Central Luzon State University

Science City of Munoz, Nueva Ecija

College of Home Science and Industry
Academic Year 2023– 2024 (Second Semester)

FIRST TERM PARTIAL FULFILLMENT IN

CBMEC 2100: OPERATIONS MANAGEMENT & TQM

Key Issues in Business Operations

Kentucky Fried Chicken (KFC): Disrupt Supply Chain

GROUP 3

Acosta, Aldrin P.
Cabanisas, Dave Q.
De Castro, Cea Sarah L.
Dolores, Jastine L.
Grande, Marissa R.
Lucas, Jovelyn Shane
Neuda, Levy P.
Padre, John Lloyd N.
Ringor, Raven Felicity
Sequig, Maureen Joy L.
Tuvera, Hero John D.

DIVINA GRACIA A. VERGARA

Instructor

March 4, 2024
 I. INTRODUCTION

Kentucky Fried Chicken (KFC) is world-renowned for its fried chicken. Known by the face of an old
man with a white beard, Colonel Sanders. The brand indeed has a crispy on the outside and juicy on
the inside history. A global chicken restaurant brand with a rich, decades-long history of success and
innovation. A subsidiary of Yum! Brands, Inc. is a global chicken restaurant brand with a rich,
decades-long history of success and innovation.

KFC is currently one of the largest businesses in the global food service industry. KFC primarily sells
chicken, wraps, salads, and sandwiches. KFC's core focus is fried chicken, but the company also
sells roasted chicken products, side dishes, and desserts. KFC is constantly changing to make it
easier for customers to order their chicken. This is accomplished through digital innovation and the
development of new restaurants in collaboration with their loyal franchise partners.

It all started with one cook, Colonel Harland Sanders. Colonel Sanders was a born innovator and
founded KFC on values like hard work, hospitality and generosity that still live large in the KFC brand
today who created a finger lickin’ good recipe more than 75 years ago—a list of 11 secret herbs and
spices scratched out on the back of his kitchen door. With real cooks breading and freshly preparing
our delicious chicken by hand in more than 26,000 restaurants in over 150 countries and territories
around the world.

The content of this paper will examine KFC's supply chain difficulties, highlighting the challenges that
prevent them from meeting customer demand. These difficulties affect KFC's business success as
well as the dissatisfaction of loyal customers who rely on the restaurant for their favorite meals.
Despite the difficulties in its supply chain, KFC has proven to be resilient and flexible. They have
overcome challenges and continued to operate by using strategic planning. KFC continues to
succeed in operating its business, satisfying customers, and maintaining its excellent reputation for
fried chicken.

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 II. ISSUES FACED BY KFC

Supply Chain Disruption

KFC made the decision in October 2017 to move from Bidvest to DHL and QSL, a food
distributor. A component of their pledge to "revolutionize the UK foodservice distribution
market" was to achieve net zero logistical emissions over the duration of the agreement. DHL
and Bidvest have been affected by the distributor shift. Following its loss of the contract,
Bidvest fired 255 workers, while DHL and QSL established a new distribution hub and brought
on almost 300 new hires. Despite the fact that better performance was anticipated, not
everyone had such optimistic views of the future. The UK trade union for the fired Bidvest
workers, GMB, said that it warned KFC against switching from Bidvest to DHL as their
distribution network.

"We tried to warn KFC this decision would have consequences, well now the chickens are
coming home to roost," stated Mick Rix, national officer of the GMB.

"KFC is left with hundreds of restaurants closed while DHL tries to run the entire operation out
of one distribution center," he added.

So, on February 14, 2018 the stage was set for the changeover. That's when the issues
started. The insufficient supply of fresh chicken at the restaurants was caused by problems
with KFC's new logistics partner, who encountered operational challenges.

As a result, customers were met with signs on the doors of their local KFC branches,
announcing the temporary closure and apologizing for any inconvenience caused. The
problems continued, and then social media got involved. It was instantly flooded with posts
from disappointed and unhappy consumers describing how they could not believe KFC's
renowned fried chicken was gone. When the media learned about the story, the crisis
worsened and the negative publicity surrounding it became even more.

The impact of this crisis was significant on multiple fronts. Not only did it disrupt the day-to-day
operations of KFC restaurants, leading to financial losses, but it also tarnished the brand’s
reputation.

