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Contingency Planning Failures at KFC

Info: 4003 words (16 pages) Essay
Published: 12th May 2021 in Management

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Introduction

Kentucky Fried Chicken (KFC) is a big chain chicken restaurant providing fast service fried chicken foods with its headquarter located in Louisville, Kentucky. In December 2018, it was already located in 136 countries in 22,621 locations internationally. KFC competes against major global food chains such as McDonald’s Corporation. Apart from McDonald’s Corporation, KFC owner Sanders outcompetes other food chains by its commitment to significant consumers’ needs such as recipe perfection, cooking speed, quality service, and availability, pricing, optimum food temperature, and safety. Kentucky Fried Chicken value chain starts with suppliers and the raw materials they offer such as chicken, mashed potatoes, buns, seasoning, and packaging. It involves intermediate processing for cooking, taking orders and finally assembling the products for order delivery and hoping that the consumers will be pleased. As aforementioned, Quality of service (QoS), food quality and pricing are some of the determinants of consumer satisfaction (Cuong et al., 2019). However, there have been some arising issues in the company operation management in the past few years that led to the company’s failure even though it is up and running.

Problem Statement

 The main issue was that the restaurant founder Sanders Harland David failed to administer the supply chain management as well as lacking a contingency plan. In February 2018, the company closed three quarters and above of its locations because there was a delay in raw materials delivery from DHL International GmbH. This led to a shortage of chicken supply and loss of customers as the company only had one warehouse. This questions KFC if it has a well-established supply chain with a contingency plan that can keep the company going in case of incidents.

As-Is Condition

Supply chain Management Process in KFC

Strategic Planning

Supply Planning

Procurement

Demand Planning

 

Order Fulfillment

Manufacturing

Transportation

Warehousing

 

Figure 1.1: Supply chain Management Process in KFC

Strategic Planning. Involve the plan made on how the supply chain will operate, evaluate and optimize business operations and established strategic relationships with the supplier. KFC at the moment of supply shortage was having a poor strategic plan.

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Demand planning process. KFC could not predict the future using the judgmental and historical data that could predict varying outcomes as DHL claimed that it was not entirely their fault. KFC failed because its demanding customers require a contingency plan for business continuity.

Supply process. KFC didn’t ensure stock safety and its distribution by DHL Company is not properly capable of supplying all the KFC restaurants. Although the working ones' procurement process is till fine because KFC did cut on some restaurants to allow other to have sustainable purchasing to receive required good and the final product sales are still made for orders requested in the order fulfillment process. The manufacturing process is as well as doing well with limited supplies as the goods obtained are still processed with good quality in a few chicken cooking restaurant.

Warehousing. Inbound KFC processing is not well established as it is dependent on only one warehouse that does supply all the KFC restaurants in the USA and other states copy on the same.

Transportation process.  KFC doesn't have a better transportation method as it depends on only one transportation method by DHL Company.

KFC’s Competitive Situation

When it comes to competitors, product quality matters. The product quality is one of the things that make consumers buy and get satisfied. The operational management problems had led to customer dissatisfaction in the year ended December 2018. The data displayed will be focusing on 2019 customer experience as the evaluations are commonly done for the whole year to see the bigger picture. This will be shown in figure 1.2.

Figure 1.2: American customer satisfaction index scores of Kentucky Fried Chicken restaurants in the United States from 2000 to 2019. Retrieved from https://www.statista.com/statistics/216698/kentucky-fried-chicken--customer-satisfaction-in-the-us/

Between 2017 and 2018, there was a decline in customer satisfaction due to company chicken supply shortages. The customer can be satisfied only if their needs are met. According to Nasir et al., (2014), quality of service and product quality is viewed as a positive impact on customer service. The service and products provided by KFC in 2018 were poor.

