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KFC Ran Out of Chicken in the UK: What Supply Chain Lessons Can We Learn?

KFC Ran Out of Chicken in the UK: What Supply Chain Lessons Can We Learn?

by | Mar 19, 2018 | Blog, Current Events, Logistics, Strategy, Supply Chain

More than half of the UK’s Kentucky Fried Chicken stores recently closed because they ran out of chicken. Here’s a look at what caused the issues and what supply chain lessons can be learned.

This guest post comes to us from Argentus Supply Chain Recruiting, a boutique recruitment firm specializing in Supply Chain Management and Procurement.

There’s another unfortunate entry in the annals of Supply Chain failures that burst into the wider world of business and pop culture: More than half of the UK’s Kentucky Fried Chicken stores recently closed because they ran out of chicken. We’ve written on the Argentus’ blog many times about Supply Chain misadventures, and how they can harm a brand’s reputation as well as profits – for example, maybe most memorably, in the case of Target, which had to retreat from the Canadian market after Supply Chain snafus led to empty shelves and disappointed customers.

Although Supply Chain Management is taking off in terms of recognition within business, it still doesn’t get a lot of attention from the wider world – until it fails, at which point the stresses and pressure of beleaguered Supply Chain teams become an object of fascination as the organization races to play catch up and get things back online.

KFC’s UK operations are the latest such story. On February 19th, outlets began reporting about the closure of about half of the chain’s 900 stores in the country, due to delivery failures after changing their 3rd Party Logistics (3PL) provider from Bidvest Logistics to DHL. A few weeks later, reports are that a number of stores are still closed, with front-line workers being encouraged to take holidays as the company sorts out its deliveries and tries to account for the failures. It’s no wonder that the closures have been met with derision across the internet: delivering chicken to the people is pretty much KFC’s #1 job.

So what has caused the issues, and what lessons are there to be learned?

According to the BBC, KFC recently switched its 3PL operations from food specialist Bidvest Logistics to international heavyweight DHL – the latter being a company with operations in a number of different industries, now navigating a country-wide Supply Chain out of one distribution centre location. In short, DHL took over the contract on Valentine’s Day, and delivery failures started to happen on February 16th – an extraordinarily short time table for Supply Chain issues to get so dire that customers see disruptions.

While there’s some disagreement among experts about the exact cause of the failed deliveries, speculation is that many of the problems can be attributed to the fact that DHL has one distribution centre location serving the entire country –  a bottleneck that wasn’t seen with the previous 3PL provider, who had six distribution centre locations.

While Supply Chains gain a lot of their competitive advantage from offering lower costs and greater efficiencies, it seems that the shift in providers was a cost-cutting maneuver that’s ended up costing the company’s brand — with some analysts predicting something on the order of 20% of a hit to the company’s share prices once the disruption finishes shaking its way through the system. It underscores the importance of sound planning and reliability in Supply Chain Management in an era where companies are looking to gain an edge with margins wherever they can. It’s also great evidence for what many of us know: an approach that puts cost-cutting first can cause more problems than it solves.

John Boulter, the Managing Director of DHL’s operations for retail in the UK and Ireland issued a statement saying, “The reasons for this unforeseen interruption of this complex service are being worked on with a goal to return to normal service levels as soon as possible. With the help of our partner QSL, we are committed to step by step improvements to allow KFC to reopen its stores over the coming days. Whilst we are not the only party responsible for the supply chain to KFC, we do apologize for the inconvenience and disappointment caused to KFC and their customers by this incident.”

Ouch. Boulter’s statement has two issues that, from our perspective, show a lack of the accountability necessary to restore credibility both with DHL’s immediate customer (KFC) and the wider base of customers disappointed that they can’t buy KFC’s fried chicken:

  • The statement attempts to shift blame onto DHL’s other partners in the deliveries (particularly QSL) in a way that looks passive aggressive. Admitting responsibility is the first step to restoring credibility when responding to Supply Chain failures, and while DHL accepts some blame for the issues, the statement doesn’t go far enough.
  • Going out of their way to describe the service as “complex” doesn’t do any favours for DHL in this situation. Of course modern Supply Chains are complex. Understanding that complexity, and being able to deliver anyway, should be considered table stakes for providers in 2018. To implicitly chalk delivery failures up to a complexity that your predecessor – in this case Bidvest Logistics – handled without issue for years, casts even more doubt on DHL’s competency. At the same time, the fact that analysts are having such agreeing on an explanation for these issues – despite the fact that KFC only has a few poultry suppliers in the UK – says a lot about just how complex modern-day Supply Chains have become.

Logistics failures leading to the closure of stores is pretty much the worst case scenario for Supply Chain teams everywhere, so all of us across the community are probably watching this story with bemused shock and sympathy for those involved.

Hopefully DHL – which is, after all, the biggest logistics provider in the world – can get these issues solved soon, but in the meantime, let us know in the comments: are there any further lessons you think that Supply Chain professionals can draw from KFC’s recent woes?

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Counting the High Cost of Doing Nothing

Counting the High Cost of Doing Nothing

by | May 10, 2016 | Blog, Strategy, Supply Chain

Increasing operational expenses to avoid capital expenditures that would boost warehouse capacity and functionality might end up costing you more in the long run.

Consider this scenario: Demand is up and projected to grow for your products. But you are running out of space in your distribution center. Although you realize modernizing your distribution center to increase productivity would make sense, you resort to the seemingly more affordable solution — hiring more workers.

While many companies may balk at the upfront cost of investing in, for example, warehouse automation technology, holding off on upgrading in the name of saving money can become a costly long-term strategy.

Don’t get me wrong. Automation is not always the answer to tackling issues that stem from rapid growth, but companies need to be aware that doing nothing also comes at a cost. Increasing operational expenses to avoid capital expenditures that would boost warehouse capacity and functionality is generally not a good idea. More workers on the floor mean more congestion and delays, in addition to increasing the risk of higher turnover rates, as new employees are more likely to move on than longer-term associates.

In the end, if your productivity and order fulfillment suffer as a result of your inaction, so will your customer relationships.

FORTE, a Swisslog Company, made the following observation in SupplyChain 24/7:

Businesses routinely choose to not invest in distribution without giving careful consideration to the impact on operational costs and missed business opportunities. They thoroughly evaluate whether to purchase material handling equipment, warehouse software and distribution buildings. The same scrutiny should be applied to real and often hidden expenses and the opportunity costs of the option to do nothing.

In FORTE’s case, the company came to the “rescue” of a retailer who had planned to respond to a significant increase in demand and SKUs by hiring more workers to the tune of $900,000 to $3 million per year. Although labor costs would more than double, the retailer would still struggle to fulfill and deliver new orders on time. After much debate, senior management decided to spend $5 million on new material handling equipment and software to meet current and future demand.

So what issues can arise from the do-nothing strategy?

Well, take your pick among unwanted scenarios: Bottlenecks in pick zones; safety concerns as a result of increased congestion; double-handling due to an inability to confirm picks; discrepancies in putaway, replenishment, and picking stemming from the lack of automatic data capture and real-time tracking; and dropping productivity as employees, among other things, have to travel further to retrieve items.

If you have reached a point where you miss or ship incorrect orders, and adding labor seems to only compound the challenges, it is time to take a serious look at your priorities. Perhaps, investing in automation is finally justified?

This post originally appeared in EBN Online. 

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