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Contract changeover planning is key says consultant

21 February 2018

As loss of sales quickly negates the cost benefits of switching logistic suppliers, SCALA says companies like KFC need to look at the details and plan for contingencies.

John Perry, managing director at SCALA.

“The recent delivery problems experienced by KFC stores across the country brings to light just how complex logistics operations can be, especially when servicing a large number of outlets that each have their own individual challenges. 

The operational issues have been put down to the fact that KFC has switched its delivery contract to DHL and the complexities of integrating with new IT systems. When changing contract providers, companies have to be very careful and must weigh up the risks. Typically, logistic operations cost companies between four and 10% of their sales value. So, even if a 10% cost benefit is achieved by changing contractor, this only really represents 0.4-1.0% of sales. KFC’s loss of sales will very quickly negate those benefits.

“Making changes to a contract, where often it is only the current supplier and the individual workforce who truly understand what the logistics operations involve, is a huge risk that has to be managed. We recently came across a company that had re-tendered its logistics operation and the current provider had bid significantly under its current contract price. When asked why, the supplier said that it had responded to the tender brief as it had been written. It knew that there were many complexities that came with the job, which had not been included in the tender document. But, the company also knew that its competitors, who didn’t know the business or how it worked, would only be bidding against what was included in the tender document.

“If the decision is made to switch provider, then contingency planning is vital to ensure that possible issues can be identified and resolved at the earliest opportunity. We would always insist on detailed planning, rigorous management of the preparation and operations set up, and of course, close communication between both parties well before the contract commences.”