It has been predicted heads will roll over the fiasco © SIPA USA/PA Images
It has been predicted heads will roll over the fiasco © SIPA USA/PA Images

Five lessons from the KFC chicken crisis

Will Green is news editor of Supply Management
23 February 2018

A KFC without chicken is like a pub with no beer. So what should you do to prevent your organisation finding itself in a similar predicament?

A general shortage of warehouse staff coupled with software problems is understood to have caused problems at DHL's Rugby depot, leading to KFC's chicken shortage.

Philip Bird, partner at accountancy firm Moore Stephens, told SM this staff shortage was a general problem that was only going to get worse, mainly because of Brexit, and other organisations in other sectors could find themselves in similar situations to KFC.

He said senior management at KFC would want to know why DHL, which is not specialised in food delivery, was appointed over previous supplier Bidvest, which is. "Heads will roll on both sides because of this," he predicted.

Here's some advice to avoid problems when choosing a new logistics provider.

1. Do due diligence. This should cover three areas, according to Bird.

a) Financial. Make sure the supplier is financially robust and not likely to have difficulties.

b) Commercial. What other contracts and relationships have they had? Understand how they have worked and what the issues have been. What is their market reputation?

c) Operational. What is the nature of their infrastructure, facilities, cold storage, trucks and fleet. How much is outsourced? "You build a view of their ability to deliver," said Bird.

2. Have a trial period. On a large contract, outsource a small part of it and see how it goes, said Bird.

3. Weigh up the risks. John Perry, managing director of consultancy SCALA, said: "Typically, logistic operations cost companies between four and 10% of their sales value. So, even if a 10% cost benefit is achieved by changing contractor, this only really represents 0.4-1.0% of sales. KFC’s loss of sales will very quickly negate those benefits."

4. Contingency planning. "We would always insist on detailed planning, rigorous management of the preparation and operations set up, and of course, close communication between both parties well before the contract commences," said Perry.

5. Get the contract right. "Ideally, the contract would specify the circumstances in which KFC would feel unable to open a restaurant following a distribution failure and set out an agreed remedy for each day that this occurs," said Jon Baldwin, partner at law firm Winckworth Sherwood.

Benjamin James, a partner specialising in commercial contracts at law firm McCarthy Denning, told SM: "The contracts should ensure that there are detailed schedules covering the transfer of activities and, if possible, the transfer should be phased. If there is still a failure after all of the planning the contract should set out the steps to be taken after a failure, recovery steps and ensuring that there are investigations and reports to ensure that lessons can be learned.

"As a last resort, termination should be permitted in a structured manner to allow the business to exit the arrangement without any further harm to its business.

"Spectacular failures are virtually never deliberate and damage all of the parties – a true measure of all parties is how they resolve the issues and manage the potential reputation to their brands."

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