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III. EFFECTS TO THEIR OPERATION

➢ Temporary Close Operation

KFC, also known as Kentucky Fried Chicken, is a globally recognized fast-food chain that has
faced significant challenges in its supply chain operations. In February, a series of missed
deliveries and a subsequent chicken shortage led to the temporary closure of numerous KFC
restaurants in the UK. This unfortunate situation resulted in substantial financial losses and
damage to the brand's reputation.

The supply chain issues arose when KFC experienced difficulties with their new Third-Party
Logistics (3PL) supplier, DHL, after transitioning from Bidvest Logistics. The transition resulted
in missed deliveries, management issues, and temporary store closures, impacting
approximately half of the chain's 900 branches in the UK. The media coverage surrounding
KFC's supply chain failures shed light on the serious problems with their new foodservice
suppliers, DHL, and their partnership with Quick Service Logistics (QSL). The consequences of
the chicken shortage were far-reaching, with customers expressing their frustration on social
media platforms. Some individuals even modified the KFC logo to convey their dissatisfaction.
This negative publicity further tarnished KFC's reputation, not only locally but also on a global
scale.

The closure of restaurants during this period had a significant financial impact on KFC
franchisees, who heavily relied on a single supplier and lacked a suitable backup plan to
address the chicken shortages. As a result, some franchisees have sought compensation to
address the legal and financial challenges caused by the supply chain disruptions. While the
precise causes and implications of these supply chain issues are still being investigated, it is
evident that KFC's temporary closure of more than 700 of its 900 UK restaurants due to the
chicken shortage has had profound repercussions for the company and its stakeholders.

➢ Chicken Shortage

In 2018, KFC, also known as Kentucky Fried Chicken, faced a major supply chain issue that
revealed significant problems with their food chain supplier, DHL, also known as DHL Express,
is a global logistics company and a leader in the logistics industry. This issue affected the quick

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 service logistics (QSL) as DHL was unable to deliver the supplies. As a result, KFC had to
temporarily close down their restaurants in the UK, while some locations offered a limited
menu. A few weeks later, it was reported that a limited number of restaurants remained closed,
and front-line employees were encouraged to take vacations while the company worked to
resolve the delivery failures. This supply chain issue had various consequences for those
involved. Mainly, customers were unable to purchase their desired products or meals from
KFC, leading to disappointment and dissatisfaction. Additionally, KFC received numerous
comments and complaints on social media platforms, which caused damage to their reputation
worldwide. The franchise holders of KFC suffered financial losses during the closure period
because they heavily relied on one supplier and did not have a solid backup plan. The chicken
shortages made them more demanding of suppliers, and some individuals and groups have
sought compensation for the legal and financial problems caused by the supply chain issue at
KFC. When the restaurants were temporarily closed and franchise holders faced financial
losses, it led to some seeking legal remedies to recover their losses. These claims were made
against KFC and its franchisees, holding them responsible for the disruption caused by the
supply chain failure.

According to the BBC or British Broadcasting Corporation, a public service broadcaster based
in the United Kingdom, KFC recently switched its Third-Party Logistics (3PL) operations from
Bidvest Logistics, a food specialist, to DHL, a global heavyweight in logistics. DHL operates in
various industries and manages the country-wide supply chain from a single distribution center
location. The transfer of the contract took place on Valentine's Day, and delivery problems
began on February 16th. This short time period highlights the significant impact that supply
chain issues can have on customer disruptions. Experts speculate that the problems may be
attributed to DHL's reliance on a single distribution center, which created a bottleneck that was
not experienced with the previous Third-Party Logistics (3PL) provider that had six distribution
center locations. Logistics failures resulting in shop closures are the worst-case scenario for
supply chain teams, and KFC had to deal with the challenge of a hundred closed restaurants
while DHL attempted to manage the entire business from a single distribution center.

