For a few days in mid-February, the headlines were dominated by one story. One of the world’s biggest fast-food chains, KFC, had ground to a halt across the UK. More than two-thirds of its 900 stores were closed, people contacted their local MP – and the police – to complain (http://bbc.in/2ocVIZ9), and the firm’s PR department had a few sleepless nights as they tried to save face.
The crisis, says Richard Wilding, professor of supply chain strategy at Cranfield University’s School of Management, was caused by “a series of unfortunate events” that had been over 18 months in the making, and “culminated in the complete breakdown of the KFC supply chain”.
“A modern supply chain will have lots of stakeholders looking after the different elements,” says Professor Wilding. “Many customers will believe that the problem is all KFC – KFC warehouses, filling KFC lorries, driven by KFC staff. This isn’t the case. Like many companies, KFC had outsourced all the elements of their supply chain to third parties.”
This isn’t anything unusual. “KFC is a very brand-heavy company,” says Wilding. “As a result, they always look to outsource responsibility for their supply chain to various third parties. KFC will source suppliers for the products – the chicken, the lettuce, the buns, and so on – and the logistics partners make sure it arrives at the restaurant on time.”
The problems began in October 2016, when KFC looked to change their logistics partner, away from specialist food logistics provider, Bidvest, continues Wilding (the decision cost Bidvest 255 jobs, and saw one of their depots close). They chose logistics giant DHL, and software supplier Quick Service Logistics (QSL). “DHL and QSL were awarded the contract in October last year. From the moment the contract was signed, Bidvest were given a date from which the new partners would take over. That date was 14 February 2018.”
The following day, stores across Plymouth were closed; by 19 February, 600 of KFC’s 900 nationwide outlets had run out of chicken. Something had clearly gone horribly wrong. Initial signs pointed to DHL – KFC put out a statement on 17 February blaming ‘a couple of teething problems’ with the new deal. Those problems didn’t clear up, though, and by 20 February, KFC had descended into crisis mode. Food waste charities refused to take the undelivered chickens, meaning thousands of tonnes of food had to be sent to landfill. Some face was saved by a self-deprecating advertising campaign (above), but, says Peter Ward, CEO of the UK Warehousing Association (UKWA), the damage had already been done.
“When ‘operational issues’ mean that a high street giant like KFC has to close the vast majority of its sites, the companies responsible for that failure – and, to some extent, the broader industry of which they are a part – inevitably suffer a degree of reputational damage,” he says.
‘Logistics is a service, not a commodity’
When looking at what went wrong in this case, it can be easy to point fingers – as many in the press have done – at the fact that DHL chose to use one warehouse, in Rugby, to distribute chicken for the whole of the UK. This, of course, has its risks. Indeed, early in the morning of the fateful ‘handover day’, 14 February, a major accident closed the M6 between junctions two and three, and a separate incident involving two lorries closed junction one for several hours. All three junctions serve Rugby. As a result, lorries leaving the DHL warehouse found themselves stuck, and the company were fighting a losing battle from the start.
This may have been a slice of bad luck, but it doesn’t prove that a one-warehouse approach was necessarily the wrong one, insists Wilding. “Lots of people have blamed the single warehouse as the reason behind the lack of chicken,” he says. “However, that’s not the root cause here. You can operate with one warehouse, you just have to invest in more vehicles, or better information flow. Logistics is all about the trade-off between cost, information and infrastructure to achieve the required service level. If DHL thought that having one depot and lots of lorries was the best way to achieve that, then we have to accept that.”
KFC’s issues ran deeper than a warehouse in Rugby, says Wilding. They date back to when the contract with DHL and QSL was signed. “Once the handover date was agreed, it is up to all the various parties to decide how that handover takes place,” he explains. “It needs a lot of cooperation, and a trial period is often run for a couple of weeks to iron out any problems and get everyone up to speed. In this case, though, it seems as though someone made a decision just to perform a ‘hard handover’ – literally change suppliers overnight. This is a very, very risky strategy.
“Companies often forget that logistics isn’t just about getting product from A to B. It’s a service, not a commodity, and as a result, needs managing. There is now an international standard, ISO 44001 (http://bit.ly/2uf5sGW), which is a collaborative business standard that takes a company through the relationship formation process, all the way through to the end of the contract. What KFC didn’t consider is how they were going to A), end their contract with Bidvest, and B), bring the new partners on board seamlessly.”
Added to this, companies and their logistics partners often have long-standing relationships that have developed over time. Like any relationship, subtle intricacies and local knowledge build up and can be hard to replace.“Drivers end up learning the ‘tricks of the trade’ – whether certain locations only accept deliveries at certain times, for instance,” says Wilding. “Quite often this is stored in the drivers’ minds, and not formalised in any document. As a result, when you change suppliers, the new drivers won’t have that knowledge – and that can jeopardise the long-standing relationships with your customers.”
