Why Did the Chicken Cross the Road?

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If you were in Britain recently looking for a meal at Kentucky Fried Chicken, the answer was – It didn’t exist!!!  A large number of their restaurants were shut down because there was no chicken.  They all stayed on the other side of the street refusing to cross.  And this is no laughing matter – although tons of jokes erupted.  Britain represents 6% of KFC’s $24.5 billion in global sales and the closures represented about $3 million in lost revenue every single day.

It all transpired when KFC made a major switch in their supply chain by getting rid of their logistics provider Bidvest and replacing them with DHL.  Bidvest is a specialist in the food distribution industry with years of experience and “DHL is best known for delivering books and toys to online shoppers”.  In fact, KFC said that they picked “DHL for its expertise in other industries”.  Apparently, someone forgot to tell the chickens.

value

 

Here are some excerpts from the announcement:

DHL ..greater focus on innovation, quality and service performance. Key areas of focus will be reducing logistics-related emissions to net zero over the life of the contract, optimized delivery scheduling to provide a faster turnaround of orders, and greater integrity of food during transportation allowing for even fresher products upon arrival in KFC restaurants. We are rethinking all of our internal and external processes, and placing distribution and logistics at the heart of our new supply chain strategy.  (Read announcement here)

However, other sources have reported that “DHL’s appointment was driven by KFC’s desire to cut costs”  and “DHL are scratching around for any work they can get and undercut them.”

While we have no inside knowledge, it is not hard to make some educated guesses as to what might have happened.  First, let’s talk about price being the dominant factor in many sourcing organizations.  You have heard us talk about how Sourcing destroys value (Sourcing is dead!) by focusing on nothing but price as the dominant decision variable for almost a decade now.  Unfortunately, while many a sourcing organization talks about other factors, price still continues to be the major decision driver and that probably has as much to do with how sourcing organizations are measured. As long as we don’t change this fundamental existential flaw, we will continue to destroy value!

Second, we must have a disciplined, structured, formal process of identifying the Value Drivers of our internal customers.  We have yet to see a significant number of examples of this and till we accomplish this, we are leaving significant value on the table.  And please remember that value can only be defined by our customers and not by us.

Third, anytime you see a price from a supplier that feels too good to be true, it probably is.  History is awash with suppliers buying a piece of business hoping to make up for it over the life of the contract and then having to walk away from the contract or a disaster. The people on the sales side will have successfully bought the business for the supplier but the operational people who have to deliver and meet customer satisfaction goals know it’s a losing proposition from day one.  Would you like to be in the shoes of the person who negotiated this deal for KFC and was probably a hero for a few weeks?

The fourth issue is one of transitioning a new vendor – especially your chicken logistics partner if you’re in the chicken business.  We find that most clients underestimate the risks in this situation and therefore don’t have adequate risk mitigation strategies in place. 

So if you don’t want the following excerpts in social media about your company, please make sure you are not the person negotiating a new contract with the lowest priced bidder who may have just bought your business.  You will probably end up destroying value!!

 

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Dalip Raheja
Dalip Raheja is President and CEO of The Mpower Group (TMG). Dalip has over 30 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.
Dalip Raheja

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Dalip Raheja

Dalip Raheja is President and CEO of The Mpower Group (TMG). Dalip has over 30 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.

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