To gain a competitive advantage, the company needs to reduce costs and enhance products. Currently, the company cannot do this because it does not have enough financials to support initiatives that’s why most of its locations are closed. KFC’s one major weakness is the struggle to catch up to satisfy all its customers but they can’t hence customer dissatisfaction as supported by figure 1.2 where satisfaction in 2019 didn’t reach the maximum (81). All this has given the competitors opportunities to sell the same quality products to customers of KFC’s chicken especially in the locations where KFC kitchens are shut. Besides, competitors gain customer loyalty as customers get what they require. This results in customers doubting KFC with its inconveniencies as of now. They don’t think KFC will possibly be able to provide better quality products that can be available whenever needed. Therefore, KFC is now marketing its products again to gauge the customers’ attention.

Analysis of Inefficiencies causes, effects and gaps

Poor contingency plan

Typically, the company lacks a contingency plan. Having future plans is closely related to examining suppliers properly. Like any enterprise, KFC has its standard operations such as previously mentioned practice not to use frozen chicken but fresh ones. Therefore chicken preparation done at KFC is a closely controlled process with fixed scheduled time. These chicken must be kept under a particular temperature as legislation indicates.  The KFC chaos has been released several times that DHL Company has only a single warehouse Centre in Rugby. When the warehouse failed, the preparation process also failed and KFC remained stranded with chicken that was starting to rot fast. This showed poor contingency plans and poor communication leading to company loss.

Distributive inefficiencies

There was a huge distribution problem facing KFC that saw up to two-thirds of its UK branches shut down, the main evidence of this was the eyesore presence of heavy clad security personnel manning the new depot supposed to house the missing chicken. KFC maintained that its distribution crisis was a result of switching its previous longstanding distributor Bidvest to DHL as we quote KFC's tweet on the matter "we've got the chicken, we've got the restaurants, but we've just had issues getting them together" KFC woes have taken a funny approach around the country, nevertheless, it has clearly shown the grave consequences for a business of a supply-chain hiccup. This hitch and the “great chicken run of 2018” will without a doubt echo with Irish and UK companies considering now that Britain is in the process of Brexit, this would imply longer border checks and more delays incurred at customs, as Rod McKenzie a director at Road Haulage Association says “most folks in this country fail to understand the mechanics of supply chain until something goes haywire” KFC indicated in the report that at in 2018, the supply chain had strong sales growth which declined in 2019 by 6.8%. After-tax, the company faced profit decline by 27.8% from €171.9m to €129.9m. The turnover fell from €445.7 to €207.3 within 2017 and 2018 by 73%.

Economic inefficiencies

Economic inefficiency is when all raw materials and determinants of production in an economy are allocated or distributed to their suitable valuable utility and with no waste products (Asche, 2009). KFC does distribute its raw materials and produces better products under the illusion that there is no wastage of time in the reliability on one delivery (DHL Company) and no risks incurred by doing so. This kind of company forecast or assumption has led to the company losing many of its consumers, closing of many locations, reduced sales and profit reduction. Table 1.1 shows the yearly performance comparison of KFC.

Table 1.1. Annual performance comparison of KFC.

Fiscal Ended March

Actuals in M JPY

2019

2018

2017

Sales

24 674

25 716

23 497

EPS ( JPY )

212

239

254

Pre-Tax Profit (EBIT)

2 318

2 619

2 776

Operating profit (EBIT)

2 237

2 610

2 760

EBITDA

-

-

3 011

Net income

1 562

1 762

1 869

P/E ratio

-

-

-

Dividend per Share ( JPY )

50,0

50,0

40,0

Announcement Date

05/15/2019
12:00am

05/14/2018
12:00am

05/15/2017
12:00am

Productive inefficiencies

According to KFC, despite a lot of chicken being cleared at the depot, their restaurants will experience disruptions that may go over the weekend due to the distribution challenges facing DHL KFC takes the supply of its chicken very seriously, they say they only use chicken meat from Irish and British farm and these chicken ought to be fresh not frozen a fete that differs majorly with some of its competitors. For productive efficiencies, the company uses a lot of calories to preserve its meals. This has led to basic effects like obesity although they have promised to reduce this by 20% by 2025. According to Xue (2016), their past cross-sectional research amongst in Beijing 21,198 children indicated a positive relationship between FFC (Fast Food Companies such as KFC) and obesity or over-weight. Showing that the results of their production affect consumers negatively.

