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KFC debacle could harm DHL’s reputation says leading consultant

09 March 2018

Bidvest 'effectively bails out' DHL for a significant portion of KFC's restaurant deliveries, after DHL ran into serious difficulties after it took the contract on.

Bidvest Logistics confirmed it has signed a long-term agreement with KFC UK & Ireland to provide renewed supply to up to 350 of its restaurants in the North of the UK, from 26th March 2018.

This leaves DHL with a reduced workload of 550 restaurants across the UK.

John Perry, managing director of logistics consultancy SCALA said: “The decision by KFC to return part of its contract to its previous supplier, Bidvest, following the catastrophic issues it experienced when it switched to DHL, demonstrates the ongoing difficulties that the fast good giant is still battling with. It also shows that there is a lack of confidence that the problems can be solved quickly.

“It puts DHL in a difficult position, as it is effectively being bailed out by a competitor, but it is also potentially harmful to its reputation and the success of winning other business.

Perry continued: “Splitting the operation between suppliers at this stage, after implementation, raises the question again as to why the transition from Bidvest to DHL wasn’t phased in and whether the proposed solution can be made to work.

“To date, this will have been a very costly experience for all concerned parties. With logistics contracts typically being low margin affairs, large, unexpected costs or incurred penalties can rapidly erode the benefit of switching suppliers. This highlights just how important it is to weigh up the risks before making changes to a contract.”

Paul Whyte at Bidvest Logistics said: “We are delighted to welcome KFC back to Bidvest Logistics. As the UK’s leading foodservice logistics specialist we understand the complexities of delivering fresh chicken. KFC is a valued customer and we will provide them with a seamless return to our network.”

Bidvest lost the contract to DHL, but in late February, KFC closed more than half of its 900 UK outlets after delivery problems meant they ran out of chicken.

A spokesperson for DHL said: “We acknowledge KFC’s decision to invite Bidvest Logistics to service its 350 restaurants in the north of the UK. In conjunction with our partners, we remain fully committed to delivering excellent service to KFC‘s remaining 550 restaurants across the UK.”

Dr Virginia Spiegler, a senior lecturer in operations and supply chain management at the Kent Business School at the University of Kent said the case highlighted the importance of logistics, which is frequently and unfairly regarded as non-value adding.

She explained: “In the past few years, many companies have taken steps to streamline supply chain processes by reducing holding inventory, outsourcing non-core activities and cutting the number of supplier on the assumption that the market is relatively stable and predictable.

“KFC’s decision to switch their 3PL provider from Bidvest to DHL was a measure to reduce logistics service cost. However, having hundreds of restaurants closed could cost them millions in lost sales and low capacity utilisation. This problem could have been anticipated by comparing Bidvest and DHL capabilities. 

“While Bidvest is specialised in food service distribution and operates a network of distribution centres across the UK, DHL is trying to run the same operation from a single distribution centre. Moreover, it is the first time that DHL is partnering with QSL, who has been providing IT solutions on demand planning and stock management to KFC since 2011. Therefore the alignment between QSL services and DHL physical distribution is also crucial.”

Union GMB said it tried to warn KFC that changing 3PL provider from Bidvest to DHL ‘would have consequences’.

The union argued ‘KFC’s penny-pinching decision’ cost 255 distribution jobs.

Mick Rix, GMB national officer said: “Bidvest are specialists – a food distribution firm with years of experience. DHL are scratching around for any work they can get, and undercut them.

“It’s an absolute cock up. KFC are left with hundreds of restaurants closed while DHL try and run the whole operation out of one distribution centre – where conditions are an utter shambles.”