When It Comes to Supply Chain, Count Your Chickens

When It Comes to Supply Chain, Count Your Chickens

In its own words, fast-food giant KFC had "a hell of aweek" as it scrambled recently to manage a supply-chain disruption thatleft most of its 900 franchise stores in the United Kingdom with nochicken. 

KFC blamed the disruption on "a couple of teethingproblems" with its new U.K. delivery partner, DHL, whichexplained that numerous deliveries had been incomplete or delayed because ofunspecified operational issues.

It is interesting that, in the 21st century, when criticalrisks are assumed to be strategic or cyber-related, a good old-fashioned risklike supply chain could wreak such havoc. The incident offers a couple ofinformative lessons for internal audit in supply chain and crisis management.

Supply-chain disruptions must rank among the top risks for anyrestaurant chain, much less the world's second largest. So, when KFC and DHLannounced their new partnership last year, they did so with a promise of"putting greater focus on innovation, quality and serviceperformance."

According to a DHL news release, "Key areas of focus willbe reducing logistics-related emissions to net zero over the life of thecontract, optimizing delivery scheduling to provide a faster turnaround oforders, and greater integrity of food during transportation allowing for evenfresher products upon arrival at KFC restaurants."

A spokesman for QSL, a food-logistics company that is the thirdpartner in the new distribution process, said, "With DHL, we are confidentof establishing a new benchmark for quick-service restaurants in theU.K." 

Improving efficiency and long-term sustainability are laudablegoals for any company. But any time an organization makes significant changesto a core business function, such as supply chain, there is a risk ofsignificant disruption. Indeed, changes to any of the practices and processesthat support corporate goals and objectives come with a level of risk thatshould be clearly understood by management and communicated to the board.

This should be of particular concern to organizations making apush to innovate. Organizations should understand the risk/reward components toinnovation from the outset. In such instances, it serves the organization wellto involve internal audit on the front end to help identify any potentialpitfalls.

Internal audit's unique and holistic view of the organizationalso helps provide assurance on agreements that turn over key operationalfunctions to third parties. In KFC's case, DHL's promise to "rewrite therule book" and "set a new benchmark for delivering fresh products toKFC in a sustainable way" should have raised a risk flag.

One silver lining from this incident is how well KFC handled thefallout. The company wasted no time in taking responsibility and offering anapology, primarily through social media channels. It quickly set up a websitewhere customers could search for the nearest open KFC restaurant. One almosthas to wonder whether the crisis management plan was built in as a contingencyto the rollout of the new supply-chain arrangement.

KFC then took out full-page ads in two of the U.K.'s largestnewspapers with a clever and sincere apology. One public relations professionaldescribed it as, "A masterclass in PR crisis management."

Of course, the best form of crisis management is to avoid thecrisis in the first place, and that is what great internal auditing helps theorganization do.