What can we learn from supply chain disasters?

posted by Alex Balcombe
13 May 2019

Supply chains are complicated processes. Every business has one to cater for production and distribution, and more often than not, they will be relying on external companies to ensure that they deliver everything to the last mile.

As such, a number of factors can cause a domino effect to a supply chain which can easily stop the steady flow of goods.

Sometimes a supply chain issue might be the fault of your business, other times it’s out of your control. In recent years there have been many supply chain errors and disasters in the news, but what can we learn from them?

KFC

Humour was on KFC’s side in 2018 when the popular chicken shop ran out of… chicken. It had to close to more than half of its UK outlets after it switched delivery contracts which caused incomplete or delayed orders, leading to it running out of its most popular food item.

Despite the commotion, KFC managed to create a PR masterclass out of a bad situation and keep its customers engaged and humoured, despite having to close for a week. It announced a full-page apology in UK newspapers which rearranged the famous letters to ‘FCK’. The humour paid off, with people praising its apology, creativity and guts in a crisis communications environment.

Lesson learnt: Admit your apologies, have an internal strategy and announce a crisis communications plan as soon as you can. And don’t be afraid of using humour if the situation arises.

Yodel

Christmas is a busy time for any business, but in 2014, delivery firm Yodel stopped picking up online orders from retailers because it “needed to protect service levels” and said packages that were already in its possession would be up to three days late. The company is used by some of the country’s biggest retail stores, and the difficult decision led to frustrated customers and confusion as to why Yodel had not planned effectively for the busy period.

To handle the issue as best as it could, the courier stressed that it would provide regular updates on its website, and “closely monitor the situation”. Its executive chairman Dick Stead also went on a crisis communications mission to apologise to people, with lengthy statements online and in the press. 

Lesson learnt: Prepare for extra busy periods and make sure that your customers are informed at every level, with full visibility and no misleading information.

Nintendo

In 2016, Nintendo announced that its NES classic console would enable 1980s nostalgia, offering a console with vintage games built into it. Of course, it sold out fast like any other Nintendo item, but this time it was barely even in store.

While being out of stock can help fuel desire like we saw back with the Nintendo Wii, the NES had a massive supply-demand imbalance as it sold out immediately. This led to Nintendo tweeting that they were working hard to keep up with consumer demand, because people were buying the gadget and selling it on eBay for up to three times the original price. Despite the fact it was well anticipated, it didn’t make enough. Selling out doesn’t hurt a product, but it can hurt profits and cause disgruntled customers – with this one having just five or six units per store.

Lesson learnt: Planned scarcity of a product is not a great marketing tactic if there isn’t enough stock – the internet can boost demand more than limited products can. Manage supply and demand as best as you can, as Nintendo did when it re-released it in 2018 with a much steadier flow of stock.

Toyota

Japanese car manufacturer Toyota was forced to stop most of its auto production in the country following a deadly earthquake in 2018. The disaster caused power outages and triggered blackouts across the country.

The power plant which supplies most of the power to Japan was close to the earthquake’s epicentre. Some of the models which are produced in factories in Japan are exported to the US, but spokespeople confirmed that it was unlikely to impact the North American operations. It had to investigate the impact of the earthquake on its supply chain, which may have caused lost labour and profits. 

Lesson learnt: Sometimes natural disasters happen and they are out of your control, but keep vigilant, prioritise safety and plan well. If a disaster to your business premises or assets would have a substantial impact on your ability to continue as normal, prepare in advance by seeking business interruption insurance to prevent you being out of pocket.

United Airlines

In 2017, American airline United faced a huge backlash by the media across the world after a controversy over its procedure when relocating a passenger. Passengers travelling on the April flight from Chicago to Louisville had been asked to volunteer to leave the plane in return for compensation because they needed to remove four passengers as it had been overbooked, but nobody volunteered. One man refused to leave the plane when selected, resulting in three security officers forcibly removing him out of his seat, dragging him on his back down the aisle with a bloodied face, while horrified passengers filmed and protested.

It is not illegal to overbook flights, but many airlines are known for overbooking flights to cater for no shows and make maximum money per flight. Was this decision worth hurting the brand? While it was the way they handled it that got them in hot water, if they had planned more efficiently they arguably wouldn’t have had this issue in the first place. Customers need to know exactly what they are buying, as in this case United selected the customers who had paid for the cheapest tickets to leave the plane.

Lesson learnt: Avoid canned answers and rash decisions (when United first spoke out, it made matters worse by not admitting blame). Think how your answer will unfold on social media, and be sensitive to responses. Don’t get defensive or ever get violent or rude with customers, and consider making supply and demand changes if you know you have more demand than supply available in such an important situation as air travel.

☛ Alex Balcombe is partner at loss assessors Harris Balcombe

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