Warehousing inefficiencies

The company claims to have chicken which is not injected by steroids and hormones. They also indicated that in the United States, FDA regulations ban the inclusion of the hormone in poultry. The KFC original chicken recipe is on bone purchased from Irish and British farms and freshly delivered to their restaurants. As the company prefers fresh chicken or the ones that are not kept for so long, the company only had one warehouse in the United States where the chicken is stored temporarily before being distributed to restaurants. The company had faced over-dependent in a single warehouse consequence such as chicken food shortage leading to loss of consumers. Customers lost interest because the company was not able to provide goods at the required time. Even now the company still stands by fresh delivery and reliability on one warehouse located near Rugby, United States.

To-Be Condition - Proposed Improvement/Solution

Inbound logistics

The company should realize that it is important to scrutinize the supply plans before even proceeding to give tender one. The significance of doing this is to develop a proper relationship with the supplier. Their support is essential in transportation and storage of chicken helps eradicate product development challenges such as raw materials shortage. With the ingredients ready, there is an increase in ready food supply leading to an increased profit margin.

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Product design process analysis. It is important to monitor the production process of raw materials as they produce end products ready for market launch. Product development and better strategy can lead to product improvement and maximizing efficiency with surety for KFC competitive advantage. The product enhancement attracts more consumers leading to steady company economic growth and profit margin increase.

Outbound logistics

This is the delivery of end products to consumers. At KFC, the consumers can order the products and get them delivered but most of them prefer buying from closer restaurants or intermediaries shops. It also includes order processing that reduces time wasted on queue for a particular food to be made for a certain individual. KFC cooking takes around 30 minutes, so ordering before time could be an appropriate idea. Better outbound delivery such as trucks should be able to keep the products warm in the delivery process to please the consumers.

Sales and marketing.

At this point, KFC is doing marketing to make its products sell but without a proper highlight of product delivery benefits such as product affordability, distinctive features, and the product of high quality, the marketing process won't matter. So KFC should invest in marketing and sales procedures to ensure maximum reach to the target audience. The promotions and advertising help KFC regain its market share through a funnel approach. The strategy can allow the company to do pull or push nature depending on KFC's brand image, changing competitors and objectives. These can lead to equity of brands and assist KFC to outcompete its competitors.

Services. Services offered by KFC include food delivery. Post-sale and pre-sale can assist the company to gain customer loyalty. The post-sale services are considered significant in the promotional and marketing process. Negative e-WOM power as a result of poor service support cannot be underestimated in the recent technological improvements. The online media should be regulated to protect KFC brand image and reputation and to spread the positive side of KFC such as fast food delivery and service quality.

Firm management.

The slogan ‘change start by me’ perhaps expound on everything. When a company needs positive change, it should start by considering its strategies, planning, legal matters, accounting, and quality management as a single running process. If one fails, so does the others. KFC extensively relied on a single supplier which failed them. So they should ensure effective infrastructure management that maximizes the value chain leading to overhead cost control to make KFC stand in market competition.

Human resource management.

 Human resource manager deals with recruitments of employees, managing their performance, training as well as rewarding them. The managers can ensure that the employees are under control and well-motivated to achieve company goals. Better rewarding lead to employee better production (Samnani, 2014). Therefore, KFC can minimize competitive pressure associated with motivation, skills, and commitment of the workforce. The company also analyzes hiring and training costs and can obtain cost reduction goals. KFC should believe that each employee is significant to manage all the problems that may occur such as supplier inconveniencies.

Technology development.