Be lean, but don’t become anorexic
Manufacturers today are looking to do more with less. So-called ‘Just-in-Time’ manufacturing, developed as part of the Toyota Production System, relies on minimal stock levels and very lean operations.
Anyone adopting this approach, warns Wilding, should take heed of some of the issues faced by KFC. “Many manufacturers interpret ‘lean’ as ‘anorexic’. There’s an appropriate level of leanness for every operation. At Cranfield University, we talk about being both lean and agile. Agility is being able to be quick and responsive; lean is about having no excess flesh or bulk.”
Again, it’s down to balance. Wilding compares a very underweight ballerina (“she won’t have the energy to keep dancing for too long”) with one who is massively overweight (“there’s too much bulk to move around in an effective way”). Manufacturers have to think in the same way. “There has to be a balance,” says Wilding. “Some supply chains can be run in a very lean way, but most need a bit more agility. You need to remain lean, but don’t become anorexic. Disruptions to supply chains are more commonplace than people realise, and often occur because companies haven’t built enough fat into their systems.”
The UKWA’s Ward sees the challenges in the supply chain – especially in the food and drink sector – growing in the coming years. “For the most part, the logistics industry goes about its vital role in feeding the nation silently and unstintingly efficiently,” he says. “It is overlooked and taken for granted and, like so many things, it is only noticed when something goes wrong.
“However, new trends in the way food and drink products are bought and consumed – added to a changing population profile and a transport infrastructure that is already creaking – are bringing significant challenges to food and drink manufacturers, wholesalers, retailers, caterers and logistics companies across the UK. Indeed, it is hard to see how home deliveries and the more frequent daily drop-offs required to replenish the growing number of city-centre grocery retail stores that are opening as a result of current consumer shopping patterns, can be sustained.”
Manage supplier relationships
There are clearly lessons to be learnt in the wake of the #KFCCrisis, especially if Ward’s predictions of ever-more-complicated supply chains come to fruition. Wilding has a warning for any manufacturer, however big their supply chain. “Manufacturers are totally dependent on their supply chain network, so managing the relationships with them is vital,” he says. “It’s therefore key to think carefully about the tendering process – understand the costs, and make sure you undertake good due diligence checks. Also, if you have long-standing relationships with your current suppliers, you need to avoid neglecting that going forward. It boils down to managing relationships, increasing value for the end customer and reducing costs across the supply chain.”
KFC certainly seem to have learnt their lesson – less than a month after the handover of the logistics contract, Bidvest were brought back on board as the partner for 350 of KFC’s UK stores, mainly in the north of the country. Bidvest said they were “delighted” to have regained the contract. The GMB union has also claimed that it warned both DHL and KFC about potential problems in the months leading up to the handover. At the time of writing (16 March), the majority of KFC’s branches had reopened across the country.
NOTE: Manufacturing Management approached DHL for comment as part of this article. A DHL spokesperson told us: “We acknowledge KFC’s decision to invite Bidvest Logistics to service its 350 restaurants in the north of the UK. In conjunction with our partners, we remain fully committed to delivering excellent service to KFC’s remaining 550 restaurants across the UK”.
The timeline of a ‘cluck-up’
October 2016 – KFC announce they are looking for a new logistics provider to replace Bidvest
October 2017 – DHL and Quick Service Logistics (QSL) are named as the winning bidders
14 February 2018 – KFC’s logistics deal hands over to DHL & QSL. Several accidents on the M6 leave deliveries stranded just miles from the Rugby warehouse
15 February – News breaks on Twitter that KFC branches in Plymouth have run out of chicken
17 February – KFC announce that they are suffering ‘a couple of teething problems’ in their relationship with DHL and QSL
19 February – Over 600 of the 900 KFCs nationwide are closed, the story is making national headlines and #KFCCrisis is trending globally on Twitter
20 February – KFC announce that the problems will ‘continue for the rest of the week’. As the scale of the problem becomes apparent, customers begin panicking: the Met Police put out a ‘reminder’ asking people to stop phoning 999 about the shortage
21 February – The finger of blame begins to shift to DHL; KFC offers to donate any useable chickens to food waste charities. The charities have to refuse, due to being unable to deal with such a large amount of chicken
23 February – Over 85% of stores have reopened; KFC publish a contrite advert in the Metro newspaper, rearranging their logo to say ‘FCK’. This, on the surface at least, repairs some of the PR damage done over the previous week
8 March – KFC announce that they will be ‘partially returning’ to using Bidvest as a supplier, focused on the north of the UK