, especially when queries emerge concerning the food’s nutritional value, sources of their raw materials, and issues on management of all associated wastes.

Supply chain costs go beyond the costs of distributions of products, which are often reflected in the final prices of commodities and services. McDonald’s and KFC also encountered social costs such as poor perception of their products due to obesity and its related illnesses.

Based on these assertions, the paper has regarded the embracement of concepts of CSR as one of the ways of ensuring that supply chains for both organisations remain sustainable and competitive.

Other issues that have been considered in the paper in relation to sustainability of McDonald’s and KFC supply chains include effects of strategies of supply chain on the environment, especially with reference to the need to produce green products to ensure protection of the environment.

Based on this concern, the paper has confirmed that the subject of creating sustainable supply chains entails interplay of a variety of stakeholders. The goal of an organisation that seeks to have sustainable supply chains is to ensure harmonisation of all stakeholders with sustainable supply chain strategies.

References

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