Strategy, Legal & Operations

Avoid supply chain problems by investing in the right technology

Value of Enterprise Management

If you’re in the grocery business, restaurant industry, or specifically, the poultry business, you are aware that 2017 was a volatile year for the chicken industry in the United States. Chicken wings, the third highest grossing cut in the fresh meat chicken category at $881 million in sales, was hit with a shortage, causing the average price to skyrocket 6% year-over-year. That was a classic supply and demand issue.

2018 has proven to be problematic for chicken over in the United Kingdom for one restaurant specifically, but for a separate reason.

Supply chain management problems

Last month, in the United Kingdom, KFC stores ran out of chicken due to an issue with a supplier and the restaurant was forced to temporarily close hundreds of its 900 branches. KFC was able to find humor in this situation, with a publicly acceptable comeback that gained positive PR buzz, but it is a business case study on how supply chain problems can occur.

It’s a warning to food manufacturers and distributors about the amount of money that could disappear due to lost business in the event of supply chain problems. After all, according to Mintel, UK customers spent an estimated £2.2bn in chicken restaurants such as KFC, BIRD or Chick ‘n’ Sours in 2017. (That’s equal to $3.1bn US.)

The problem at its core was around distribution – a new delivery partner in DHL said it was having “operational issues” that resulted in supply disruption. DHL, along with a software partner in Quick Service Logistics (QSL), had replaced South African-owned company Bidvest.

Samir Dani, Professor of Logistics and Supply Chain Management at the University of Huddersfield’s Business School, told Wired that operating out of one single warehouse may not have helped matters.

He said: “Companies may operate out of one warehouse, but you have to think about the product. There are legality issues around the quality of the produce and the contamination that can happen is not handled properly. That’s the problem with food – distribution can’t be thought about like any other supply chain.

“Serving the length and breadth of the country from one warehouse is a complex task anyway. The fact that it was a new warehouse, new IT system, and the handover was just happening makes this a perfect storm.”

What caused the chicken crisis?

Richard Wilding, Professor of Supply Chain Management at the Cranfield School of Management, believes the full cause of the crisis was more complex.

“Using a single location will not be the lone cause of this particular problem at all. There will have been a number of elements which have come together. Demand, automation in the facility, the planning software, all those sorts of things interacting together. There may be a particular cause which will come out of this, but pinpointing that may be a tricky thing.”

Without knowing the full detail of why the situation occurred, it’s still worth food and beverage manufacturers and distributors looking carefully at their own business processes, to reduce the chances of a similar supply chain problems occurring for them.

The need for advanced data analytics

All food and beverage manufacturers are dealing with huge cost pressures and razor-thin margins. They need to forecast accurately and deal with changes in demand, forced by changing customers and other economic pressures.

Many are starting to recognize that the vast amount of data generated from their daily operations and the products they make can be turned into insights, making for a significant economic advantage.

Because of data, food and beverage leaders outperform less data-focused businesses in terms of plant efficiency, customer service, and innovation. Since they can use data better, they can make better decisions and have increased agility when managing operations. This allows them to deliver higher quality products at lower prices.

As a food and beverage manufacturer, you should also look at enterprise systems, which can help you manage complex product and operational data. This gives both manufacturer and employees the ability to connect day-to-day operations and their overall business goals. ERP systems can forecast and report production, consumption, and fulfillment, reducing spoilage and cost by improving efficiency.

You should also think about the tools you’ll use to turn the data you have into actionable intelligence.

This is valuable for your supply chain needs because analytics can provide intelligence for when a problem might occur, and even provide direction on how to resolve that issue.

A combination of analytics, alerts and dashboard models can automate the collection of data, analyze and monitor it, and escalate issues to the right decision makers.

If you’re summarizing data from multiple sides of the business, you can plan your purchasing, delivering and maintenance more efficiently, giving you the agility to cope with supply chain problems before they occur.

You can then think about moving away from a traditional manufacturing “siloed” approach, favoring full supply chain integration right to the point of delivery – perhaps by using the Internet of Things to transfer data collected from the shop floor to complement a centralized ERP system.

Distributors need to be equipped to meet customer demand

Distributors must meet the demands of food manufacturers and customers without sacrificing their profit margin. The need to get the right food products, at the right place, to the right customers is vital.

This is critically important in the food industry, where the product is perishable and can only be stored for a certain amount of time. Reports indicated that the KFC chicken crisis resulted in chicken spoiling in depots.

If you’re a distributor, you can lower costs and improve margins by streamlining your processes and optimizing your supply chains – managing inventory and keeping prices in check.

You must also prioritize collaboration and service, interacting with and understanding the customer, as well as their needs. This might mean changing the way you deliver products, which would require changes in workflow.

However, legacy systems often make it hard for distributors to implement new delivery methods, as well as increase interoperability and efficiency. That’s why it is necessary for distributors to modernize the technology that they use to support their operations.

This could involve new ERP systems, integrated with technology such as CRM and real-time analytical capabilities.

Peter Laplanche, a director at Datatrade, said that when it comes to managing supply chains, an efficient warehouse was paramount for the smooth running of an operation.

“It’s not just about products being stocked and logged properly, it’s also ensuring they can be easily located to be shipped as efficiently as possible. Flawless fulfillment, as it has been known, has served the purpose of computerizing in real time the tracking and checking of products as they pass through picking, packing and despatch.”

With ecommerce growing and firms moving products around a network of warehouses and stores, Peter believes there was a need for a more interconnected and transparent fulfillment process.

Avoid supply chain problems with smarter, efficient systems

He said: “Intelligent fulfillment, while still in its infancy, offers promise that artificial intelligence [AI], automation, machine learning and the Internet of Things can be brought together to create smarter and more efficient systems.

“Better visibility of stock and improved communication ensures items are available whenever and wherever they are needed.

“With such technology, operational managers could monitor the real-time status of stock levels and locations to anticipate and adapt product levels according to seasonal/peak demands, or changing weather conditions.”

According to Food Manufacture’s Online Supply Chain survey in 2017, 64% of reports said they planned to invest in supply chain operations over 2018. However, this is down from the 71% reported in 2016.

The KFC crisis shows supply chain problems can cause logistical issues and damage to the reputation of a business, comparable to the unwanted attention caused by a sizable data breach.

It shows the true importance of logistical operations, which should certainly not be neglected. Businesses would be wise to remember these lessons.

Editor’s note: This article was originally published in March 2018 and has been updated for relevance.