Are you McDonald’s or Burger King?

In any industry two companies can produce the same product but have very different strategies.  The fast food industry is a good place to see this at work.  McDonald’s and Burger King both make hamburgers, but their strategies are completely different.

McDonald’s takes the approach that you can have right off the shelf product.  If you want a double cheeseburger, it comes with onions, ketchup, mustard, and pickle.  If you want anything different you have to wait.  Because of this strategy they hold inventory in the finished goods state.

Burger King, on the other hand, has a strategy of “Have it your way, right away.”  This means they are into customization.  They will only put on the double cheeseburger what you tell them.  Each customer is unique in what they may want.  With this type of strategy they hold very little in finished goods inventory and more in the WIP inventory.

Neither strategy is better than the other.  Both have positives (McDonald’s is a little quicker if you don’t want special order, Burger King is more flexible) and both have negatives (McDonald’s not as flexible, Burger King not as quick).  The point is to understand what is your business strategy and select the inventory solution that best fits your strategy.  Don’t try to force the McDonald’s model of inventory if your business strategy is like Burger King or vice versa.

So which are you McDonald’s or Burger King or Neither?


Posted on August 13, 2010, in Flow, Manufacturing and tagged , , . Bookmark the permalink. 3 Comments.

  1. Matt —

    I like your easy to understand explanation of these two different approaches to holding finished goods inventory. However, I’m less sure that I like your statement that “neither strategy is better than the other.”

    This makes it sound as if any company can choose either approach and be Ok. I don’t really accept that you believe that to be the case, but the sentence makes it sound that way.

    Like most other aspects of a business, finished goods inventory holding strategies should be made in terms of the competitive landscape and in the service of customers. Completing products to a finished goods state permits quick and easy sale and is (of course) essential for organizations who sell through retail distribution.

    However, holding components and selling configured items can be a very powerful competitive strategy for organizations selling to in a low-volume high-mix environment.

    I routinely deal with capital equipment builders in my consulting business and find that the strategy of holding sub-assembly inventory (especially for long-lead-time items) can be a very effective competitive tool because it allows them to undercut competitors who either:

    — Sell non-configured systems, or
    — Build from the ground up after the order is received.

    This is, of course, just a minor quibble (clarification?) to a great post that does a wonderful job of providing a simple explanation of a complex topic. Keep up the good work.

    • Kurt –
      You are exactly right. When I made the statement about neither strategy being better than the other, it was mean to leave to door open for companies to understand their business and make the appropriate choice. What I didn’t want to do was say one strategy was better than the other for all situations and competitive landscapes. Depending on your industry and competitive strategy then, yes one method would be better than the other.

      I’m glad you clarified my statement, because you make a great point. Thanks for adding more clarity to it.

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