Supply Chain Management KFC – Kentucky Fried Chicken Case Study

Introduction

Supply chain management is one of the key aspects in ensuring that a business runs smoothly. Unless each and every point of the supply chain is strong and functioning at its optimal level of performance, a production business cannot operate at its full potential. From boosting customer satisfaction to cutting operating costs, effective supply chain management goes a long way in increasing the bottom line as well as the customer base (Gligor, 2016). But it is also important to keep the right balance between all the elements, just like in the case of KFC in the UK, the focus on cutting costs ended up in disrupting the on-time delivery of chicken, forcing the outlets to be shut down for days, causing loss of profits and customers’ perception of the brand.

While it is imperative to focus on supply chain optimization, but care should also be taken to make sure not to tip the scales too much on one side that another connected element loses its efficiency.This calls for always keeping the bigger picture of the business’ production process in focus while making decisions regarding a specific contributor in the supply chain since the ripple effect is sure to touch all the points included in the production and delivery process (Ayers, 2006).

About KFC

Kentucky Fried Chicken or KFC is the second largest global fast-food chain next to McDonald’s. This American fast food chain, specialising in fried chicken, opened its first franchise in 1952 at Utah, and since then has opened over 21,000 franchises in 123 countries across the world. In a market monopolised by hamburgers as the only fast food of choice, Colonel Harland Sanders was an entrepreneurwho brought innovation and diversity to the fast food market with fried chicken, and branding himself as ‘Colonel Sanders’, he quickly rose to become one of the most recognised figure in American history (Ozersky, 2012).

KFC is now a subsidiary of Yum! Brands, which is one of the largest chain restaurant company in the world with brands like Pizza Hut and Taco Bell under its umbrella. With over $25 billion in yearly revenue (Yum! Brands, 2014), KFC is one of the most popular fast food chains with branches in almost every country in the world. From evolutions in the cooking process itselfto additions to the menu, to developing a network of value-adding supply chain partners; KFC’s monumental growth has taken innovation and constant improvement of its processes in stride (Aaker, 2010).

Just like any other global franchise, KFC also has had its fair share of controversies and lapses in performance over the years, the most recent one being the breakdown of a constant supply of chicken to several outlets in the UK in February of 2018.While these lapses are sometimes unavoidable with operations as big and diverse as KFC’s, but the real strength is in how these problems are dealt with and the contingencies built for the future based on the insights gained as a result of these problems to avoid similar situations in the future.

Logistics management is an essential part of the supply chain process that is responsible for planning, implementing, and managing the forward and reverse flow and proper storage of raw materials and finished goods in an efficient and both time and cost-effective manner. Another important logistics variable is effective and timely communication between the origin and destination of stored goods to manage the demand seamlessly(Myerson, 2013).  In the case of KFC, the most important raw material to be moved while ensuring freshness and maintaining temperature control was chicken.

The point of origin was the chicken supplier while the destination points were the many KFC outlets in the UK. In order to ensure seamless delivery of raw material to go into making the company’s product, it was imperative to take all of these logistics variables into account and to treat each point independently to test for effectiveness while developing the supply chain. Going forward, each point in the supply chain should be analyzed for its effectiveness instead of treating the entire supply chain process as one entity. From sourcing the raw material to storing and redistributing it while maintaining effective communication between all the key players in the supply chain to avoid lags, maximum optimisation is required at each point.

LO1

Taking DHL on as the delivery partner was supposed to be the next big step to revolutionize KFC’s operations in the UK, while also bringing down the cost of operations. The eagerness of adopting a cost-saving approach turned out to be a bad decision as it overlooked the practicality aspect of the deal; without doing the proper research on how this change is going to merge in with the process had cost KFC a lot in terms of shuttered outlets (Weaver, 2018), loss in profits, and disgruntled customers apart from the brand image taking a hit for failing to deliver across the UK. KFC went into the partnership, avoiding the red -flags that should have been taken into account rather than just the contents of the tender brief and its lowest cost offer.

While it is a global trend to move towards leaner logistics operation to increase efficiency and lower the costs by significantly reducing the amount of inventory held by the company, by looking to out-source business process other than its core operations, and by cutting down on the number of suppliers involved in the process to streamline the entire logistics process, making the transition requires careful consideration, planning, and research (Myerson, 2013).

