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Supply Chain Failure: KFC’s Chicken Shortage

It seems hard to imagine that KFC would run out of chicken.  That’s their main menu item! How can they operate without chicken?

Turns out, they can’t. The majority of KFC’s UK restaurants were forced to close due to a chicken shortage.  Approximately 650 of the 900 KFCs closed in February 2018, while many of those that remained open, operated with a reduced menu.

The origins of the shortage: KFC decided to switch suppliers from Bidvest to DHL and QSL (a food distributor) in October 2017. They promised to “revolutionize the UK foodservice distribution market.”  Part of the promise included reducing logistics emissions to net zero over the life of the contract.

The change in distributors affected Bidvest and DHL.  Bidvest laid off 255 employees after it lost the contract, while DHL and QSL opened a new distribution center, and hired approximately 300 new employees.

Although improved performance was promised, not everyone saw such a rosy future.  GMB, the UK trade union for the displaced Bidvest employees, warned KFC of potential problems with the switch to DHL.  Mick Rix, the GMB’s national officer said:

“We warned them a few months ago. I wrote to KFC. I alluded to Burger King trying to cut costs and ending up with poorer quality service and poorer distribution. They had shortages, too, but not on the scale we’re seeing now at KFC. Within six months they [Burger King] were pleading with Bidvest Logistics to take it back.”

So, on February 14, 2018 the stage was set for the changeover.  That’s when the problems began.  Almost immediately a chicken shortage occurred.  The shortage hits its peak (or perhaps more accurately, its trough), on Sunday, February 18th with the closure of almost 650 restaurants, with about half opening a day later.

The problems continued, and then social media got involved. Some patrons even called the police regarding the shortage.  Competitors capitalized on the issue: when one dejected KFC fan admitted to going to Burger King, the burger chain offered her a year’s worth of free food.

The one bright spot (maybe) is their public relations department, which has used social media and the company’s website to put a comic twist on the fiasco.  Tweets have included “THE CHICKEN CROSSED THE ROAD, JUST NOT TO OUR RESTAURANTS.”   A page on their website updates customers on which restaurants have chicken. And they have recently issued an ad apology which rearranged KFC to FCK in acknowledgement of the, er, screw-up.

Almost 3 weeks later, supply chain problems persist. Social media reported a gravy shortage, then mashed potatoes, and even cardboard containers.  Finally, KFC contracted with Bidvest, its original distributor, to handle logistics for approximately 350 restaurants. It was not an easy transition back as Bidvest had to re-hire some of the 255 laid-off employees.  Bidvest is happy to have KFC back. As Bidvest spokesman Paul White told the BBC, “KFC are a valued customer and we will provide them with a seamless return to our network.”

The social media fallout is bad enough, but think of the lost revenue from closed stores, employees not working and therefore not receiving pay, unhappy customers, fresh chicken sitting at distribution centers spoiling, and employees at Bidvest and DHL being laid-off and/or hired.

Not the best of times for KFC UK, and DHL. FCK, indeed.

And what’s at the root of the supply chain failure? Let’s start with the changeover plan.

DHL’s new distribution center wasn’t ready when the change-over happened.  There weren’t enough trained employees, there were problems with the IT system, and cold storage wasn’t properly registered.  KFC has to take part of the blame for not realizing sooner that DHL was not prepared for the transition, and should have taken corrective action sooner.

Another consideration is the structure (or network) of the distribution system.  Bidvest was using six distribution centers to handle the approximately 900 KFCs.  DHL decided to go with one new distribution center.

One center offers several advantages, especially from a cost perspective.  Everything is in one location, it reduces redundancy in terms of people and equipment, and reduces coordination.  However, it increases the supply chain risk.  If that one location fails or is delayed, there is no backup in place.  With multiple centers, demand can be shifted, at least temporarily, when problems occur.

Another advantage of multiple centers is that more of them are closer to the final destination, and in food distribution, faster delivery is important. In KFC’s situation, circumstances turned against them in the opening hours.  A series of traffic accidents in the surrounding roadways caused trucks carrying in the fresh chicken to be stuck in traffic, and delayed outgoing trucks.  Without a secondary distribution center to divert the trucks, the lone distribution center was in trouble.  A series of cascading failures led to KFC’s chicken shortage.

