When the Chicken Crossing the Road becomes no joke: KFC
As reported in recent days, many KFC outlets remain closed across the country, due to problems with a new supplier; what it has called “teething problems”, but whatever the reason, KFC’s predicament brings into sharp focus the reliance on suppliers in business and the risks that can arise if they are unable to deliver – in KFC’s case, literally.
Until last Tuesday, the South-African owned Bidvest distribution group handled the logistics in delivering KFC’s fresh chicken to its restaurants and outlets across the UK.
A change in supplier can be a common decision and no doubt, given the significance of KFC’s supply chain to its successful operations through the UK, that decision would not have been taken lightly.
Whatever the reason, one of the most important aspects in any business relationship, be it with your suppliers, as here, your clients or customers or your staff, is what happens if things go wrong? What a negative way to look at things you might think? But this is not about being negative; in fact it should be a positive aspect of any initial negotiations – sometimes things don’t go to plan; sometimes that will be outside of either party’s control – such as adverse weather delaying a shipment of goods, for example – but sometimes, it is caused by one side, for whatever reason, failing to meet the obligations they had agreed.
Naturally, in those circumstances, people think of insurance – if I crash my car, the insurance is there to protect me in any claim. However, SMEs have a real opportunity to manage their customer and supplier relationships, through well-thought-out contract terms.
We were recently advising a technology business on the supply of equipment to a much larger group. Say they on-sell that equipment to their own customers, to be used in ways that our client simply wouldn’t know and for some reason they decide the equipment isn’t suitable, causing them to lose a major contract – is that the responsibility of our client?
In KFC’s case, what is the value of potential damage to its brand and business from this current issue? With the majority of its outlets closed. And of course that is not only the loss of revenue but the potential for its brand to be tarnished in some way – in fact, KFC have been handling communications around the problem positively, with regular updates, but arguably their new supplier is liable for any losses and damage that they suffer.
It is often only when problems arise that SMEs and businesses recognise that in fact they do not have contracts in place. Within well-crafted terms and conditions, it is possible to spell out exactly what happens if a problem arises – this includes, practically, what should be done to try and manage the issue but also should outline where liability falls. Is DHL likely to be responsible for the entire loss of revenue suffered by KFC? Business owns can, within their terms, limit the extent of their liability in these kinds of circumstances; both, financially – perhaps with a cap on value of any claim and in terms of the kinds of los that are included – in DHL’s terms, no doubt, they would have excluded liability for loss of business caused by issues in delivery, given these issues are foreseeable. In your business, you can do the same – if a delay in supply to one of your clients and customers causes them to lose a major contract, costing £100,000, can they seek to pass that loss on to you, in a claim for damages? Or have you limited the potential for such claims in well-crafted terms and conditions?
Devising bespoke contracts and terms for your business can allow you to cover these issues, ensuring the risks in your business are minimized, even if things, as they will, sometimes go wrong. It also ensures that the relationship between you and your clients or customers is stronger, as the basis upon which you are doing business is clear. Click here for more information on our fixed price services in these areas: Commercial Contracts and Online Trading and E-Commerce