The saddest words in supply chain came in a tweet from KFC as it tried to explain to customers why there was no chicken in its restaurants, writes Malory Davies.
“We changed our delivery partner last week – Valentine’s Day actually. But Cupid’s arrow wasn’t firing for us, and we’ve run into some complicated distribution problems,” said KFC in a tweet explaining why its restaurants were running out of chicken in the second half of February.
It all started out so promisingly. Back in October 2017, KFC decided not to renew its contract with Bidvest Logistics, and instead unveiled a new partnership with DHL and QSL (Quick Service Logistics). KFC has worked with QSL in Germany for seven years: DHL is the largest logistics company in the world – what could possibly go wrong?
DHL would manage the physical warehouse and distribution, while QSL would handle demand planning and stock management, with dedicated IT solutions. QSL would also manage operational purchasing for KFC as well as accounting for its operations.
Together they would provide optimised delivery scheduling with a faster turnaround of orders, and greater integrity of food during transport.
QSL’s managing director Florian Entrich went so far as to say: “With DHL, we are confident of establishing a new benchmark for quick service restaurants in the UK.”
QSL is focused exclusively on the quick service restaurant sector and operates four warehouses and two cross-docks throughout Germany. It started working with Burger King in 2007 and in 2010 won contracts to service KFC, Pizza Hut and IKEA. The company highlights its IT systems as a key differentiator in the market. “CSB, our IT ERP solution, is completely geared to the quick service restaurant business concept.”
When the service got up and running on Valentine’s Day (14th February), problems started appearing straight away. While the problems might have been a surprise, the speed with which they appeared is not, given the perishable nature of the product and the velocity of quick service logistics.
By Monday of the following week some 575 KFC restaurants were closed. John Boulter, managing director retail at DHL, apologised, 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 re-open its stores over the coming days.
“While we are not the only party responsible for the supply chain to KFC, we do apologise for the inconvenience and disappointment caused to KFC and their customers by this incident.”
Clearly, there was a massive effort going into restoring supplies, By the Friday, KFC was able to tell customers that over 90 per cent of its restaurants were back open.
However, it was clear that there was still more work to be done to solve the underlying problem. Stowga, which provides an urgent “Airbnb” warehousing service, said that it has been working with KFC to provide eight temporary warehouses to help get things moving again.
Then on the 8th March, Bidvest revealed that KFC had asked it to supply 350 restaurants in the north of the UK on a long-term contract. Paul Whyte at Bidvest Logistics said: “We are delighted to welcome KFC back to Bidvest Logistics. As the UK’s leading foodservice logistics specialist we understand the complexities of delivering fresh chicken. KFC is a valued customer and we will provide them with a seamless return to our network.”
This can hardly have delighted DHL. In a statement, it said: “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.”
There has been lots of speculation on where the blame lies for the problems. Some people have pointed the finger at the decision to use a single distribution centre for the operation, while others point out that single NDCs work perfectly well in other operations.
Professor Richard Wilding of Cranfield University is clear about the need to look at the fact that this was a new system, involving a group of new partners, running for the first time.
“The transition between two models always means a very high risk period, with some level of disruption or another. An organisation needs to test every single assumption being made in the new model, and put in place contingency plans for any assumption that includes any degree of potential wobble.”
Wilding highlights the importance of relationships, pointing out: “Organisations reviewing their supply chains and partners need to think in terms of the ISO 44001 standards for managing collaborative relationships.”
After all, he says: “In a world where competition is between supply chains not individual companies the relationships are critical, a sick relationship can become a major source of risk, and supply chain management is all about the management of relationships with all stakeholders to create value for the end customer and reduce cost for the supply chain as a whole.”
He also points out: “There needs to be a sensible attention to value, and making a real assessment of that value, to provide a balance between cost and value. Overemphasising either the cost or value aspect can be dangerous in terms of increasing risks. If you overemphasise value you can destroy shareholder value by over serving the customer.”
Clearly, these events are going to form an important case study for business schools for years to come.
For KFC, this episode might currently be regarded as a supply chain disaster, but in the end it could turn out to be a marketing triumph.
There has been no suggestion of a problem with the product, it’s purely lack of availability. KFC made sure customers knew that its staff were being looked after and produced a series of rueful tweets, culminating in a cheeky ad in some of the nationals saying: “FCK”.
It’s more publicity that KFC has had in years, and may well remind people that they haven’t eaten there for a while, so there is a good chance that sales will actually rise – once they get the new logistics operation properly bedded in.
Unprecedented? Well not quite…
It’s not often that supply chain issues make headlines in the national press. To see something similar, you need to go back to 2004 when problems at Sainsbury’s saw gaps appearing on store shelves.
Sainsbury’s, founded in 1869, was in fierce competition with Tesco and Asda, but by the early 2000s, it needed to bring its supply chain up to date. It embarked on a massive transformation programme involving the creation of a network of giant automated “fulfilment factories” to replace its ageing distribution centres.
But as these new sites started to come on stream, teething troubles started to appear, hitting throughput. Bare shelves started to appear in the stores.
In September 2004 Sainsbury’s brought in Lawrence Christensen, who had been group operations director of Safeway, to sort out the problems.
The effort to improve availability was a key focus of the Sainsbury’s annual report 2005. Significantly, Sainsbury’s gave this report the title: “What will it take to make Sainsbury’s great again”.
In his chief executive’s review, Justin King, who was brought in from Marks & Spencer in March 2004, said: “We have already made great strides in sorting out this crucial issue, but there’s more to do. We started with an initial review of our supply chain, from the time goods leave our suppliers to the moment they’re stacked on shelves in stores. This involved looking at areas such as depots and trucks as well as our in-store processes.
“The first priority was a short-term fix to ensure the right goods were on the shelves at the right time for our customers. We’ve stabilised the performance of our automated depots by over-riding some of the systems with manual solutions. We’ll continue to monitor and improve their performance as our sales grow and we start to better understand the full capabilities of the whole supply chain.
“For the longer term, we’re looking at more permanent solutions and making sure we understand the process from start to finish. In stores, we’re finding ways to make the jobs our colleagues have to do as easy as possible so they can continue to give customers an improved level of service. We’ve tested new ways of working which have helped reduce the number of products ‘out of stock’ in our stores by 75 per cent. These are now being rolled out to all our stores.”
Sainsbury’s 2006 accounts reveal the costs of the episode. An underlying operating profit of £238 million in the year to 26th March 2005 was wiped out by £497 million deduction for “Business review and transformation operating costs”. As a result Sainsbury’s made a pre-tax loss of £238m for the year.
And in 2006 Justin King highlighted some of the actions required to get the supply chain right. “We transferred our operation at Charlton to a third party operator, closed our depots at Northfleet and Rotherham and reorganised our Basingstoke and St Albans depots into multi-purpose facilities, providing chilled, ambient and fresh products to stores.
“We have used our Buntingford facility to provide additional capacity at Christmas for the past two years, but will now keep it open to help us keep pace with sales growth.
“Our Waltham Point and Hams Hall depots are now processing an average of two million cases a week, significantly up on 2004/05,” said King.
This article first appeared in Logistics Manager, April 2018
