Logistics & Supply Chain Management of KFC
Abstract
The primary goal of logistics and supply chain management is to develop both supply and distribution chains that efficiently achieve the perfect of products, on orders placed by the company and products received by the final consumers. The primary aim of the supply chain is to fulfil the customer demand by driving the customer value and responsiveness improvement to create an organizational financial success and development of a good network structure of business between the partners, shareholders, distributors and customers. Its primary focus is making available the products to customers in time most efficiently and effectively most efficiently and effectively. “A good supply chain is one that delivers the right goods, at the right time to the right destination and with proper invoicing for payments” (Dobroszek, 2020).
In its goal to achieve efficient fulfilment, supply chain makes inventory readily available to clients. From the new business adage, the primary purpose of supply chain management is shortened by the phrase ‘you cannot sell from an empty wagon. Its efforts are to maximize productivity, minimize inventory levels, and develop standardized processes to help the company reduce in wastes, costs and achieve efficiencies in the supply chain. For instance, KFC fast food and restaurant, through all its branches strive to minimize the imbalance between the customer demand and the available inventory to drive the customer value.
Introduction
KFC is among the world’s largest and well-known chicken restaurants with more than ten thousand outlets in more than eighty countries. It has several franchisees and operates with modesty among its competitors, such as the McDonald’s. Logistics and supply chain management is the management of the flow of goods, raw materials through the inventory process to finished products, i.e. from the point of origin to consumptions. “Most organizations strive to match supply with the demand of the goods they deal in a timely fashion by use of most effective chain resources” (Hryhorak, Trushkina, Popkowski and Molchanova, 2020). KFC has interconnected links, channels and business nodes that supply its outlets with the required products that are needed by the final consumers. This creates a supply chain management that is defined as the designing planning control and monitoring of logistics activities. The main objective of having a creative supply chain is to build a competitive infrastructure that leverages the world’s supplies and synchronizes supply with the demand that measures global performance. This study aims to finds and analyses the logistics involved in the supply chain of KFC’s chicken from the chicken farms to the end products in various restaurants.
Description of the supply chain
Fig.1 The supply chain for KFC Restaurants
The KFC supply chain drawn above contains the contact suppliers’ inclusion of characters such as DHL that supplies chicken to the restaurants, KFC itself through its several outlets, to distributors in the inclusion of delivery men and vans, to the final users of the chicken. The upstream flow contains the chicken farmers who supply them to contact suppliers. In this case, we are dealing with one product line of KFC, that is chicken, and we have not put into consideration other products such as French fries, drinks and salads. Between the upstream flow and the downward stream are the KFC and its various outlets. “The downward stream outlines the distribution chain from KFC to the end-user” (Koulik and Zamiar, 2020). This part constitutes the distributor, retailer, and final consumers. KFC does not employ a complex distribution chain in the downstream flow. It is a very simple and direct channel that ensures smooth movement of ordered chicken products from the restaurant through distributors, retailers and the final chicken consumers.
Supply chain operations are geographically distributed throughout the world. Most of the concentrated outlets in major streets are supplied by major suppliers such as DHL. For instance, in the supply chain, the chicken is ordered for supplies by the KFC management after considerations of factors such as proximity of the supplier to the particular restaurant they wish to supply to, the costs factors, the perishability and freshness of the chicken, and other factors such as reliability and quality if the chicken products that particular suppliers. This includes scrutinization of the previous supply records to get the best supplier. “Scrutinization of suppliers is done by the Logistics departments to prevent ugly occurrences that happened in the UK where most of the restaurants were closed” (Nitsche, 2018).
In terms of supply chain complexities which describes the condition of interconnectedness and interdependence across networks, changes in some aspects can affect the whole system is albeit minimal, albeit difficulty situations. “The KFC supply chain and logistics have a smooth chain operation with an accurate delegation of aspects and element” (Prasad and Tata, 2000). The KFC supply chain complexity is unpredictable, as it stabilizes when the suppliers stick to their contracts with no failure. But a single change of events in supply activities limits the menu of the restaurants that could lead to the closure of certain restaurants. But in general, most of the KFC restaurants globally have a smooth supply chain with minimal interconnectedness and elimination of any bullwhip effect.
Demand Management
There is high consumer demand for product variation in all food outlets globally. The KFC has gained popularity due to its ability to manage demand by eliminating the possibility of bullwhip effects that could cause fewer supplies over efficient demand. KFC manages the demand by its clients differently as it aligns the suppliers’ supplies to the projected demand of the clients. Several factors affected the demand for chicken in KFC restaurants.
