June 26, 2009 Steering Sustainability

Volume 5 | Issue 2

Read how McDonald’s® commitment to sustainability results in continual improvement towards better economic and ethical business practices.

Click here to read the complete illustrated article as originally published or scroll down to read the text article.

These days everyone is talking about sustainable supply chains, green business practices and carbon footprint reduction. And for good reasons – it’s the classic win/win situation when companies save money and achieve operational efficiencies while at the same time helping to improve the environment worldwide.

Of course, talking is a good start, but getting it done takes a commitment that some forward-looking companies initiated long before “sustainability” came into vogue. Take McDonald’s USA, the leading foodservice provider with nearly 14,000 restaurants (85 percent of which are independently owned and operated) serving more than 26 million customers each day.

According to Susan Forsell, vice president, quality systems, U.S. supply chain management, McDonald’s USA, “Within about the last 10 years, the concept of a sustainable supply chain has become a hot topic of discussion. At McDonald’s we actually began this discussion back in 1989 with initiatives related to preservation of the Amazon rainforest We understood that the preservation of the rainforest was important to the sustainability of species of trees and wildlife as well as the global effects on climate. We established a policy to prohibit beef purchases from rain forest areas. Equally important, we worked with our suppliers to explain why this policy was put into effect and to gain their cooperation in enforcing it.”

In the 1990s, McDonald’s worked with the Environmental Defense Fund (EDF) to reduce waste and packaging. ”At the time, there were societal concerns about garbage and running out of landfill space. We wanted to be part of the solution, but we needed credible, expert help. That’s why we partnered with EDF. We produced a Waste Reduction Action Plan that included 42 initiatives to reduce, reuse and recycle,” Forsell says, adding, “These efforts made us more efficient. For example, less packaging not only helps reduce what goes into the waste stream, but also minimizes our production costs. Today, when designing packaging, sustainability factors into the equation.”

Indeed, according to the McDonald’s corporate Web site: “During the 1990s alone, we eliminated 300 million pounds of product packaging by redesigning items and reducing materials used.” In 2007, McDonald’s USA purchased more than $530 million in recycled materials for its packaging. That’s material that didn’t go into the waste stream because it was reused while reducing the need to produce new raw material.

ENVIRONMENTAL SCORECARD

McDonald’s has implemented an “environmental scorecard” for suppliers to assess the resources they are using and to help drive continuous reduction of what they produce in the areas of energy, water, air and waste. The scorecard was developed in partnership with Conservation International and several of the company’s large suppliers and it builds on industry best practices. We ask our suppliers to measure, in a standardized way, their use of these valuable resources and set goals for reduction. This allows them to share best practices across their own operations as well as share them with other suppliers in our supply system both in the U.S. and other areas of the world.

Forsell points out that another important dimension of sustainability relates directly to the quality of working conditions. “Also around the early 1990s, advocacy groups and media began shining a spotlight on working conditions in Chinese toy, footwear and apparel industries. China serves as a primary source for the toys in our Happy Meals,” she says. “So we developed and instituted a McDonald’s Code of Conduct. While originally developed with our toy supply system in mind, it became clear that it was a best practice that could be applied to all our suppliers around the world.”

In addition to prohibiting the use of prison and child labor, the code requires compliance to local and national laws and industry standards regarding working conditions related to compensation, working hours, non-discrimination, workplace safety and health. McDonald’s also actively seeks to create more proactive and sustainable improvements in the workplace environment through initiatives such as Project Kaleidoscope, a system for measuring compliance through internal management audits and worker input at the factory level that was instituted in China beginning in 2004. According to the corporate Web site, 92 percent of the company’s food, packaging and tier-one equipment suppliers “have affirmed our code of conduct, up from 35 percent in 2004.”

ANIMAL WELFARE

This attention to humane treatment also extends to animals. “McDonald’s cares about the humane treatment of animals,” Forsell says. “We work with our suppliers to ensure industry-leading animal husbandry practices based on our Animal Welfare Guiding Principles, which express our commitment to ensuring that animals are free from cruelty, abuse and neglect.”

Most recently, McDonald’s USA announced its participation with leading animal welfare scientists, academics, non-government organizations (NGOs) and egg suppliers in a commercial-scale study of housing alternatives – including cage-free and enriched housing that includes nests and perches – for egg-laying hens in the U.S. The study will provide critical information about how laying hen behavior is accommodated in different housing systems, as well as the impacts these systems have on the environment, animal health, safe and affordable food as well as worker welfare.

Along the same lines, Forsell points out that one of McDonald’s long-time favorite sandwiches is its Filet-O-Fish®. “It’s popular here in the U.S., and globally, particularly in Asia, where it’s a big part of the product mix.” The filet is a battered patty originally made from cod. “Today, we use other species like New Zealand Hoki and Alaskan Pollock as well. Because of its importance to our menu as well as the increasing pressures threatening global fisheries, we were interested in taking a look at what we could do to ensure we were sourcing in a sustainable and responsible manner. Because this was sourced globally, we created a Global Fish Board and brought together our supply chain leads and suppliers from around the world. Helped by Conservation International, we developed our sustainable fisheries guidelines.” Forsell says.

Fisheries are evaluated according to a “stoplight” rating system which reviews the sustainability performance of these sources and identifies ones needing improvement. “A green rating means that the supply is satisfactorily well managed,” Forsell explains. “Yellow indicates that management is satisfactory but some improvement is needed and red means that urgent action and an improvement plan is needed. We work with our suppliers to address any opportunities identified.” In 2007, 91 percent of the company’s fish was sourced from fisheries without any unsatisfactory sustainability ratings.

