Over the last week we have been witnessing a crisis at KFC in the UK. In case you have not heard, KFC is suffering a failure of delivery of chicken to their 900 restaurants, as a result of a new logistics supplier failure (DHL and QSL). Images of empty chicken shops and lorries queueing outside a depot, where crates of chicken are stacked, were all over the media.
Whilst the ongoing crisis is still developing and unresolved, it is a great reminder of the importance of proper supplier switching. The KFC – DHL – QSL fiasco seems to be due to an exceeding complexity of triparty contractual arrangement, ambitious innovation plan, complex logistical and supply chain planning requirement – but one can’t help but wonder if the managers at KFC have done the following:
1. Assess supplier’s criticality
Understand the impact of this contract on your revenue-generating activity and plan accordingly (e.g. use the Kraljic matrix). KFC is reported to have been taking a hit of £1m a day as a result of the disruption. In such cases, you should plan everything to death, make sure there is extra support at the start of a new contract, a Go/No-Go analysis is carried out before the switch, and that every element of the plan has some sort of redundancy (e.g. what happens if key people come down with something like bird flu?)
2. Vet your supplier thoroughly
Of course DHL is big and trusted, but double and triple check everything the new supplier is telling you they will do. Don’t just take their word for it. Put that Hi-Vis on and go there in person, speak to people, poke around, make sure everything works and is ready. Ask “what if”. Understand what sub-contractors will be used and how. This level of diligence usually occurs before the contract is signed, but keep doing that during the critical period between contract signature and the commencement of service.
3. Inspect the IT systems
Or send people to do it. Procurement professionals must quickly adapt to the new world, where effectively every supplier is an IT supplier, and their computer systems need to be resilient, secure, architected and managed properly. Topics like cyber security will become bigger over the next years in our procurement world. However, what is likely to go wrong often, are basic system integrations between ERPs, especially between organisations exchanging information like delivery plan schedules. It has been reported that “a computer problem” is the cause of the issue at the Rugby depot of DHL.
4. Phase the switch
Avoid big-boom, all-in-one-go type of switches, especially if it involves multiple locations, parts of business, or is of considerable complexity. Phasing (by e.g. business unit) allows you to address any problems you encountered as you move to the new service gradually. The old supplier will often be happy to keep the service running for a bit longer.
5. Have a plan B
Backup is important in all areas of life, not just supplier switching. Line up several smaller supplier contacts or internal staff to keep operations going. It may be painful and costly but will protect some of the service. Make sure you leave your old supplier happy with the contract you just ended. You will want them to bid for your work next time you are going to the market; but if things go really badly you may need to go back to them and ask for a bail-out!
Just to be clear, I do not think KFC just tried to wing it. When the deal was signed back in October last year, with 4 months for plans to hatch, nobody thought it won’t fly. I wish everyone affected a swift return to business as usual!