As Business Studies teachers we may experience a guilty pleasure when a business story such as this occurs and is one which allows us to explore so many specification topics through one event. This will be a classic case study that can be used as an induction investigation, or as a synoptic activity.
In February 2018 reports began to circulate that KFC restaurants were closing as they did not have sufficient chicken to remain open for customers. At one point 540 out of 900 of the retail outlets had closed. Some restaurants were only able to offer a ‘limited menu’ and some were opening for reduced hours. It transpired that until the middle of February KFC’s chicken had been delivered by a specialist food distribution company, but the contract had been taken over by DHL who had no track record of delivering chilled food. Within a week of this switch a break down in the supply chain became evident as many KFC outlets began running out of chicken products. Very quickly it emerged that DHL were working out of only one warehouse in Rugby, which had been purpose built to deal with the KFC contract. In comparison, the original suppliers Bidvest Logistics had worked out of six warehouses. Within the supply chain network there were also five hundred chicken farmers supplying fresh chicken on a daily basis. This chicken was available, but could not be delivered, and was therefore wasted. KFC customers were upset, with reports of calls to the police as restaurants were shut. KFC tried to use humour to communicate with customers – “the chicken crossed the road – just not to our restaurants”. The company admitted there would be losses with 708 of 780 restaurants run by franchisees. Three weeks later Bidvest Logistics, having lost the delivery bid when it was put up for tender in 2017, were re-hired to deliver to a third of the restaurants.
So, what are the lessons that have been learned from this fiasco? Further investigations into the chicken shortage have identified a collision of factors which contributed to a perfect storm. The decision to change to a single depot location would have been a complex task, but added to this was a road traffic accident on the M6 in the vicinity of Rugby which closed off two access point junctions, which meant that the lorries were getting stuck in the traffic as soon as they left the depot. With no other locations from which to send deliveries, these delays began a build up of undelivered chicken. There were reports that the depot was not ready for deliveries and that it had not been registered to store chilled food. KFC admitted that there had been “teething problems” with the change of the supply contract. With hindsight, the underpinning issue appears to have been in logistics management and the planning of this switch in the supply chain and the lack of contingency planning for this event.
So, now that order has been restored, how can we use this story whilst it is still fresh in the minds of our students? I have identified five key subject topics that I will explore with my A Level students.
Understanding the supply chain and the importance of supplier relationships
This is an opportunity for creatively drawn chains of production which identify the key points in the supply chain. It also allows for discussion of the complexities of a supply chain with the involvement of different companies and different relationships within the chain, which have to be carefully synchronised. The food processing and fast food industries can be compared with other industries and similarities and differences analysed. Porter’s Five Forces can also be used to demonstrate the significance of supplier bargaining power in such a competitive environment. Supply chain ethics can also emerge with a discussion surrounding the amount of food waste.
Why physical location is significant
One of the more detailed issues in this story is that DHL based their single depot within the ‘golden rectangle’ between Rugby, Daventry, and Northampton. It is said that locating in this rectangle allows you to deliver overnight to anywhere in the United Kingdom.
Understanding customer needs and expectations and handling public relations
Reports of phone calls to police because the local KFC restaurant was closed suggests that customers are very brand loyal and find it hard to switch to a competitor. This information can also be linked to price elasticity of demand. KFC used a more humorous approach to this crisis, and provided a website which identified the restaurants that were open. It also used social media to release daily statements to reassure customers.
Impact on franchisees
This is perhaps a not such an obvious issue, but the impact of having to source chicken through the franchisor demonstrates the lack of independence of a franchisee. The nature of the contract can also be discussed and the ways in which the franchisor and the franchisee share profits.
The importance of planning.
Scenario planning is often linked to the possibility of unforeseen events, and risk assessments can be used to identify possible scenarios. Students can be asked to outline what problems could have been predicted, and what might have been unexpected. They can also suggest possible ways in which these possibilities could have been avoided.
Further discussion of this story may emerge with any future reporting of the financial implications in terms of the impact on costs and revenues through the disruption to sales.
Dr Jo Bentham teaches business and economics at Haberdashers’ Adams Grammar School in Newport, Shropshire.