Tag: KFC

OM in the News: At KFC, a Bucketful of Supply Chain Trouble

Changes in the KFC distribution system left 600 KFCs in England without chicken.

Diners don’t care about supply chains, distribution centers, or logistics. All they want is their meal. But 2/3 of the 900 British KFC restaurants were closed for 4 days a few weeks ago. The reason: There was no chicken.

“Reliable supply chains that can make—or break—a business’s ability to operate smoothly,” writes Businessweek (March 5, 2018). And it’s the case not only for manufacturers, but also for the restaurant chain that serves up a 14-piece “bargain bucket” of  chicken for $24 to British patrons.

When the supply chain goes awry, it can wreak havoc on products that are particularly time-sensitive. That’s what happened at KFC, which pared back its logistics network to cut expenses. The epicenter of the so-called #KFCCrisis was in Central England at a KFC distribution center, which suffered a breakdown in its first week as the hub of the chain’s new strategy. Tons of chicken spoiled there or in the backs of trucks as drivers awaited instructions that never came. Lost sales tallied in millions of dollars.

Just prior to the shutdown, KFC dropped its longtime food-delivery partner, Bidvest, and switched to a pair of German outfits, DHL and QSL. KFC promised “a new benchmark” in food supply, consolidating from 5 regional distribution sites to just the one. But changing long-standing supply practices can be risky, especially true with fresh meat, which is prone to contamination and must be shipped in refrigerated trucks.

KFC’s U.K. restaurants get most of their chicken from two huge suppliers. From those suppliers, the meat is sent via truck to the distribution center, and that’s where things went awry. DHL provides trucks and warehousing, while QSL is responsible for stock management. Under the previous deal with Bidvest, chicken was sent from the regional distribution sites to KFC stores. With the new system, all meat is dispatched from the Central England hub to satellite depots, then moved to smaller vehicles for the last leg. That’s a tried-and-true model for auto parts and parcels, but chicken and car parts are not the same.

Classroom discussion questions:

  1. What went wrong at KFC’s supply chain?
  2. Why should KFC be concerned (and a few dozen stores are still closed)?

 

 

Video Tip: Delivering Fast Food and Groceries in Asia

 I was about to blog about a video of how the Home Plus  Korean supermarket chain has extended its “storefronts” into that country’s subway system. It’s a great 2.5-minute clip that your students will enjoy and which will lead to class discussion about layout, location, and logistics. As  the #2 food chain in Korea,  Home Plus wanted to catch up in sales with E-Mart, but without adding more stores. The virtual  stores  on the subway platform allow customers waiting for trains to scan items with their smart phones. The products are delivered to their homes shortly after the customers  arrive themselves.

But then yesterday’s Wall Street Journal (Dec.13, 2011) followed with a story along a similar vein.  Titled “Asia Delivers For McDonald’s”, the Journal reports that in cities from Beijing to Seoul, McDonald’s and KFC have set up armies of motorbike delivery drivers carrying specially designed boxes delivering Big Macs and buckets of chicken wings. More than 1/2 of KFC’s 3,500 restaurants in China offer delivery, sometimes in just 15 minutes (with a goal of under 30 min.) for orders placed either on-line or by phone.  And more than 2,000 new KFCs will be added in China in the next decade with the service. “We will probably stop building call centers as more people buy online”, says KFC’s CFO.

“If you can’t come to us, we’ll come to you”  is  McDonald’s slogan in Asia, says the firm’s regional president. Equipping its kitchens to handle  delivery involves laying out an area for assembly. Orders are packed in battery-powered induction heating boxes and insulated coolers that both fit on the back of the yellow and red scooters. The flat delivery fee is about $1.

Discussion questions:

1. Why did the online supermarket delivery system (eg., Webvan) did not succeed in the US?

2. Why do we have more drive-throughs  in the US?

OM in the News: Locating in China and Avoiding Mexico

Chapter 8 opens with a list of key success factors companies use in making location decisions, and Table 8.1 ranks the global competitiveness of 133 countries. China comes out #29 and Mexico #60. Back-to-back headlines in The Wall Street Journal (Dec.16 and 17, 2010) deal with two very different location strategies. The 1st involves US firms opening outlets in China.

We may be losing manufacturing  jobs to China by the hundreds of thousands, and outsourcing engineering jobs to India and call center jobs to the Philippines by the 10,000s. But US companies are making very successful inroads in China in one field—fast food! McDonald’s is opening  200 new stores in China next year, adding to the 1,100 locations it already has. (KFC, by the way, leads with 3,200 outlets, including many in lesser-developed cities where there is less competition). California Pizza Kitchen  plans to expand, while Starbucks is tripling its stores to 1,500 in the next 5 years. Half of the new McDonald’s will have drive-thrus and 550 will include delivery service. Currently, the firm just does not have the supply chain to allow it to expand beyond the 150 cities it is already in.

On a less favorable location note, the Journal headline declares,”Companies Shun Violent Mexico”. Electrolux just announced it had chosen Memphis over locations in Mexico for a $190 million appliance factory sporting 1,200 jobs. The decision involved factors such as proximity to suppliers,but Mexico’s deteriorating security and spiraling drug-related violence played more than a minor role. “We won’t put a factory in Mexico until some of this violence gets addressed”, says the CEO of Terex,  a heavy equipment maker. Whirlpool’s concern about safety was also a factor in building an oven plant in Tennessee, rather than Mexico. Toyota’s approach was to build a plant deeper inside the country, in a relatively safer area.

Discussion questions:

1. What is the long-term danger to Mexico in terms of foreign investment?

2. Why are US fast-food chains trying to penetrate Chinese markets?

3. Discuss the difficulty McDonald’s faces in  a rapid expansion abroad.