KFC now faces an interesting challenge in the UK.  Instead of having a single distributor handling deliveries, KFC has split the business between Bidvest, with its 6 distribution centers, and DHL with its single site. Bidvest has approximately 350 of the restaurants, while DHL has approximately 550.

Which leaves KFC facing a decision: do they go back to using only one supplier, or continue with some variation on the present formula?

Discussion Questions

1. What are the lessons learned from KFC’s Chicken Shortage of 2018?

Guidance: First, transitioning from one supplier to another is not simple.  It takes good project planning and execution to ensure a smooth transition from one supplier to another.  Opening a new distribution center with 300 new employees adds to this complexity.  The transition is more difficult when there is a limited number of days of supply in the supply chain.  This was the case with KFC’s fresh chicken.

Second, reducing the number of distribution centers to reduce one’s cost structure has benefits.  However, only one distribution center increases the supply chain risk.  In developing a distribution network, taking only cost into consideration can be short-sighted.  We also need to also consider the risk.

Third, it may destroy the ability of the previous vendor to provide the service.  In this case, Bidvest laid-off 255 employees.  This may have contributed to their only taking back 350 of the restaurants.  They simply no longer had the capacity.

Fourth, be cautious about a new vendor’s promises during negotiations.  Or, at least keep a close eye on the transition to make sure it is executed as designed.

2. What are the consequences of returning to a previous distributor?

Guidance: 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.  The other consideration is the change in negotiating position.  KFC UK left its long time distributor, Bidvest, in hopes of a better, cheaper distributor.  When DHL failed in a spectacular fashion, their return to Bidvest means that hope disappeared along with its chicken.

3. Would you continue with both distributors? Or would you select one, and if so, Bidvest or DHL?

Guidance:  Your answer should center on your belief in DHL’s ability to provide outstanding service.  If this was just start-up problems, and they can deliver exceptional service while reducing emissions, it may be worth staying the course with DHL.  However, the initial returns are poor.  They were ill-prepared for the transition.  If you don’t believe that DHL can be successful in the future, transition back to Bidvest.

Another consideration is that if KFC goes back to sole-sourcing with DHL, Bidvest may not be available to help on a future crisis. Using both DHL and Bidvest does provide some redundancy in that if one distributor is not performing well, business can transition to the other.  However, keeping both makes the distribution system more complex, and probably more expensive.

This post is based on multiple sources: a DHL press release, on Oct 11, 2017; a Wired article, The inside story of the great KFC chicken shortage of 2018, by Richard Priday, Feb 21, 2018; two The Guardian articles by Matthew Weaver, Most KFCs in UK remain closed because of chicken shortage (Feb 19, 2018) and KFC was warned about switching UK delivery contractor, union says (Feb 20, 2018); a NY Times article, KFC has a problem in Britain: Not enough chicken, by Kimiko de Freytas-Tamura and Amie Tsang, Feb 20, 2018; a Washington Post article, The #KFCCrisis Has Some Britons So Upset That They’ve Called Police — and Parliament, by Krstine Phillips, Feb 20, 2018; KFC Responds to U.K. Chicken Shortage Scandal With a Timely ‘FCK, We’re Sorry’, by Erik Oster, Feb 23, 2018; the Money/CNN articles, KFC Apologizes for Chicken Shortage with a Hilarious Hidden Message, by Alanna Petroff, Feb 27, 2018, and KFC Asks Supplier It Ditched to Help Fix Menu Fiasco, by Ivana Kottasova, Mar 9, 2018; and the Fox News article, KFC Returns to Previous Supplier After Widespread Chicken Shortages, by Michelle Gant, Mar 13, 2018.  Plus @KFC_UKI’s Twitter status, from Feb 17, 2018.

Image source: (chicken) Dima Fadeev/ 123RF.

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Topics are project management, risk management, bottlenecks, lean, production capacity, strategic capacity management, aggregate planning, sales and operations planning, logistics, distribution, and supply chain managementRaise Your Glass, Reach for the Stars
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