B2B Payments

In the U.K. Handshakes Beat Contract In McDonald’s Supply

According to recent reports, the supply chain for McDonald’s in the U.K. employes about around 13,000 people per year and contributes at little under $100M to the U.K. economy each year. More remarkable that how many people it serves or employes, or even how many pounds it generates, is the fact that it does all of this without the benefit of formal contracts. No, in the U.K., more than 10,000 jobs rely on a handshake deal between McDonald’s and its suppliers.

When thinking of a load bearing pillar of the U.K.’s national economy like the massive supply chain fast food retailer McDonalds operates, it is a funny notion to think of it as the kind of thing that can or should be managed with a handshake and an agreement among gentlemen.

Yet it seems that this is exactly how McDonalds runs its U.K. Supply chain, according to reports by Supply Management.

“We don’t have contracts, but we do have our very assured supply partnerships with our food and paper suppliers,” said Warren Anderson, vice president of supply chain at McDonald’s UK. “A gentleman’s handshake is just as powerful here.”

Instead of formal and legally enforceable contracts, McDonalds in the U.K. manages food, packaging and distribution suppliers by informal agreement and assures satisfaction with outcomes by involving their supply partners in planning decisions to set prices and volumes. By building up long-term relationships of trust, the need for the protection of the coercive power of torte law seems to be less a necessity.  The company’s longer terms supplier, a paper good manufacturer in Scotland that provides the U.K. franchise’s packaging materials, has worked with McDonalds for 36 of the 40-year they have been operating across the pond.

A Long Track Record Across A Diversity Of Fields

McDonalds in the U.K.’s supply chain alone employs about 13,000 people across the agriculture, shipping, storage, construction and property management.  Since it began operations in the 1970’s in the U.K. the firm has made a £25.7 billion ($43.7 billion) contribution to the UK supply chain since it opened its first restaurant in 1974, with the company’s total contribution to the economy valued at £40 billion ($68 billion).

“The way we work having this balanced three-way effect is incredibly powerful and having that transparency of debate and strong relationships has helped us give suppliers confidence in our future requirements, investing ahead of time, investing in technology, investing in innovation, to give us what we need in terms of change,” Anderson told the source.

There is a certain lack of bottom line driven motivation in the trust-based supply chain.  Andersen notes that though they have set the price for lettuce in the last six years in partnership with growers, he is aware that he has failed to “negotiate every penny off the table.” However, Andersen believes such negotiation of payments prioritizes short-term gains over long-term sustainability in the supply chain.

“They are just as much involved in our plans as we are.  We involve them in our planning process every year to deliver our growth requirements, not just for the following calendar year, but our plans for successive years as well.”

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