Factors that affect the demand for chicken
There are many firms in the chicken industry with product differentiation and several buyers. This results in good and healthy competition and leaves the customers satisfied with its eatery leading to 80% customer retention. “The possibility of switching chicken eateries is so low due to contact dictions are various recommendations” (Prymachenkо and Hryhorova, 2020).
Price- The fried KFC chicken generally has price elasticity due to the variation in the number of restaurants. If KFC raises the prices without adding sauces and convincing spices, the demand is likely to reduce. Similarly, ad increase in price corresponding with the increase in quality and taste of the chicken raise the levels of customer satisfaction and loyal clientele. The joint demand for fried chicken of KFC and its competitors is based on the varied purchase of compliments, biases in preferences and the addictive qualities that resonate well with the prices.
Taste and preferences- The taste of the KFC chicken determines its demand. The consumption rate tends to rise with the increase in taste and preferences of the KFC chicken. Thus leads to a word of mouth advertisement that leads to increased referrals and a rise in demand.
The demand is also affected by the existence of other large competitors such as McDonald’s and chicken in that also has a relatively higher customer satisfaction level.
Also, random variation is customer behaviours, and unseen factors like demand surplus with low supply could lower the demand for KFC chicken. The trends in the restaurants and foods industry also affect the demand for chicken. In cases where bonuses and promotional activities are done tend to attract more clients leading to increased demand. There are also seasonal demands that affect chicken demand. For instances, in cases where the economy is not doing so well, people tend to restrict their consumptions, and this often affects the demand for KFC chicken.
Benefits of using CPFR
Yes, KFC could benefit a lot from using Collaborative Planning, Forecasting and Replenishment (CPFR). This is because this system cuts on the supply chain costs by promoting greater integration, visibility and cooperation between KFC and its trading partners of suppliers and distributors. This tool could also be useful for KFC to help in planning and forecasting of the demand and supply of chicken. Also, KFC could benefit in terms of increased chicken sales due to improved chicken service delivery levels, adequate responsiveness to promoted demand, and reduction in processing and distribution costs due to more stable and accurate demand and supply forecasts. CPFR also reduces the inventory costs as it bases the supply chains in trading partners and suppliers’ chains.
Additionally, KFC can also financially benefit from CPFR in various ways, such as forecast accuracy improvements that smoothen the ordering patterns, increases revenues. It is also efficient to use CPFR to realize high order fill rates, increase in coupling inventory levels such as safety stock, and reduction of the costs of goods sold. Based on the better insights of the future customer chicken demand, KFC will be able to make a more accurate forecast, less distribution that leads to stable sales and an increase in profits and revenues.
CRM practices suggestions
CRM is a software that keeps organization information, data, purchase history and progress and all information about an organization. It can be accessed from anywhere and managed by a central location. KFC uses the Hub Spot CRM, and Salesforce.com CRM software to track and manage its information.
I would advise KFC to choose the CRM system that maximizes the needs. Some CRM software is customized to suit the operations of individual companies.
I would also suggest KFC Training the workforce to ensure the user utilization of the software. This enables the company to manage costs as employees will be able to understand the information being presented. KFC should thus test the employees on their accuracy of learning, ad retaining to ensure accurate application of the software.
KFC should also make CRM Rules that manages the supply chain and logistics, in the inclusion of well-coordinated between KFC’s CRM and the suppliers’ CRM to ensure compatibility.
KFC should also move with speed to create a CRM automation system to allow real-time monitoring of logistics and supply chain operations.
“The company that focuses its CRM software on collaboration with partners can achieve more effective supply gain logistics” (Ślaski, 2017). The Supply chain, coupled with a simple CRM and CPFR is more advantageous to a company in getting a competitive edge.
Sourcing Management
KFC has various chicken suppliers among all the countries that have their branches. For example, the major KFC chicken supplier remains Bidvest logistics which has been one of the longest and largest chicken suppliers, with majority branches in most countries. In addition to Bidvest, Koch Foods, Pilgrim’s Pride, Tyson, and Case farms are also KFC suppliers in various geographical locations in the USA. The major suppliers are located close to major branches in various countries.
Factors that affect KFC Sourcing Decisions
Several factors affect the KFC’s supply chain managements decision in dealing with Chicken sauce decision, on suppliers and their locations. “In any business proximity to the raw materials is ideal for the success of logistics and less supply chain interruptions” (Presley, Meade and Sarkis, 2016). These factors include cost pressure, availability of chicken, quality, and the levels of competition and competitor’ actions.
Cost pressure
It is the most determining factor while deciding on chicken suppliers and their locations. This factor assesses the costs of purchase, transportation and the safety of delivery of the chicken to the KFC’s stores. “It is business-oriented to go for a lower cost supplier that is closely located to the business” (Özer and Raz, 2011). The higher the cost of associating and contacting a supplier, the less likely that the supply chain management will settle on them, holding all other factors constant. A less costly supplier is likely to be contacted.
