The KFC crisis – a lesson in relational risk management?

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Problems like those experienced by KFC and its chicken supply don’t just happen from a sudden mistake, accident or change in circumstances. There’s usually something lurking in the history of a new supplier arrangement where the first, tiny cracks were made, says Professor Richard Wilding OBE

KFC’s contract with its new supply chain partners started back in October 2017, but it’s the 12-month period of procurement before that which needs to be the focus when trying to understand what followed, the now famous ‘crisis’.  My experience in supply chain risk generally finds that disruptions of this nature don’t magically and instantaneously happen. Decisions made in the early stages of the transition can have a significant impact on the risk profile of the future supply chain and the severity of a potential disruption.

The pitfalls of a Supply Chain transition

The transition between two models always means a very high risk period, with some level of disruption or another. An organization needs to test every single assumption being made in the new model, and put in place contingency plans for any assumption that includes any degree of potential wobble.

Of the key components to a supply chain strategy: the processes, the infrastructure, the information systems, it’s the people element that doesn’t have the necessary attention. Organisations reviewing their supply chains and partners need to think in terms of the ISO 44001 standards for managing collaborative relationships. These take businesses through the different stages of collaborations, and critically in this context, what needs to be looked at for a separation so that both parties can ‘remain whole’ following the split.

It’s important for managing the relationship with the existing or former partner, and has implications for the future partners. The instigator of the separation needs to take responsibility for ensuring there is due diligence in checking all aspects of the new model, how it works and involved all possible new stakeholders and partners.

That means detailed stakeholder mapping and analysis. Who are all those stakeholders, maybe not directly involved but still part of the supply chain network and who might be called on to provide shared services? What kinds of relationships are there and what condition are they in? What levels of good will and commitment will be needed from them?

Attention to Value

In a world where competition is between supply chains not individual companies the relationships are critical, a sick relationship can become a major source of risk, and supply chain management is all about the management of relationships with all stakeholders to create value for the end customer and reduce cost for the supply chain as a whole.  Often pro-active management of relationships can be found to be lacking.  Do we have metrics and processes in place to manage relationships?

There needs to be a sensible attention to value, and making a real assessment of that value, in order to provide a balance between cost and value. Overemphasising either the cost or value aspect can be dangerous in terms of increasing risks. If you overemphasise value you can destroy shareholder value by over serving the customer. Would the average consumer notice the difference or perceived quality in “just in time” chicken? But, at the same time, this approach does reduce inventory and therefore lower cost.

There are positives that have already come from the situation, even before we have more of a KFC case study for businesses to learn from, and that’s the way in which it’s broken the spell for consumers around how supply chains actually work. They’re less likely to be thinking in terms of a fleet of KFC trucks and KFC drivers receiving orders from KFC stores. And also how KFC have demonstrated the new reality of modern business, that it’s not a matter of competition between individual firms anymore but between whole supply chains. KFC, like so many other major brands, is dependent on the quality of its collaborations.

About the Author

As Chair (Full Professor) in Supply Chain Strategy at the Centre for Logistics and Supply Chain Management, Cranfield School of Management UK, Richard Wilding OBE works with European and International companies on Logistics and Supply Chain projects in all sectors including pharmaceutical, retail, automotive, high technology, food, drink and professional services.