How KFC’s delivery nightmare showed that logistics can be franchises’ weakest link

Following KFC's supply-chain fiasco, franchises may understandably worry about their own logistics. Fortunately, not only can franchisees and franchisors rebuild when disaster strikes but can set up measures to avoid it from happening in the first place

How KFC’s delivery nightmare showed that logistics can be franchises’ weakest link

As the saying goes, ‘a chain is only as strong as its weakest link’. So when it comes to a business supply chain, there’s no room for weakness if a company is to operate at its peak. Indeed, the consequences for all parties concerned can be incredibly damaging if the chain falters – something KFC found out the hard way.

In a move that would see KFC sever ties with Bidvest, the logistics company, the restaurant business announced in November 2017 that DHL would take its place. Commenting on the deal at the time, John Boulter, managing director of retail for DHL Supply Chain UK & Ireland, said: “We’re delighted to be delivering a truly unique proposition for KFC, geared to the specific needs of the business. We intend to re-write the rule book.”

However, the switch of service providers led to a nationwide logistics nightmare that gripped the fried-chicken franchise’s every waking moment from mid-February onwards. At the height of it a reported 750 of 900 UK branches were closed because chicken deliveries failed to arrive. Disgruntled customers even complained to the police. “This is by far the biggest crisis I’ve seen,” says Marcos Clowes, a logistics and transport expert. “I’ve seen others within logistics and the franchise arena but not to the same scale as KFC.”

There are numerous factors that caused the fiasco but chief among them is the fact this could have been prevented, suggests Clowes. With Bidvest operating from multiple sites across the UK, DHL has one key distribution centre in the West Midlands, which he claims should have been a red flag the partnership was not suitable. “They should have said ‘this is what we’re considering doing’ and got independent opinions on whether it was the right thing to do,” says Clowes. “If they approached me and said ‘we’re going to give fresh chicken distribution to DHL for the whole of the UK from their site in Rugby, what do you think?’ I’d have told them they’ve lost their minds. It was very easy to see the problems they would be faced with.”

Of course, the problem wasn’t just that KFC was out of chicken and that sales suffered as a result. No, the big issue was the knock-on effect it had on franchisees who also got burnt by the supply chain switch-up.

With various reports doing the rounds, KFC took to Twitter to offer clarity on the situation. It stated that staff at company-owned restaurants would be paid, with salaried staff receiving their usual rate and hourly-paid staff receiving an average on hours worked. It was a different story for franchisees though. As they run their own businesses, they were said to be taking independent advice, ironic given Clowes’ previous comment about what KFC should have done.
Lacking products to sell would result in lost revenue for franchisees, which in turn could result in loss of earnings for their staff, thereby causing a separate people problem on top of a financial fiasco to fix.

Meanwhile, being contractually obligated as a franchisee means limited flexibility in terms of taking alternative measures for supplies.
“Think about an independent business – like an independent fried-chicken shop. If their provider can’t provide chicken today, they can buy products from elsewhere,” says Clowes. “In a franchise scenario, unless you have an absolutely slick supply chain that ensures your franchisees are provided with the product, they don’t have the opportunity to go elsewhere because they’re tied into a contract that prevents them from doing so.”

Clowes is of the opinion that a franchisor causing a franchisee to experience loss of earnings through supply-chain issues should compensate them. From an ethical point of view, it certainly would be the right thing to do, while it also makes business sense as it would go some way to help rebuild trust and faith across the network.

In the case of KFC, one attempt to repair the damage it caused with the supply-chain change saw the company admit defeat by re-enlisting the help of Bidvest to manage supplies in the north for 350 UK restaurants, a deal that went live on Monday March 26. With what appeared to be sheer glee and a potshot at DHL, Paul Whyte, business unit director at Bidvest Logistics, said: “We are delighted to welcome KFC back to Bidvest Logistics. KFC is a valued customer and we will provide them with a seamless return to our network.”

But what actually makes a seamless supply-chain? After all, DHL’s promise to deliver the goods, metaphorically and physically, fell to pieces. John Trueman, founder of Quadranet, the inventory-management business, thinks that KFC made a short-sighted move. “A supply-chain is strong when there is a good relationship between the parties in it, each party understands the other’s needs and there is respect and mutual benefit,” he says. “These days technology also plays a vital role as well: a fast, fool-proof way of monitoring stock levels and even automating the ordering of stock is crucial if a restaurant is to run efficiently.” Moreover, there should be other drivers for switching suppliers than just making cost-savings. “KFC will survive but it’s a lesson learned for them: you get what you pay for,” he says.

It’s also important businesses don’t just select a supply-chain partner based on a successful track record if the market they serve is totally unrelated to the one your business operates in. “A supply-chain strategy working very well for an automotive company may cause serious problems for a food company,” says Isik Bicer, assistant professor of supply-chain management at Rotterdam School of Management, Erasmus University. As a prime example, with the food industry requiring regular deliveries in order to meet customer needs, Bicer noted that demand is volatile, so the supply-chain needs to be responsive.

While KFC may have managed to resolve the situation it seemingly brought on itself, the outcome is a valuable lesson for both franchisors and franchisees to ensure their supply-chain is totally rust-free and oiled to perfection. Although franchisees’ hands may be tied to some extent in a situation such as this, interested parties should be sure to do their due diligence before committing to any deals.”Both franchisors and franchisees should even be collaborative and transparent before their agreement on the contractual terms,” says Bicer. “The contract has to be prepared such that it includes provisions in every conceivable situation.”

Moreover, there should be a continuous discussion once the franchisee has joined the network. “If the franchisor is considering changing the supply-chain, they should involve the franchisees in the discussions and decisions,” Clowes concludes. “Problems that might come up as part of those questions can be resolved before switching from one supplier to the other, avoiding a disaster that franchisees have no say in and no control over.”

In other words, if you want to avoid logistical cluck-ups a la KFC, make a point out of working closely with your franchisees.

Zen Terrelonge
Zen Terrelonge