 Current technological trends are immersed in company processes to make the processes easy to deal with. About all activities in the value chain rely on technology starting with communications, marketing, order fulfillment, billings, and others. KFC should integrate its processes such as human resources, distribution, and production with effective technology. If the company had a proper technology system that analyzes all risks that may lead to company failure, then KFC would not be facing a crisis. KFC's deep communication with suppliers would help know what suppliers can handle and what they can’t. This could assist in having other supplier alternatives with a better strategic distribution process. This can make the company obtain its goods quickly, produce quality products and selling them efficiently both online and offline. Technology can also be used to analyze by KFC overall performance to know the company's financial position and predict the future outcomes given certain variables. So better technology selection can help increase customer satisfaction, expand market share and gain competitive advantage.

Procurement.

KFC purchasing of inputs varies from raw materials, surplus, machinery, equipment, and others essential for making the end products. Understanding the significance of the value chain can help KFC notice sectors where they can achieve cost efficiency and add value. For instance, as KFC had failed in raw material supply through DHL Company, they can perhaps develop a new method where the company purchases its delivery trucks that are widely spread and renting warehouses that may help keep their products from spoiling in case of an incident.

Conclusion

Most companies face several challenges to achieve their goals and objectives. KFC Company has been experiencing some of those challenges such as lack of contingency plan, limited resources especially in the inbound logistics sector, excessive reliability on a single supplier, poor communication and relationship with suppliers. This specific scenario has not occurred in other companies since most of them either employ many suppliers, own several warehouses or both. If KFC could have just thought of designing effective supply chain management then most of their closed stores that are more than three quarters would still be functioning. The poor supply chain management has already led customer loss, loss of market share, reduced sales, reduced profit margins, unemployment of employees and competitors outcompeting them. The customers have also been unpleased due to abrupt quality of service change. 

It can be illustrated that for the company to recover from those arising issues, it needs to work on the relationship and communication with the supplier, have a proper supply chain plan that can oversee all the risks, opportunities, weaknesses and strengths of Kentucky Fried Chicken Company using Porter's Competitive Force's Model. Better technology selection can also help conduct enterprise customer relations to avoid losing more clients in the future. Technology message delivery can change how consumers view the company (company reputation). To increase the range of customer reach, KFC needs to do marketing on social media platforms. In the case of negative comments or replies on social marketing platforms, the company can handle them cautiously by listening to customer demand and providing better solutions. The solutions can be social or product-related (provision of quality products). The entire solutions can lead to profit increase and customer satisfaction.

References

  • Asche, F., Roll, K.H., & Tveteras, R., (2009). Economic inefficiency and environmental impact: An application to aquaculture production. Journal of Environmental Economics and Management, 58(1), Doi: https://doi.org/10.1016/j.jeem.2008.10.003
  • Cuong Nguyen, C., Nguyen, D., & Do, T. (2019). The Determinants of Customer Satisfaction in Fast Food Industry: The Case Study of KFC Viet Nam. Humanities and Social Science Research, 2(2), 1-2, Doi: https://doi.org/10.30560/hssr.v2n2p1
  • Nasir, A., Ahmed, M.A., Nazir, I., Zafar, H., & Zahid, Z. (2014). Impact of Different Determinants on Customer’s Satisfaction Level (A case of Fast Food Restaurant). International Journal of Business and Management Invention ISSN (Online): 2319 – 8028, ISSN (Print): 2319 – 801X, 3(9)
  • Samnani, A.K., and Singh, P., (2014). Performance-enhancing compensation practices and employee productivity: The role of workplace bullying. Human Resource Management Review, 24(1) 5-16, DOI: https://doi.org/10.1016/j.hrmr.2013.08.013
  • Xue, H., Wu, Y., Wang, X., and Wang, Y., (2016). Time Trends in Fast Food Consumption and Its Association with Obesity among Children in China. PLoS ONE 11(3): e0151141, DOI:10.1371/journal.pone.0151141

 

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