➢ Financial Loss

The temporary closures of over 700 KFC restaurants in the UK resulted in significant financial
losses for the company. With these closures, KFC was unable to generate revenue from these
locations during the closure period, leading to a substantial decline in sales. The financial
impact was exacerbated by the fact that the closures occurred over several days, resulting in a
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prolonged period of revenue loss. Additionally, the closure of such a large number of
restaurants meant that KFC had to bear the costs of maintaining these locations without any
corresponding income. This financial strain put pressure on the company's profitability and
overall financial performance during that period. The financial impact was not only felt by KFC
as a corporation, but also by individual franchisees who rely on the revenue generated from
their KFC restaurants to support their businesses. The financial losses incurred during this time
may have had long-lasting effects on KFC's financial stability and profitability.

KFC, or Kentucky Fried Chicken, faced a significant financial loss in 2018 due to logistics and
shortages of chicken, resulting in a sudden fall in turnover and profit. KFC is losing at least
£920,000 per day, assuming sales have not decreased since 2016.

According to Statista data, the consumer price index for restaurants grew from 2016 to 2017.
Based on the review, KFC or Kentucky Fried Chicken UK earned £479 million in 2016.

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 KFC longistics suppliers and a chicken shortage caused serious problems that affected the
company's reputation. Because of the chicken shortage, more than 700 of KFC UK's 900
branches were temporarily closed. Because of the limited number of items on the menu, KFC
or Kentucky Fried Chicken lost £4.2 million in sales in 2016-17. This information is based on
data published by statisticians regarding KFC's sales

➢ Customer Dissatisfaction

In addition to the financial impact, the temporary closures of KFC restaurants during the
chicken shortage also resulted in significant customer dissatisfaction. Customers who had
planned to visit or order from the closed KFC locations were left inconvenienced and
disappointed. This disruption in their dining plans can lead to frustration and a sense of
inconvenience. Customer dissatisfaction during temporary closures can have a detrimental
effect on KFC's customer loyalty. This decline in customer loyalty can have long-term
consequences for KFC, as customers may seek alternative dining options that can provide a
more reliable and consistent experience. Furthermore, negative experiences during the
temporary closures can lead to negative word-of-mouth and online reviews, further impacting
KFC's reputation.

➢ Brand Reputation

Temporary closures caused by supply chain disruptions not only have financial and customer
satisfaction implications but also negatively impact KFC's brand reputation. Customers may

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 perceive these closures as a reflection of operational inefficiency or unreliability, leading to a
loss of trust in the brand's ability to effectively manage its operations. Negative publicity
surrounding the closures, including media coverage, social media discussions, and online
reviews, can further damage KFC's image as an unreliable and poorly managed brand. This
negative association can persist even after the supply chain issues are resolved, resulting in a
long-term erosion of trust and reluctance among consumers to choose KFC in the future.

➢ Employee Impact

Temporary closures of KFC restaurants due to supply chain disruptions have a significant
impact on KFC employees in addition to the financial, customer satisfaction, and brand
reputation effects. Employees may experience reduced working hours or temporary layoffs,
causing direct implications for their income and job stability. These closures create uncertainty
and financial strain, leading to decreased morale and job satisfaction among the workforce.
The reduced hours or layoffs indirectly affect productivity and performance, as employees
facing job insecurity and financial difficulties may struggle to fully focus on their responsibilities,
resulting in lower productivity and customer satisfaction. Moreover, the impact on employees
extends beyond the closure period, as they may encounter challenges with workload
distribution and adapting to operational changes even after the restaurants reopen.

IV. ACTIVITIES DONE BY THE ORGANIZATION TO SURVIVE THEIR OPERATION

➢ Financial Loss and Chicken Shortage : Finding Alternative Suppliers and Reverting to
Original Supplier

