Business update, top tips5 minute read

What can KFC teach us about supply chain management?

Lovers of fried chicken and gravy around the UK were left in turmoil recently when KFC announced a chicken shortage, closing stores up and down the country.

More than 500 restaurants were temporarily shut and while the majority of the chain’s 900 outlets have now re-opened, many had to serve a reduced menu with the chain also suffering from a lack of gravy – one of its most popular menu items. While the chicken shortage is now resolved for KFC, there are lessons to be learned for others when dealing with supply chains.

This article looks at mitigating the effects of a break in the supply chain, managing fall-out and subsequent damage to reputation.

Finding weak links in the chain

The issue was sparked by KFC’s owners, Yum Brands Inc, taking the decision to move its delivery contract from Bidvest Logistics to DHL earlier this year. DHL has blamed ‘operational issues’ for the delivery breakdown, calling the shortage ‘teething problems’.

First, what can companies do when a supply chain breakdown leaves customers upset and angry, and in some cases even driven to dial 999 over the KFC ‘crisis’?

As a starting point, companies should ensure when negotiating supply or distribution contracts that they have fully assessed the risk and potential impact of a supply breakdown or breach of contract by their appointed supplier, so that they can draft in appropriate protections and remedies. Key Performance Indicators (KPIs) should be considered along with audit clauses giving companies the ability to assess their suppliers’ performance in order to try and identify ‘weak links’ in advance of a major issue.

How to minimise losses

It is also essential that there are adequate remedies in place for breaching the terms of the supply agreement. It is unclear what losses KFC has suffered arising from the Great British Chicken Shortage 2018, but a spokesperson admitted that they are expected to be ‘significant’. In addition to lost profits incurred due to restaurant closures, KFC mentioned that some of the undelivered chicken was wasted. The chain will also be paying salaried employees ‘as normal’ while those paid hourly would be ‘paid based on the average hours they’ve worked over the last 12 weeks’, or were invited to take holiday.

A properly drafted supply agreement will ensure that losses such as these can be recovered quickly and easily. It is always advisable to set out as clearly as possible what types of loss will be recoverable in order to avoid the parties getting into dispute over indirect and direct heads of loss, for example. Always ensure that suppliers have proper insurance policies in place as well; there is little point trying to recover losses from a party which can’t afford to pay them.

Bear in mind that once KFC was unable to supply the usual menu, their regular customers began to look elsewhere. Iceland Foods and Burger King capitalised on #KFCCrisis and are likely to have made some gains. However, KFC minimised the damage by listening to complaints and responding immediately.

Protecting your reputation

Lastly, after an initial rocky start KFC’s quick response was something of a masterclass in PR and marketing.

Being open and honest about the issues while clearly working hard to rectify them has ensured they don’t run ‘a-fowl’ of loyal customers. KFC tweeted, “we’ve got the chicken, we’ve got the restaurants, but we’ve just had issues getting them together.” An edgy ‘we’re sorry’ advertising campaign crafted by agency Mother London quickly turned the tide of opinion; quite an achievement in today’s reactive world. This kind of response must be handled very carefully to avoid it backfiring!

Releasing a statement referring to donating unused chicken to charities or food banks has also helped turned a potential PR disaster into a win.

Brand owners should always ensure they have a proper disaster-recovery plan in place, whether that is to address a product withdrawal or a supply breakdown. Plans should be stress-tested on a regular basis – and should include a strategy for dealing with the potential for a story to ‘go viral’, attracting negative PR.

Checklist for managing the supply chain

  • Ensure robust contracts are in place to protect the business
  • Define the terms of supply agreement
  • Check insurance policies
  • Create a disaster-recovery plan

Following these tips should help to make sure that when it comes to ensuring customer satisfaction, no one is playing chicken and everything is ‘gravy’!

Rebecca Cunniffe, corporate and commercial, solicitorIf you have any concerns about your supplier or distribution agreements, or your PR strategy, please contact Rebecca the author, or email our corporate and commercial team.