Chickens Are On The Run…

Foxmeyer (1996), Adidas (1996), Toy R Us (1999), Hershey (1999), Webvan (2001), Nike (2001), Cisco (2001) and Loblaws (2005) are important cases where logistics-related problems are seen.

For a long time examples like the above were unheard of. However, there were %22pre-production logistics%22 in the production of Tesla 3 vehicles in mid-2017, and then %22delivery%22 to KFC’s UK restaurants in mid-February of this year.

DHL, together with QSL (Quick Service Logistics, serving KFC in Europe since 2011) on October 11, 2017, will provide products and supplies to KFC’s approximately 900 restaurants in the UK, demand planning, stock management, software-supported announced that they will provide logistics services including information technologies, operational purchasing, return, storage and distribution and that they will create industry criteria that will be exemplary by everyone by revolutionizing this service.

“We chose DHL and QSL because of their innovative practices regarding logistics in other industries, as little has changed in the evolution of food logistics,” DHL said in its announcement. KFC Supply Chain Director Jens Hentschel said, “Supply chain and logistics are very important to offer the best products to our customers and we are rethinking all our processes.” he continued.

The main purpose of the new cooperation between KFC and DHL was shown to be “reducing carbon emissions from logistics to zero”, “optimizing deliveries to fulfill orders in a shorter time” and “providing fresher products to restaurants”.

Before DHL, in KFC’s work with Bidvest, chickens were distributed to KFC’s restaurants from Bidvest’s 6 warehouses in different locations across the UK.

According to the new operation, QSL will demand fresh boned chickens from suppliers in the UK and frozen boneless chickens from suppliers in Europe, Brazil and Thailand on behalf of KFC by performing stock management and demand planning; ordered items will be transported by suppliers to DHL’s 17,000 m2 warehouse in Rugby, Warwickshire, from which DHL will distribute them to restaurants either directly by trucks or by light delivery vehicles from small transfer points.

KFC customers began to report complaints that “some restaurants were closed”, and some customers even complained to the police, after KFC tweeted at 1:18 p.m. on February 17 that “some restaurants could not be delivered due to problems with fresh product delivery”. and KFC, who informed that %22the new company they started working for distribution had problems with teething, that is, getting used to it%22, published its logo as %22FCK%22 in the newspapers a few days later and apologized.

Following the start of the new period on February 14, KFC’s approximately 600 restaurants were closed due to the lack of service, as the chickens and ingredients were either not delivered (missing, broken, etc.) or were delivered late, causing KFC to lose 1 million pounds of revenue per day. (It is alleged that KFC will seek 30 Million pounds compensation from DHL).

Although restaurants in Ireland and Northern Ireland started serving on 19 February, there were a few restaurants closed in the UK as of the end of February, or some of the restaurants were serving with limited menus.

After the traffic accident of 7 vehicles on the M6 highway, on which DHL’s Rugby warehouse is located, on February 14, the first day of its new term, at 01:40, the exits from the warehouse stopped and the distributions began to be delayed.

Normally, an accident would not result in the closure of KFC’s approximately 600 restaurants.

On the other hand, according to some claims, distribution could not be started due to problems with the new software; delivery vehicles were held for a long time (40 minutes waiting time increased to 4.5 hours) due to missing items in the warehouse and operational problems; chickens were wasted because the temperature settings in the vehicles could not be adjusted correctly; because the new warehouse was not large enough, there were difficulties in maneuvering their vehicles; there were not enough vehicles and drivers for distribution and even the warehouse was not registered as a “cold storage” (registered and conditionally approved on 22 February after an emergency check by Rugby officials on 20 February).

KFC; The first alternative warehouse, which was found through Stowga, which provides warehouse marketplace service on the internet for the purpose of storing non-food products such as mops, brushes and gloves, started to serve near Bristol as of February 23.

In the first year of 10% of new operations, there may be some disruptions and problems in the supply chain and logistics operations. However, these problems are generally seen in very small locations; Only a very small fraction of operations can be adversely affected, and often customers do not feel or are affected by these issues. However, KFC’s entire distribution network was adversely affected and customers felt this very clearly as most of the restaurants were unable to provide service.

Why did KFC choose DHL instead of Bidvest, which it has been serving since 2005? As KFC’s Supply Chain Director puts it, “as there is little change in food logistics, we don’t have to buy toys, spare parts, books, etc. using the experience and solutions of DHL, which distributes things, in these industries”? Or could it be that KFC %22requests a lower cost solution with a single warehouse%22 or DHL %22offers lower costs to enter a new industry%22?

I don’t think it’s likely that KFC wanted a change to %22lower cost for more profit%22. Because KFC and DHL are well aware of the negative effects of possible “poor service level” on the customer due to “lower cost for more profit”.

Although both KFC and DHL are world-class brands and highly educated people in both companies, why did such a negative situation occur? What lessons can be learned from this case?

  • Changing long-standing supply chain and logistics practices can be risky in food products, and especially in the KFC operation, which uses fresh produce unlike competitors that use frozen products such as McDonald’s. Elements such as new warehouse, new software, new people (warehousekeepers, drivers, managers), new solution partners (for example, DHL is doing business together with QSL for the first time), different business cultures working together can cause teething problems like in children.
  • Could the perception of technology as a %22magic bullet%22 in the cases at the beginning of the article apply to KFC and DHL? Also, could it be a problem if their software is used only by QSL and KFC or DHL is limited to just the execution of the operation?
  • In the cases given at the beginning of the article, the problems were experienced especially on special days such as Christmas or Halloween. Why would KFC have made such a switch on Valentine’s Day, February 14, when there might be more action than normal days?
  • Not only for a special day like February 14, but even possible changes on other days, can it be in a short period of 4 months (between October 11, 2017 and February 14, 2018)? In addition, the actual working time in 4 months, such as Christmas and New Year’s holidays that may affect the work, or the half-term holiday that starts on February 12, the possible increase in demand as children will want to go to KFC restaurants more, how is it planned?
  • Could it be that DHL’s lack of experience in food delivery to restaurants, especially those requiring special protection, may have had an impact? Could DHL’s %22just in time%22 experience in automotive, for example, be suitable for food? For example, Burger King thought of working with DHL in 2010, but did not work with DHL due to its lack of experience in food products requiring special protection (3663 First For Foodservice, or Bidvest as Burger King is said to have had an influence).
  • In countries with a long and wide geography such as the United Kingdom, is distribution with a single warehouse correct, especially for food products offered directly to customers? Was it right to put all the eggs in one basket?
  • Was there any emergency planning (Contingency Plan, Business Continuity)? For example, did they show a “reactive” reaction to the traffic accident at 01.40 on February 14 and what was “Plan B”?
  • Was (not) benefited from the data and experience of Bidvest? Or was the relationship with Bidvest cut off in a way that was not “gentlemanly”?
  • KFC and DHL; Could it be that he did not plan well and even underestimate the change and transition? Could it be that KFC left all the planning to DHL and did not adequately control DHL’s work?
  • Could it be that DHL could not focus on the KFC operation due to problems with the Carlsberg operation?

I think that the planning for change and smooth transition is not done correctly, “PLAN B” or similar studies are missing for possible emergencies, and the communication between KFC, DHL and QSL is not very healthy during the transition to life.

This case; It shows that an outsourcing contract should be made very accurately, the importance of working with the right solution partner in the right way and especially the transition process should be planned very well.

Purchasing logistics services is a really difficult and serious business and should not be done with classical purchasing reflexes.