Switching food distributors turned out to be a foul idea for KFC. The fast food chain’s UK outlet broke from their long-time chicken distributor, Bidvest, and took a chance on global logistics provider DHL. This chance, which was devised to save them money, cost KFC millions instead.
Soon after the switch, the fried chicken chain was forced to close more than 750 restaurants across the UK temporarily, due to a KFC chicken shortage. DHL couldn’t get the chicken supply from their single UK distribution center out to KFC’s restaurants efficiently or effectively.
While DHL called the supply chain issues that inconvenienced hundreds of employees and customers the “teething pains” of a new partnership, KFC quickly apologized with witty social media and print ads across the country, which helped the company recover.
So, what does this have to do with you?
As a business owner or operator, you’re bound to encounter a supply chain issue at some point in your business operations. You may even want to change vendors to optimize pricing, like KFC did. But, you don’t have to make the same mistakes. Viewing logistics as a cost center could be a mistake.
Dependable service from a third party industry expert is often irreplaceable. Think twice before cutting back on a reliable service to save a few bucks. The short term savings may be detrimental to your long-term reputation. If you do, follow these guidelines to ensure your new vendor is reliable:
Work with industry-knowledgeable vendors. Ensure that your new logistics provider can manage and maintain the quality of your delivered goods without damage or spoilage, as well as meet necessary industry regulatory requirements. Do they have the expertise necessary for your market? Have they done it for another business successfully?
Scale and test the new process first. Don’t jump into a contract with a new vendor without testing it out first. Create a transition plan that starts small and flushes out issues, allowing you to correct problems on a small scale before full implementation.
Vet your supplier, and their supplier, and their supplier. In addition to your Tier I supplier, take an in-depth look at your Tier II and III suppliers as well. Make sure they have the business continuity resources to get you the product you need when you need it. Ask them directly: What is your business continuity plan? How quickly can you get up and running if something goes wrong?
Thoroughly review vendor contracts. Have your internal or external legal team review your contract with the new vendor, and have your HUB broker evaluate the vendor’s liability coverage. Look for policy exclusions that could deny them indemnification if they are unable to deliver on their promises.
After a mistake, come back stronger. In a crisis, having “no comment” will incriminate you. Be ready to speak intelligently in front of a camera about what went wrong. Have a standard, flexible press statement ready to go that can be altered depending on the issue. KFC’s witty media response was a win for them after a major loss.
Unfortunately, there’s no coverage for a bad business move. KFC took a chance on a new vendor, and it backfired. This mistake will now likely lead to out of pocket losses for the restaurant chain.
What there is coverage for is unintentional losses related to business interruption and contingent business interruption. When the distribution failure is the result of a natural disaster, key personnel loss, structural collapse, power interruption or machinery breakdown directly related to the business, business interruption coverage will bridge the income gap caused by the disaster, finance a temporary relocation for the business and more.
When the business interruption is the result of an unforeseeable supply chain failure that prevents your organization from producing its products or delivering its services, contingent business interruption coverage will bridge the gap of income for your business and help you get on your feet again.