With operations as big and diversified as KFC’s, where chicken is the primary ingredient of the entire business process, effective contingency plans should have also been activated to make sure the transition to DHL as the logistics partner goes smoothly without affecting the day-to-day operations of the business.

One strategy that KFC in the UK could have adopted was to phase out the transition instead of making the shift to DHL all in one go, giving up the comfort of having a backup. This would have enabled both the partners in the contract to be able to test the capability of the new supply chain partnership in handling the bulk of responsibility that it entailed, saving both the brands a lot of embarrassment and negative publicity.

A simple comparison between the two service providers KFC’s previous third-party logistics supplier Bidvest Logistics and DHL and their capacity to match KFC’s logistics needs would have made it clear if DHL had the resources to facilitate the supply of chicken according to the demand like Bidvest has been doing previously.

For a business as established as KFC, this decision was a gross neglect of supply chain management by the business and one that could easily have been avoided without suffering the loss of operating below capacity, lowsales, and unhappy customers.

From sourcing raw material to managing its proper storage to transporting it to the consumer, in KFC’s case the consumers are the various KFC outlets while maintaining a steady flow of information between the supply chain partners is crucial to ensure and maintain customer satisfaction which the brand has culminated over the years.

LO2

E-business is the term that evolved after the advent of the internet and its widespread use in business processes. E-business involves the use of the internet for conducting various business operations like buying, selling, quality management, customer feedback, supplier management, coordinating with partners, sharing real-time information, and employee management among others. While e-business encompasses the entire breadth of business operations of a company, e-commerce focuses on the basic buying and selling operations of the business(Chaffey, 2007).

KFC has an elaborate e-commerce system in place. From providing the facility of ordering online and making the payments online to giving the feedback or registering complaints online, KFC has an effective e-commerce system in place. But as far as other e-business practices like online management of stock movement, storage, and supply according to the demand are concerned, KFC had not fully integrated these elements into their operations.

KFC’s recent debacle of a supply chain breakdown in the UK bears witness to the fact that all of this could have been avoided if a network of real-time communication between the logistics operators DHL and their customer KFC was in place, avoiding the delays in instructions that caused the chicken to go bad in the back of the trucks that stood idle, waiting for instructions that came too late (Francisco, 2018).

With the advent of e-commerce and e-business, it’s not just the sales that have been totally revolutionized but also the entire supply chain management process as well. With the ability to relay real-time information to all the partners in the supply chain at the same time reduces the errors caused by delays and miscommunication. All the companies that have successfully adopted e-business processes are reaping the benefits in the form of higher efficiency and lower error rates (Meier & Stormer, 2009).

By maintaining an online record of inventory, predicting demand as it fluctuates seasonally or even daily and sending alerts to the supply chain partners in order for them to anticipate and be prepared to meet the demands as they fluctuate, sending out real-time demand orders and removing any lags that are characteristic to the non-digital form of relaying supply requests, a fast-paced consumer demand based business like KFC can benefit greatly by digitizing the entire supply chain management process and making it linear so all the information can be consolidated in one place to be able to make informed forecasts about patterns in the future as well (Wang & Pettit, 2016).

By digitizing the supply and demand process, KFC can avoid getting into situations like the total and utter breakdown of its supply chain in the UK in 2018, a debacle which costed them as much as 9% decrease in UK wide sales(Seymour, 2018).

Another advantage of e-business solutions that KFC can capitalize on is the ability to centralize the entire process of managing demand and supply by having a dedicated department that caters virtually to the global network of franchises and manage the operations from a centralized location.

LO3

Best practices are techniques and methods that have been selected as the best option after being measured and compared with all of their alternative methods based on a variety of criteria for evaluation. Adopting best practices in business operations is one of the most effective ways of ensuring reliability and dependability of a business model (Boyson, 1999).

For KFC, reliability means being able to deliver the same quality of products to its consumers with the same consistency in supply. In order to maintain this reliability, KFC has to ensure that each and every partner and stakeholder in their supply chain is operating at their maximum utility by adopting best practices.

