Dirt cheap: why KFC’s cost-cutting measures did not pay off

Whilst KFC’s stock shortages are not a matter for the police, it is certainly a matter that should be considered by those working in business. The reports suggest that KFC’s crisis was caused because they chose to switch their suppliers, ending their contract with Bidvest in favour of DHL. There are some important lessons to observe in light of the KFC crisis, and they all reflect how crucial it is to sustain a healthy supply chain.

1. Checking suppliers

It seems obvious, but it is crucial for all businesses to complete regular and thorough checks on their suppliers. A supplier may be able to prove that their finances are robust, but this does not constitute a thorough check. Businesses must investigate every aspect of suppliers, including their current and future contracts, previous business relationships and how they have managed issues in the past.

2. Contingency planning

Planning ahead is closely linked with checking suppliers thoroughly. Like any business, KFC have their own standard practices. KFC do not use frozen chicken and as a brand, pledge that the chicken they use is fresh. This means that the preparation of KFC chicken is a tightly controlled process with rigid timescales, as fresh chicken must be kept at specific temperatures, as dictated by legislation. It seems, as more information on the crisis has been released, that DHL had only one distribution centre. When this centre failed, so did the preparation process and KFC was left with chicken that was quickly beginning to spoil. It is crucial that all businesses have thorough contingency plans to ensure that delivery processes can continue to operate. Had KFC ensured that DHL had at least two distribution centres, stock shortage might have been avoided.

3. Choosing the right deal

New suppliers may appear to be reliable, but all business changes have risks, and it is imperative to assess whether the benefits of change are great enough to outweigh the risks. Typically, logistic operations cost companies between 4–10% of sales value, which means that KFC’s choice to invest in a new supplier was only ever going to bring marginal benefits to profits. After the crisis and KFC’s loss of sales, these marginal benefits have all but disappeared. There is no point in checking suppliers thoroughly if the information is not applied to the business model.

4. Testing it out

KFC have 900 outlets in the UK and are incredibly popular with the British public – they are the second largest fast-food chain provider. As they are such a large business, even a small change to delivery can have huge effects on sales outputs. A KFC spokesperson revealed that only 85% of its outlets were open on Friday 23 February, and they have continued to struggle over the weekend. It is essential for any business, large or small, to run full trial periods and test the change. Even if this takes many months, this is an imperative stage of ensuring that the risks posed by business change can be managed efficiently, and business can run as normal.

Beyond KFC’s mistakes in failing to plan and test their new suppliers, they were also guilty of fixating on reducing costs. A supplier may be cheaper, but they may not be able to deliver on time or produce quality products. The cheapest is not necessarily the best, and this is important to consider when selecting subcontractors and other suppliers.