Availability of Chicken
One of the factors that supply chain managers look at is the availability of the chicken they require. The logistics managers at KFC consider the availability of the chicken within the stores of the suppliers. This is done to get an assurance that there is no pint that there would be chicken shortages that would remit most of the KFC eateries closed or on restricted menus. The availability of chicken within the suppliers’ control is among the major factors considered in deciding on chicken sources. Also, the proximity of the supplier to the restaurants makes it easier to source for the raw materials, in our case chicken, more easily.
Quality of the chicken
KFC is well-known and reputable for high-quality chicken. Therefore, one of the factors to consider while sourcing for a supplier is the quality of the chicken they offer. If there are low-quality chicken, then the closeness of the supplier to the restaurants does not matter. The KFC’s board of supply chain manages the quality of the chicken more concisely as the brand’s reputation depends on it, and in effect is damaged, grand levels of losses would occur across the 80 states that they operate in.
Supplier Capability
“A well-established supplier is a case to reckon when identifying any supplier for any predict” (Fine, 2013). For KFC, the supply chain management evaluates the supplies based on their economies to scale and their product supply turnover. If a supplier has inadequate resources to supply chicken effectively, then it is likely that such a supplier will be dropped off for a well-organized and established supplier. Also, KFC considers high capability suppliers to supply their chicken; however, the longer the distances are, in a such as the required amount and quality of chicken is supplied.
Competition
When most of a company’s product get their raw material from a particular supplier, then it is unlikely to get competitors getting supplies from such. In this case, when KFC realizes that its chicken suppliers are also in talks with rivals over the same, a possibility of drop off is inevitable, as exchanges of clauses and contracts read otherwise.
Production Management
Responsiveness vs Efficiency
The customers at KFC have an 80& loyalty to the restaurants due to their consistency on quality of chicken they offer, a feature that has enabled a 100% customer retention and satisfaction.
In order to maintain the high quality of chicken it is known for, KFC rather gets suppliers from longer distances that costs them more on the supply chain, than get low quality chicken at lower prices and shorter substances that would undermine their quality and brand’s image. “Efficient production in any company means making the final products without wasting raw materials and human labour” (Javaid and Siddiqui, 2018). Efficient KFC supply chain management implies running the operations if the firm while reducing the cists, including those of raw materials and labour. Responsiveness, on the other hand, enables the company to resins to changes both internally and externally in the marketplace.
In order to maintain customer loyalty and satisfaction, KFC forgoes their operation efficacy and apply their responsiveness to the customers’ satisfaction queries and market changes. For instance, it offers order-fill accuracy, scalable fulfilment, customer communication, and customer satisfaction at the expense of optimization, high-quality partners, and inventory management.
KFC also offers quick delivery with full details of the order. If the order arrives fast but with incomplete details, then the reputation of the firm is likely to suffer. Therefore KFC would rather delay a bit but ensure the order is filled accurately. In fulfilling the changing scales of volumes of orders, KFC offers a responsive supply chain by keeping unsold inventory and accommodating the changes in the demand, always a reduction. In cases of queries, the KFC’s CRM opens its line of communication in regards to customer feedback and queries relating to the qualities of the chicken or fulfilment of the orders.
“The efficiency and responsiveness to changes in any company are opposites” (Koops, Mollenkopf and Zwart, 2002). The supply chain efficiency requires the speed of delivery, accuracy and delivery of uniform orders. In comparison, responsiveness demands a slower pace and customized orders. The KFC restaurants have the policy to offer relatively slow services but with high quality all accurately filled orders.
Volume vs Variety
The KFC do not concentrate more on the volume on the chicken but in the variety that can serve different tastes and preference of their clients. Volume refers to the amount of chicken demanded by customers and supplied by suppliers. In contrast, variety refers to the number of types of chicken that KFC orders and supplies to its customers.
The push-pull supply chain system.
KFC has a strategic supply chain that employs a mixed push-pull supply chain that manages to draw customers towards their chicken products. This mixed strategy of supply chain system creates an impact on the customers by advising and informing them of the quality and availability of the product.
Supply Chain Relationships
There exist strong and solid bonds between KFC and its suppliers, as well as the customers. For example, the delivery partner, DHL and Bidvest group revolutionized the operations of KFC by lowering the costs of operations. There are a direct relationship and sharing of the CRM software that creates ease of communication, placing of orders and any other question that needed therein.
