KFC: an important MBA case study

posted by Richard Wilding
23 February 2018

The KFC with no chicken story has been great fun for media and great for social media gossip – all those calls for a nationalisation of chicken distribution to ensure we’re never deprived of our fix of the nation’s favourite meat.

We enjoy a high-profile failure, and enjoy picking over the bones of who’s to blame.

But media discussion has tended to point a finger at the logistics provider DHL, and in the reliance on a single distribution centre. And on both counts that’s wrong.

The most important thing about the story is that it’s broken the spell for consumers around how supply chains actually work. There’s no “magic” that gets just the right amount of fresh chicken from farms to outlets just when it’s needed, no fleet of KFC trucks and KFC drivers receiving orders from KFC stores. Modern supply chains are hugely complex, and critically, will involve a number of different organisations to make any system work all contributing different expertise and resources.

Using a single distribution centre in the ‘Golden Rectangle’ between Milton Keynes and Rugby on the M1/M6 is a well-established and proven means of getting products to a network of outlets anywhere in the UK. We know that a lorry that’s loaded up by 7pm in the evening will be able to deliver the needed supplies to anywhere by the morning, the Highlands of Scotland, to Northern Ireland. It works. Big name supermarkets have been working this way from warehouses in Daventry for many years. 

The reason chicken didn’t get to KFC outlets was because there was a whole new system, involving a group of new partners, being put into place. Experience has shown that plugging together new software and technologies leads to teething problems, no matter how much more advanced and sophisticated the technology might be.

The automated baggage problems at Heathrow’s Terminal 5 is a classic example. It’s like any complex machine, like a car or aeroplane. You test the engine, that works fine, test the air conditioning, the wings, the navigation system – all okay. Bring them all together and suddenly one element isn’t working properly with another element and the whole machine stops working.

There are four key components to a supply chain strategy: the processes, the infrastructure in terms of warehousing and transport, the information systems that run it, and the people involved. KFC could see that, for the future, it could provide fresher, better quality product to its customers with a different approach to its supply chain – maybe by reducing inventory levels within stores (less old chicken), and relying on more regular ‘just-in-time’ meat.

Under the new KFC approach, DHL has taken on the infrastructure side. The other party is QSL, which supplied the software for the information systems. The supply chain came together for the first time by all reports on Tuesday (13th February) last week and somehow it failed.

The situation has proven what people have been saying about the reality of modern business: that we’re at a stage where it’s not a matter of competition between individual businesses anymore but between whole supply chains. KFC, like so many other major brands, is dependent on others, on the quality of its collaborations. So this wasn’t a blip, a human error, but part of the risk involved with modern supply chains. Could it have been avoided?

There would have been extensive testing since the contract was awarded in October 2017, and a great deal of confidence before the ‘go’ button was pressed. But perhaps there could have been more of a phased approach, for example, just using the new infrastructure to deliver to one region before a roll-out. It’s all part of the risk management assessment, where the supply chain industry knows, from the evidence, that 10% of supply chains are severely disrupted each year.

The KFC supply breakdown has had a serious impact on many people: the franchisees, the employees as well as the brand as a whole. Immediate lost revenues, huge amounts of management time, damaged shareholder value and hordes of regular customers who tried a different fast food outlet. So lessons need to be learned.

KFC will be a really important case study in terms of scrutinising how the tendering process and procurement took place, how the collaboration was established and run (given that we now have ISO standards for managing collaborative relationships), how the handover was carried out with the previous partner involved. There’s a need to look at the different risk profiles to see how the inevitable risks can at least be reduced – maybe there’s a need to look at having more distributed networks, so that supply chains are not so reliant on one software system or facility.

KFC’s communications with its customers, being open about the issues early and keeping them informed, appeared to be good. But, for example, an initial communication from DHL, reported in local south west of England media, suggested there had been “an administrative error”, as if someone had forgotten to fill out a form to order chickens in the first place.

What’s next, pubs with no beer? It’s quite possible. We have come to expect high quality, convenience and good value wherever we are, but that comes at the price of great supply chain complexity. A complexity we need to understand and manage better.​

☛ Richard Wilding is professor of supply chain strategy at Cranfield School of Management

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