Lot for Lot Inventory System at McDonald's

Lot for Lot Inventory System at McDonald's
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Executive Summary
The lot-for-lot inventory system is an ideal inventory management approaches which McDonald's can use to manage its inventory. The system involves ordering the exact amount of inventory needed to meet production or sales demand for a given period (Mahata, 2015). To determine the gross requirements in the lot-for-lot inventory system, McDonald's should rely on time-series analysis. The weighted moving average is the ideal time series analysis technique for demand forecasting as it allows one to identify seasonal fluctuations. A computerized inventory management system is an essential component of a lot-for-lot inventory system as it allows McDonald's to monitor inventory levels across the supply chain. By using the lot-for-lot system, McDonald's can increase the efficiency of inventory management process, minimize waste, and maintaining food quality.
Introduction
McDonald's can use can use lost size inventory management to enhance the effects of economies of scale. Lot-size inventory describes the purchase of required items in higher quantities than what is immediately needed in order to put in place inventory that can effectively meet the needs in periods when the items have not been ordered. The lot-for-lot inventory system is a lot-sizing technique that is particularly useful for companies that manage a large supply chain. McDonald's is a prime example of such a company, as it has several suppliers and distributors who deliver inventory to its numerous restaurant locations. The lot-for-lot system allows the company to order the required quantity of inventory at a specific period, minimizing inventory levels and reducing holding costs (Yang & Wee, 2003). This paper examines the application of the lot-for-lot inventory system in McDonald's supply chain management.
Lot-for-lot Inventory System
The lot-for-lot (L4L) inventory system is a lot-sizing technique that involves ordering only the exact quantity of inventory needed to meet the production or sales demand for a given period. It is a common method used in the management of inventory levels to reduce the inventory holding costs associated with overstocking or understocking (Teunter, 2014). The application of this concept in McDonald's restaurants can help minimize waste, ensure food quality, and optimize inventory costs. McDonald's has a vast supply chain management system, which requires an efficient inventory management system to meet demand while minimizing costs. One way that the L4L inventory system can be used in McDonald's is to manage the inventory levels of perishable items such as vegetables, meat, and other ingredients. By ordering only the exact quantity of inventory needed for a given period, the inventory holding costs can be reduced, and the quality of the food can be maintained.
Assuming that a McDonald's restaurant needs to order inventory of a given ingredient for the upcoming week based on projected demand, the table below illustrates how the L4L inventory system can be used. The lot size to arrive in each period is calculated using the L4L formula: L4L Lot Size to Arrive in Period t = (Gross Requirements in Period t) – (Projected On-Hand Inventory at End of Period t – 1) + (Safety Stock).
Week

Gross requirements

Projected on-hand inventory

Safety stock

Lot size to arrive

1

100

10

5

95

2

120

25

5

100

3

80

30

5

55

4

90

10

5

85

In this example, the gross requirements represent the projected demand for a given period, while the projected on-hand inventory represents the expected inven...