WHEB Commentary

Ted Franks

Monthly Commentary: February 2018

In the middle of February, fast food chain KFC had to close most of its UK outlets because it ran out of chicken[1]. For the healthy few that don’t know this, ‘KFC’ stands for ‘Kentucky Fried Chicken’. So this was a big problem. With some clever PR and a good dollop of humility, KFC has probably rescued its reputation. But the UK is one of its five biggest markets globally[2]. So the profit impact of even a short outage will have been meaningful.

Behind the funny headlines there was a tale of over-ambition. KFC had announced a logistics partner change in November 2017. It replaced long-standing incumbent Bidvest with DHL and QSL. It consolidated its distribution centres from five regional hubs to one larger facility near Rugby. At the heart of the re-organisation was the promise of innovation and improvement. New techniques would be borrowed from the supply chains of other industries. Information technology would be core to the system.

This is a parable for modern supply chains. Fewer and fewer goods (of any sort) are produced near their point of consumption. Convenience that was unimaginable even a few years ago is now expected as standard.   Companies that interact directly with consumers are as much logistics operations as retailers. The pressure to deliver quicker, more flexibly, and cheaper is immense.

As indeed is the pressure to deliver sustainably: consumers quite rightly demand it. Sustainability was a key driver in the KFC strategy. Key areas of focus include reducing logistics-related emissions to net zero.[3] DHL’s press release at the time trumpeted: “DHL will ‘re-write the rule book’ and set a new benchmark for delivering fresh products to KFC in a sustainable way…” But as the KFC episode demonstrates, juggling all these demands is a huge challenge. This creates a major opportunity for companies addressing sustainable modern logistics.

Our strategy is full of companies which do this. Daifuku and Kion are leaders in factory and warehouse automation. Keyence’s products are a key component of many of the systems that logistics companies rely on. Dassault Systemes’ software design tools help engineer the systems they deploy. JB Hunt optimises the combination of rail and road in deliveries. Throughout the delivery process, testing and inspection services are provided by Intertek providing assurance that the system is safe and robust.

International supply chains were already in the news before KFC reminded us of their vulnerabilities. The latest campaign from an increasingly-isolated White House is to try to turn back the tide of globalisation. Here in the UK, discussions over the precise complexion of ‘Brexit’ have yet to provide clarity on the future relationship between the world’s fifth economy, and its largest trading partner in Europe.

It seems to us that the hurdles protectionists strive to create won’t succeed in putting the ‘toothpaste’ of consumer choice back into the tube. Consumers’ appetites are now too deeply rooted. But these efforts will make yet more work for businesses that can help support and implement smart, sustainable logistics.

[1] https://www.theguardian.com/business/2018/feb/19/kfc-uk-closed-chicken-shortage-fash-food-contract-delivery-dhl

[2] http://money.cnn.com/2018/02/23/news/kfc-apology-ad-shortage-chicken/index.html

[3] http://www.dhl.com/en/press/releases/releases_2017/all/logistics/kfc_revolutionizes_uk_foodservice_supply_chain_with_dhl_and_qsl_appointment.html