In response to the chicken shortage crisis, KFC implemented strategic measures to address
the supply chain challenges and ensure a steady supply of chicken. Two key actions they took
were reverting to their original supplier, Bidvest Logistics, and finding alternative suppliers.
Mainly, KFC made the decision to return to their original chicken supplier, Bidvest Logistics,
after encountering difficulties with their new logistics partner. By rehiring Bidvest Logistics, KFC
aimed to restore a reliable and consistent supply of chicken. This move was driven by their
past positive experience and established relationship with Bidvest Logistics, which gave them
confidence in their ability to meet the demand and maintain the quality standards expected by
their customers. By reverting to their original supplier, KFC sought to minimize any potential
disruptions caused by the change in logistics partners and ensure a seamless flow of chicken
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 supply to their restaurants.
Additionally, KFC proactively sought out alternative suppliers to secure a continuous supply of
chicken during the shortage. They explored partnerships with additional chicken suppliers to
diversify their supply chain and reduce the impact of the shortage on their operations. This
approach allowed KFC to tap into different sources of chicken and mitigate the risk of relying
solely on one supplier. By finding alternative suppliers, KFC aimed to meet customer demand
and minimize any potential disruptions caused by the shortage.
These actions taken by KFC, both reverting to their original supplier and finding alternative
suppliers, demonstrate their commitment to ensuring a reliable and continuous supply of
chicken. By leveraging their existing relationship with Bidvest Logistics and exploring new
partnerships, KFC aimed to overcome the challenges posed by the shortage and meet the
expectations of their customers.

➢ KFC's Solution to Negative Customer Feedback and their Reputation

Following the disturbance in the supply chain that led to the closure of multiple KFC locations,
the company moved quickly to handle the situation and get in touch with its patrons. KFC
issued an official statement apologizing for any inconvenience caused and acknowledging the
problem. They reaffirmed their dedication to provide excellent food and gave their patrons the
reassurance that they were making every effort to find an immediate solution to the crisis they
are suffering.

KFC used a variety of communication methods, such as their official website and social media
platforms, to further inform customers. They gave frequent updates on how the efforts to fix the
supply chain problems and reopen those affected locations. These updates provide clear
details on the difficulties encountered, the actions being taken to address the issue, and
projected timeframes for the return of regular operations. The UK's official apology for the
recent shortage of chicken. Newspapers The Sun and Metro carried an apology in the form of
an advertisement featuring an empty KFC bucket with letters rearranged to make "FCK." The
advertisements also stated, "A chicken restaurant without any chicken. It's not ideal."

Despite closing sites in the UK almost 700 of its 900 UK sites are closing. KFC appreciated
and expressed gratitude to its customers for their patience. DHL stated that "Incomplete or
delayed" deliveries had been made in certain cases because of "operational issues." the
statement by DHL that they are "not the only party responsible for the supply chain to KFC". In
addition, KFC aggressively interacted with consumers on social media, answering questions
and promptly resolving issues. In an effort to keep lines of communication open and show their
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 dedication to successfully resolving the situation, they conveyed their gratitude for the
customers' patience and support during this trying period.

V. COMMENTS AND SUGGESTION

● Investing in Supply Chain Resilience.

Investments in technology, infrastructure, and training to achieve this goal. To enhance their
supply chain resilience, KFC may have implemented advanced inventory management
systems. These systems leverage technology and data analytics to optimize inventory levels,
track stock movements, and streamline replenishment processes. By having real-time visibility
into their inventory, KFC can make more accurate demand forecasts, reduce stockouts, and
minimize excess inventory. This not only improves efficiency but also ensures a consistent
supply of ingredients to their restaurants.
Improving forecasting capabilities is another crucial aspect of enhancing supply chain
resilience. KFC may have invested in sophisticated forecasting tools and algorithms that
consider various factors like historical sales data, market trends, and seasonality. With more
accurate demand forecasts, KFC can better anticipate fluctuations in customer demand, adjust
their procurement and production plans accordingly, and minimize the risk of shortages or
excess inventory. This proactive approach helps KFC maintain customer satisfaction and
optimize their supply chain operations.

Additionally, KFC may have prioritized training programs for employees involved in supply
chain operations. By providing additional training, KFC equips their staff with the necessary
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 skills and knowledge to handle unexpected situations and make informed decisions. This
includes training on crisis management, problem-solving, and collaboration with suppliers and
logistics partners. Well-trained employees can respond effectively to disruptions, find
alternative solutions, and ensure a smooth flow of goods throughout the supply chain.

Through investments in technology, infrastructure, and training, KFC demonstrates their

commitment to building a resilient supply chain. These initiatives enable them to adapt to
changing market conditions, mitigate risks, and maintain a reliable supply of ingredients for
their restaurants.