Implication on the relationship with Suppliers
The implication of the great relationship between KFC and its suppliers has led to the adoption of a cost-saving approach that has enabled both companies to accumulate enough capital to expand simultaneously. In these scenarios, the expansion of any KFC to a new branch in a new country implies that one of their suppliers also expand. For instance, when the South African KFC branches were opened, Bidvest too expanded to South Africa, to keep up with the supply chain relationship.
Another implication of this relationship is that there is accountability from various pints. The chicken supplied are verified at various ends that eases the financial calculations on the revenue generation procedures. Also, any expansion in technology by a partner impacts on KFC. For example, when DHL invented and put into use the online monitoring of inventory movement, KFC benefited by getting partner delays free of charge, ad shared it to other suppliers. “The relationships between corporations, especially business partners whose survival demands on one another are always symbiotic” (Hammervoll, 2011). This can be seen in the relationship between KFC and its suppliers of DHL and Bidvest Group.
Implication on the relationship with Buyers
The implication of KFC relationship with its customers includes the increases in sales, customer loyalty and retention, word of mouth advertisement. KFC has a CRM software that takes care of the customers making them more included in the success dairy of the company. In cases of companies, feedback and request of any allowed information, the customers can request from the customer service section of the company.
KFC is thus able to generate a lot of revenues from client loyalty due to the good maintenance if their relations. With an increase in sales, there is an increase in profit margins. Another implication is the expansion in terms of market share in comparison to its competitors. A company that manages its CRM well and accords the customers with respect and quality for their money is always successful against competitors. Good KFC-customer relations also result in improved responsiveness and understanding of individual employee performance in better customer service. The creation and nurturing of the strong customer relationship between customers a KFC or any other business can make the customers feel a more important part of the company, which therefore fosters a better discussion on the future of the firm.
Supply Chain Sustainability
KFC applies various sustainability practices to ensure their supply chain lasts and is effective. They include:
Mapping the supply Chain-This includes identifying the most significant environmental and social challenges, and see how to prioritize them with the suppliers. KFC creates an evaluation centre that jointly with the supplier’s asses the challenges involved and see how to overcome them. This practice is helpful in completely curing any challenge as opposed to non-mapping, where the problem is identified only on one side.
Communicating the expectations prior- Before signing any supply chain contract, KFC focuses on the core values and corporate cultures of the suppliers. This involves communicating the expectation to the supplier. This helps in identifying the weakest links in the supply chain and amending it accordingly.
Industrial collaboration- KFC combines efforts with its suppliers to ensure that the best of outcome id achieved that is profitable for both the supplier and the organization. This practice is essential in sharing risks in case they arise as it pools supply chain risks from both ends. “In a competitive business environment, collaborations between a business and its suppliers is important to devise strategies to conquer the market” (Wu, Wang, Li and Su, 2018). Industrial collaboration prevents fatigue and training redundancy and improves performance in both firms making the logistics industry.
Other sustainable supply chain practices that KFC can adopt in its operations to ensure supply chain success are:
Baseline supplier performance- KFC can indulge in this practice by collecting relevant information from its suppliers. For instance, KFC can practice this by verifying the compliance standards from Bidvest. This will ensure that the supplier is compatible with the business before the contract is given. This helps improve the supply chain as it prevents entry in non-classical supply contracts.
Align the supply chain- Due to the high inventory turnover rates and god public image of KFC, it can align its supply chain practices to that of the suppliers to ensure maximum client satisfaction is derived.
Establish more key supplier relationship- Another practice that KFC can practice is improving their supplier relationships to ensure smooth flow of both negative or disappointing supply information without failure. The most effective way to do this interlinking the CRMs of the common with that of the suppliers to realize instant information reliance.
Another practice KFC can try is driving performance improvement- Once the supplier baseline performance is understood, KFC can audit the supply chain process and measure its performance over time. With so many cases of evacuation, KFC will be able to master the supply trends amongst its suppliers, and this will enable it to plan accordingly to avoid chicken shortages. It is very easy to fix a supply chain challenge when one has all the invariable information on both ends from within the logistics chain.
Conclusion
In conclusion, Logistics and supply chain management is crucial to any business. More vitally, it is important to restaurants, especially the fast-food business with a worldwide public image such as KFC. When assessing the efficiency and responsiveness of a supply and logistics chain, several criteria should be accessed, including the relationship between the company and its suppliers and consumers. In order to avoid shortages and supply chain challenges, KFC should build contingencies and adopt new measures on the supply chain management that directly affect decision making while handling the supply of chicken. The consumer demands are regularly changing, and this has forced companies to adapt too. For global companies such as KFC, sustainable approaches in the supply chain should be applied to make the clients’ favourite eateries for maximum chicken satisfaction. In a nutshell, KFC manages its supply chain so well and creatively in the inclusion of auditing the supply chains of its suppliers and delivery systems for its distributors.
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