She adds, “We’ve found that consumers’ top priority is the taste and quality of the Filet-o-Fish sandwich. We can source a variety of fish as long as we meet these expectations. So, our supply chain partners work with our quality leads, conducting sensory evaluations and consumer research. To be successful, we need to balance our customer needs like taste, quality and value, along with responsible purchasing practices.”

SUPPLY CHAIN COLLABORATION

McDonald’s USA does not grow or in any way produce the food it sells. It relies on direct suppliers that make and deliver final end-products to its restaurants. These suppliers, in turn, depend on other, indirect suppliers that grow and process the ingredients they need. Consequently, the McDonald’s supply chain is hugely complex, involving intricate networks of both direct and indirect suppliers on a regional, national and international basis. Optimizing this supply chain to improve efficiency sometimes relates to sustainability, even when it is somewhat traditional in focus.

An example is managing distribution. “With rising oil prices, transportation gets more expensive,” Forsell notes. “We’re always looking closely at ways to improve efficiency and reduce our fuel. Because we deal with multiple transportation companies, we’ve established a logistics council to leverage the system and provide a forum for exchanging best practices. This team has brought a great deal of value to the system. We have gained efficiencies through introduction of state-of-the-art routing systems, more fuel efficient equipment, use of biofuels, and incorporating green building practices into new facilities. It’s a dynamic process in which we all work together to improve the bottom-line and, at the same time, reduce our carbon footprint by lowering fossil fuel usage and engine emissions.”

An example is McDonald’s recent decision to deliver cooking oil in bulk rather than in individual packages. “When you’re delivering to thousands of restaurants within a system, and each restaurant uses up to 13,000 gallons of cooking oil, that’s a lot of packaging we’ve eliminated,” Forsell notes. “That’s just one part of it, though. At the same time, we’ve improved transportation efficiency by having the same truck that delivers the oil to also pick up the spent oil. That used to be two separate operations. Just by doing that we’ve cut our fuel costs and emissions.”

At the beginning, Forsell says that sustainability was mostly a top-down initiative from McDonald’s management to suppliers, while today it is highly collaborative. “In the beginning, we took the lead and determined the direction, using environmental and industry experts to help us find our way. We developed guidelines for our suppliers based on what we learned,” Forsell explains. “Today, it’s a much more collaborative approach. There is a great deal of leadership displayed by our supplier partners. We see a mutual sharing of ideas and best practices throughout the system, among our suppliers and around the globe. There is a greater awareness of sustainability issues and many companies have established strategic goals and priorities. There is a general understanding that not only is it a matter of responsible purchasing but also a matter of good business.”

THE THREE E’S

The company established its Sustainable Supply Steering Committee in 2007 to help guide this collaboration in improving sustainability among direct and indirect suppliers to McDonald’s, as well as to coordinate on various issues with a range of environmental groups and industry associations.

“The committee is charged with guiding our vision for sustainable supply by identifying global priorities and ensuring progress in ways that complement local priorities and efforts,” Forsell says. “That vision comprises implementing what she calls “the Three Es – Ethical, Environmental and Economic. We are striving for a holistic approach that tries to balance all three aspects of sustainability and create a net benefit for our customers and system. The committee works to continuously align, leverage, and challenge our system. Ultimately, we strive to ensure that every link of the supply chain contributes positively to the safety, quality, and availability of our products as well as continuously improving our contribution to sustainable agricultural and supply chain practices.”

Forsell emphasizes that “sustainable supply chain management is a journey rather than a destination. As part of McDonald’s overall approach to sustainable supply, our work is motivated by our commitment to the long-term strength and growth of our company, and working with our suppliers and the industry toward continuous improvement.”

One such area relates to McDonald’s recent entry into the coffee segment with the national rollout of the McCafé® beverage line. “We’re working with our coffee suppliers as well as engaging experts to better assess this supply system,” Forsell says. “As we learn more and understand opportunities, we’ll make appropriate decisions.”

Another area relates to bakery operations. “We have over 20 bakeries in the U.S. and they have held two supplier sustainability summits with our support. These were educational and best practice sharing sessions,” Forsell says. “For quite a number of our suppliers, this was the first time they’d ever been involved in anything like this. They had all implemented our environmental scorecard and this helped them understand their opportunities. Many did not realize there were savings they could achieve with a very low cost investment. However, the biggest benefit was the best practice sharing and networking. Because their operating environments are very similar, they could easily see where a best practice shared could help their organization. For example, they could short-cut the business case assessment process because someone else already had the results. Or, they could decide to test equipment or a process in one facility and share the result with others, eliminating duplication of resources. It was exciting to see the partnership.”

Forsell emphasizes that the underpinnings of a sustainable supply chain is to sustain the effort to make it so. “We are proud of our progress and have led initiatives that have made McDonald’s and our suppliers more ethical, more environmentally responsible, and more cost-efficient. As we continue this journey we expect to leverage our supplier and supply chain capabilities to an even greater extent and continue to enhance our business performance while contributing to the world around us.”

She adds, “We seek ways to become more sustainable both because it is the right thing to do from an environmental standpoint and because it’s smart business. When we conserve energy, produce less waste and minimize resources used by our suppliers, we spend less to deliver what is ultimately a better product.”

That’s something for everyone to chew on.

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