Mcdoanld's Case

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I. Executive Summary In 2006, Greenpeace accused the fast food giant McDonald’s of allowing its supplier Cargill to use soya from deforested areas of the Brazilian Amazon rainforest for its chicken feed. McDonald’s responded immediately, moving the industry and its suppliers to enact a moratorium on buying soya from this environmentally sensitive land. Although McDonald’s received considerable praise for its rapid actions, it is still far from reaching its sustainability goals (Goldberg and Yagan 2007, p. 7-11). In fact, other sources point to the fact that McDonald’s is much further from these goals than the soya initiative's apparent success would indicate. Suppliers in McDonald’s supply chain are still employing practices that are contrary to the sustainability goals. For example, on the issue of animal welfare, the chickens raised for McDonald’s white meat products live in terrible conditions (Kenner 2008). The main problem is that McDonald’s does not use strict enough auditing measures on its suppliers regarding sustainable practices and corporate social responsibility. As a result of this lax auditing of its suppliers, McDonald’s was forced to retroactively create a large-scale soya initiative, enacted after Greenpeace’s outcry. There is a noticeable increase of about $2.12 billion in McDonald’s fixed costs from 2006 to 2007. In fact, the EBITDA margin declined from 26.27% in 2006 to 21.99% in 2007. Part of those costs, perhaps $200 million, is assumed to be due to the initiative. To avoid the costs of this kind of large-scale initiative in the future, McDonald’s needs to enact a solution involving stricter auditing of its suppliers, sustainability education throughout its supply chain, and the purchasing of chickens, for example, in line with sustainability goals. These long-term and consistent solutions are estimated to cost about $14 million

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