KFC is world’s second largest fast food restaurant chain, which mainly focus on fried chicken industry. In 2018, KFC faced a major crisis in UK. KFC UK has run out of chicken in most of its stores. Since, chicken was basic need for any KFC store to run its operations, this shortage resulted in the closure of various KFC stores in UK. Apart from this, KFC has got hit in terms of brand reputation as customers were very agitated by this closure of stores. The primary reason for these troubles was inefficacy of the logistics network. KFC contracted DHL to deliver the chicken but DHL was not able to deliver the chicken in time to KFC stores. To improve the situation, KFC has gone back to DHL’s predecessor i.e. Bidvest Logistics and issue various slogan on social media to improve its brand image.
KFC’s full form is Kentucky Fried Chicken. KFC is an American fast food restaurant chain which has headquarter in Louisville, Kentucky and which specializes in fried chicken. As of Dec’2018, KFC is world’s second-largest fast food restaurant chain (based on sales) after McDonald’s, with 22,621 locations globally in 136 countries. KFC is a subsidiary of Yum! Brands, a company that also owns the Pizza Hut, Taco Bell, and WingStreet chains. KFC was founded by Colonel Harland Sanders, who started selling fried in his roadside restaurant in Corbin, Kentucky, during the Great Depression. Sanders identified the potential of the restaurant franchising concept, and the first ‘Kentucky Fried Chicken’ franchise opened in Utah in 1952. KFC popularized chicken in the fast food industry, diversifying the market by challenging the established dominance of the hamburger.
As of May’2019, the total sales of the company was $26.2Bn and the company has a brand value of $8.5Bn.
In February’2018, most of KFC UK’s outlets were running out of chicken. As a fried chicken company, this shortage of chicken has forced those stores to close. The underlying reason for these problems was the change of transportation contract. KFC UK has changed its transporter from Bidvest Logistics to DHL.
DHL was one of the biggest names in home deliveries and it won the tender of KFC for handling KFC’s distribution. There were basically two problems with the DHL:
- At the start of the contact, DHL’s new distribution network, i.e. new warehouse it has opened for only KFC, was not ready to handle the KFC’s distribution needs. Firstly, DHL had no prior experience in delivering the chilled foods, so its workers were not capable to handle such needs. Secondly, DHL’s technology and storage were not equipped to handle bloodless cold storage.
- KFC’s structure (or network) of the distribution system was completely different from the its predecessor Bidvest logistics. Bidvest has 6 distribution centers to cater the needs of 900 KFC restaurant and on the other DHL was planning to cater all these needs by only one distribution center. Although, keeping only one distribution center significantly lowers the cost but having only one location reduces redundancy in terms of humans and equipment, and reduces coordination. This model imposes additional risk on the whole supply chain, i.e. if it fails to perform then there is no backup which complete failure. By having a number of locations, if one location fails you can cater the needs from the other location on temporarily basis atleast. As we have seen, in case of Amazon, having various distribution centers increase the inventory but on the other hand decrease the transportation cost and transit time. Since, KFC was operating on JIT model, it should have investigated this aspect and should have gone for a partner with various distribution centers.
In KFC’s case, a collection of accidents in the surrounding roadways brought on trucks carrying in the fresh chicken to be caught in traffic, and delayed outgoing trucks. Without a secondary distribution middle to divert the trucks, the lone distribution core was once in trouble. As KFC was operating on Just-In-Time shipping model, i.e. retailers usually acquired the poultry delivery inside 24 hrs of order placement, so they have been just carrying inventory for one day, within a week of this swap a destroy down in the furnish chain grew to be evident as many KFC outlets commenced strolling out of hen products. Very shortly it emerged that DHL was working out of only one warehouse in Rugby, which had been purpose built to deal with the KFC contract. Apart from this, there were additionally 500 hen farmers imparting clean poultry on everyday basis. So, the chicken was available, but DHL was unable to deliver it to the KFC restaurants.
Because of this problem, in the beginning week itself 540 out of 900 of the retail outlets had closed. Some restaurants were only able to offer a ‘limited menu’ and even the restaurants have reduced their operating hours. Obviously, KFC customers were very upset and angry. Customers have even called police to report the shutdown of various KFC restaurants. Even KFC has also admitted that there would be losses with a total of 900 KFC restaurants were closed. Apart from all this, it also impacted KFC’s brand image, which can be seen in the below chart:
Starting from Feb’18, KFC’s brand image starting to deteriorate reaching its peak by Apr’18.
Solutions and Results
At this KFC was facing too difficulties, first is how to manage the deliveries? And second is how to improve its brand image?
KFC adopted different strategies to tackle both the problems, which are as follows:
- To handle the delivery issues: KFC has gone back to its previous distributor even at a higher cost. KFC didn’t innovate in the field of supply chain management. It simply gone back to Bidvest but kept DHL to supply for only one location, where DHL’s warehouse location.
- To improve the company reputation: KFC was kind enough to accept its mistake and apologize to the customers. KFC even changed the name on its bucket from KFC to FCK to make people laugh. Everyone knows that a simple laugher can go to a long way in building trust. KFC followed the same approach and furiously used the social media platform to bring its message across to the customers. The few other slogans used by KFC are shown in the picture below:
They measured the success of their solutions by measuring the company’s image index as shown above and the availability of ingredients in its restaurants.
The results for these solutions were great. Within few months, KFC was able to reach normality in its operations and brand reputation.
Analysis and Recommendation
In my belief, the solutions implemented by KFC were adequate in terms to time sensitivity. But these solutions not only defeated the purpose of whole supply chain management i.e. getting the right product at right place at right time at right cost, but also there are some consequences, such as the distributor may no longer have the capacity or capability to handle your business. In this case Bidvest laid-off 255 employees. It is difficult to add these employees back quickly. By going back to Bidvest Logistics, KFC has lost its negotiating power, increasing the cost of deliveries and shown their vulnerability to the vendors, which is never good sign for any company. Moreover, KFC has not planned anything for future i.e. any innovations to improve the future logistics operation. I think that KFC should have devised a plan to cater the future needs.
Few things KFC should have kept in my mind while making changes to its logistics partner:
- Risk Matrix: KFC should have used the risk matrix to identify the various risks involved with the supplier decision going forward.
- Inventory Management: KFC should have instructed its stores to have a stock for at least one week or so before making these changes.
If KFC had done all of this, they would not have seen such a disaster. Going forward, KFC should devise a plan to do the cost reduction without hampering its operations. Cost reduction in logistics is one of main aspect in supply chain management field. In this competitive and customer focused world, if a company doesn’t reduce its cost to mitigate the competition then they will no longer be in business. In my opinion, KFC should explore the following possibilities:
- Vendor Managed Inventory: VMI is an approach developed by Walmart. In this, the suppliers are fully responsible to fill out the inventory with clear visibility of the stocks at the stores. KFC should explore the option of VMI by entering strategic partnerships with its chicken supplying farms, which are generally located locally.
- Dual Delivering capabilities: KFC should decrease its dependency on its sole distribution partner. It should engage some other logistics partners or create its own fleet to cater the future needs and avoid any such circumstances in future.
- Technology: KFC should implement tracking technologies to have better control over its logistics operation. With these technologies, KFC can predict the possibility of happening of any such event before its real time occurring.
KFC should keep a check on its cost (biggest risk) while implementing the above suggestions. KFC should measure its performance after the implementation of above recommendations. The performance can be measured in various ways such as KPIs, Spend management analysis, Cost Analysis, Distributor performance analysis, Inventory Analysis (number of stock-outs) etc.