Here are three of the most important best practices in logistics and supply chain management that KFC can adopt in order to ensure maximum customer satisfaction:

1.     Establish a Governing Council

One of the most important parts of the supply chain management process is centralised control and a dedicated governing council to ensure proper integration and frictionless operation and execution of the company’s supply chain management in accordance with the company’s policy (Mentzer, 2001). From planning to execution, the job of a governing council in KFC’s supply chain management will ensure that everything is done to meet the company’s commitment of on-time delivery of fresh fried chicken to its customers without compromising on quality (Graham, Manikas&Folinas, 2013).

2.     Align the Supply Chain Organisation

For a fast-paced business like KFC with a very high rate of inventory turnover, having a properly organised supply chain system is very important as gaining and maintaining customer satisfaction by providing consistent service and quality demands for a complex supply chain that needs to be aligned properly to ensure maximum effectiveness (Perez, 2014). From sourcing to logistics and storing to ensuring on-time delivery of product according to the demand, the entire process needs to be linked together while the level of decentralisation also needs to be established to ensure that each point of the supply chain is working at its full capacity to deliver KFC’s value.

3.       Establish Key Supplier Relationship

In order to ensure that KFC gets the maximum effectiveness out of its supply chain management, it is crucial to establish and maintain a productive relationship with all the key suppliers. One of the most effective ways of doing that is to ensure direct and unhinderedcommunication between the partners. Being able to deliver value while passing through the supply chain system, the commitment of all the key suppliers and partners to upholding a high standard of service and operations is what makes all the difference between a good and a great service (O’Brien, 2018).

Conclusion

Logistics and supply chain management is crucial to any business and is especially important in a fast food business with a global presence like KFC. When evaluating the efficiency of a certain point in the supply chain, the criteria shouldn’t be just the monetary cost involved in the process but the value added at each point should also be given equal weight. In order to avoid any other faux pas in the future that could potentially turn into a logistical nightmare of the magnitude KFC is just recovering from in the UK, contingencies should be built and the decision-making process should involve an in-depth research and permutations of the possible outcomes while taking into account all the aspects in which the decision can affect the business operations before making any major decisions like changing the logistics partner.

References

Aaker, D. (2010). Building strong brands. : Summaries.Com.

Ayers, J. (2006). Handbook of supply chain management. Boca Raton, Fla.: Auerbach Publications.

Boyson, S. (1999). Logistics and the extended enterprise: benchmarks and best practices for the manufacturing professional. New York: Wiley.

Chaffey, D. (2007). E-business & E-commerce Management: Strategy, Implementation and Practice. Harlow, England: FT Prentice Hall.

Francisco, T. (2018). Cuts to KFC’s Logistics Network Result in Supply Chain Catastrophe – Supply Chain 24/7.

Gligor, D. (2016). The Role of Supply Chain Agility in Achieving Supply Chain Fit. Decision Sciences47(3), 524-553.

Graham, D., Manikas, I., &Folinas, D. (2013). E-logistics and e-supply chain management. Hershey, PA: Business Science Reference.

Meier, A., &Stormer, H. (2009). eBusiness&eCommerce: Managing the Digital Value Chain. Berlin: Springer.

Mentzer, J. (2001). Supply chain management. Thousand Oaks: Sage.

Myerson, P. (2013). Lean supply chain and logistics management. New York: McGraw-Hill Education.

Louisville: Yum! Brands (2014).Iconic Global Brand(PDF) p. 98.Retrieved November 21, 2018.

O’Brien, J. (2018). Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base. Kogan Page.

Ozersky, J. (2012). Colonel Sanders and the American dream. Austin: University of Texas Press.

Perez, H. (2014). Supply Chain Roadmap: Aligning Supply Chain with Business Strategy. Createspace Independent Publishing Platform.

Seymour, A. (2018). Supply chain farce dragged KFC’s UK sales down 9% in Q1 – Foodservice Equipment Journal.

Wang, Y., & Pettit, S. (2016). E-Logistics: Managing Your Digital Supply Chains for Competitive Advantage. Kogan Page.

Weaver, M. (2018). Most KFCs in UK remain closed because of chicken shortage.

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