Egg McMuffin.jpgMcDonald’s breakfast lovers, rejoice – all-day breakfast is coming soon to a restaurant near you! Whether you dream about Sausage, Egg & Cheese McGriddles, a Bacon, Egg & Cheese Biscuit, or an old-fashioned Egg McMuffin, the one ingredient these breakfast delicacies have in common is freshly cracked eggs. Rolling out an all-day breakfast menu across the United States is a gigantic feat on its own, but executing this feat during a national egg shortage – now that’s Big Breakfast with Hotcakes big.


The cause of the egg shortage is one of the worst bird flu outbreaks veterinarians have ever seen. Spread by the droppings of geese and ducks migrating over poultry farms in the Midwest, the highly contagious virus does not actually affect its carriers, but is deadly to chickens: an estimated 40 million egg-laying hens, one-eighth of the country's population, have already been euthanized.


There is concern that the extra demand generated by McDonald’s all-day breakfast will worsen the already bad egg shortage. According to the company, McDonald’s USA purchases about 2 billion eggs a year, a little more than 4 percent of the 43.6 billion eggs produced in the United States last year. Then last week McDonald’s said that over the next 10 years, it will transition to using only cage-free eggs. The move comes as a response to customers’ increased interest in food quality, but with less than 10 percent of the nation’s laying hens housed in cage-free “aviary systems,” meeting this goal will be a tall order.


So what kind of risk is McDonald’s facing? The company is in the unfortunate position of having to tackle the operational risk of the current egg shortage while simultaneously planning for the conversion to cage-free eggs. It also faces reputational risk if its breakfast initiative fails.Eggs.jpg


The best solution for McDonald’s may be a two-pronged approach. First, in the short term, the company needs to add new poultry farms to its supply base – especially those that are cage-free – so it can meet increased demand despite the shortage. While California poultry farms may not produce as many eggs as farms in the Midwest, their chickens have not been hit with the flu. And since legislation banning the use of small battery cages has been in effect since January, California farmers produce cage-free eggs already.


However, finding new suppliers can be expensive and difficult, taking up to 30 percent of the time in a company’s sourcing process. But leveraging tools like Ariba Discovery, which provides instant access to over 1.7 million suppliers worldwide, could help McDonald’s save 90 percent of the time and 75 percent of the cost to find and qualify new egg suppliers. In fact, there have already been multiple successful Ariba Discovery postings in this category, including $500K of eggs in Pennsylvania, $1M to $5M of egg products in North Carolina, and $100K of eggs in Washington.


Next, for a longer-term solution, McDonald’s should invest in its current egg farmers by educating them about and potentially financing their conversion to cage-free systems. The timing might actually be perfect for Midwest poultry farms to go cage-free, since many just had their flocks wiped out from the bird flu. And the practice of companies taking steps to secure the future of their supply chains is gaining prevalence. For example, two years ago, Chipotle began providing financial incentives to help farmers of black beans in Oregon and Washington transition from conventional to organic production. If McDonald’s followed the same approach, it would build its cage-free egg supply while protecting the viability of suppliers it depends on – farms vital to the success of the company’s new breakfast initiative.


Check out last week’s post for Part 1 of the “Supplier Risk Management” series to learn more, and stay tuned next week for Part 3.



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