● Resolving Impacted Employees Strategies for Effective Solutions

The effect of supply chain-related temporary closures on KFC employees. Firstly, the company
needs to get in touch with the impacted staff, explain the situation clearly, and give help in the
form of money. The KFC needs to keep in touch with employees and give them an explanation
of the circumstances and how it will affect their job. Second, KFC could explore training
programs that will help staff members become more flexible. Thirdly, by allowing employees to
choose their work schedules according to business needs. promoting effective communication
to create a healthy work environment. KFC can improve employee flexibility in the face of
supply chain changes and lessen the negative impacts.

● Use of Agile Model and Efficient Chain Model

Efficient logistics play a crucial role in the food industry particularly to their distribution or
delivery. This includes managing transportation, warehousing, and inventory to ensure timely
delivery to restaurants, stores, or directly to customers. Utilizing route optimization software
and real-time tracking systems can help streamline distribution processes and minimize
delivery times. Efficiency is about maximizing speed and accuracy in operations. KFC can
minimize lead times, improve order fulfillment, and deliver products to customers more quickly
and reliably using the Efficient Chain Model. The model also prioritizes cost savings and
resource optimization. By streamlining operations, reducing waste, and improving overall
efficiency, KFC can lower costs and enhance profitability.
The Agile Model encourages flexibility in supply chain management. This means being
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 prepared to adapt to unforeseen events, such as ingredient shortages, transportation
disruptions, or changes in consumer preferences. Having contingency plans in place and
fostering a culture of innovation and collaboration can enhance the organization's ability to
respond to unexpected challenges. Collaboration is key in the Agile model, fostering strong
communication and cooperation within KFC's supply chain network. By working closely with
suppliers, partners, and internal teams, KFC can enhance visibility, share information
effectively, and make better-informed decisions.
By integrating elements of the Efficient Chain Model and Agile Model in KFC they can achieve
a balance between efficiency and adaptability. This approach enables the organization to
optimize their supply chain operations while remaining agile and responsive to dynamic market
conditions and consumer needs.

● Backward Integration

When a business purchases another that provides the goods or services required for
production, it is implementing backward integration. One example is to have a private label
product, such as SM bonus items. Backward integration allows KFC to build partnerships with
competent suppliers, negotiate favorable terms, and deploy inventory management systems.

REFERENCES

Petroff, A. (2018, February 23). KFC apologizes for chicken shortage with a hilarious hidden
message. CNNMoney. https://money.cnn.com/2018/02/23/news/kfc-apology-ad-shortage-chicken/
index.html

BBC News. (2018, February 23). KFC’s apology for running out of chicken is pretty cheeky. BBC
News. https://www.bbc.com/news/newsbeat-43169625

Fink, R. L., PhD. (n.d.). Supply chain failure: KFC’s chicken shortage. OM In the News.
https://ominthenews.com/supply-chain-failure-kfcs-chicken-shortage

Weaver, M. (2018, February 22). KFC was warned about switching UK delivery contractor, union
says. https://www.theguardian.com/business/2018/feb/20/kfc-was-warned-about-switching-uk-
delivery-contractor-union-says

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KFC revolutionizes UK foodservice supply chain with DHL and QSL appointment. (n.d.). DHL.
https://www.dhl.com/global-en/home/press/press-archive/2017/kfc-revolutionizes-uk-foodservice-
supply-chain-with-dhl-and-qsl-appointment.html

De Freytas-Tamura, K., & Tsang, A. (2018, February 21). KFC has a problem in Britain: not enough
chicken. The New York Times. https://www.nytimes.com/2018/02/20/world/europe/kfc-chicken-uk-
shortage.htmlhttps://changemanagementinsight.com/kfc-crisis-management-case-study/#

De Freytas-Tamura, K., & Tsang, A. (2018b, February 21). KFC has a problem in Britain: not enough
chicken. The New York Times. De Freytas-Tamura, K., & Tsang, A. (2018, February 21). KFC has a
problem in Britain: not enough chicken. The New York Times.

De Freytas-Tamura, K., & Tsang, A. (2018, February 21). KFC has a problem in Britain: not enough
chicken. The New York Times. https://www.nytimes.com/2018/02/20/world/europe/kfc-chicken-uk-
shortage.html

Taulia. (2024, January 18). Choosing the right type of supply chain model. Taulia.
https://taulia.com/resources/blog/choosing-the-right-type-of-supply-chain-model/

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