3 Real-World Supply Chain Disasters (and what to learn from them)
We examined three real-world supply chain disasters: Hershey’s, KFC (UK), and FoxMeyer Drugs. Each offering lessons in how operational missteps, rushed technology rollouts, and flawed logistics strategies can threaten a company’s very survival.
These cases reveal how supply chain errors (whether in technology, planning, or execution) can have catastrophic consequences. For supply chain professionals, these stories are not just cautionary tales, but essential studies in risk, resilience, and the high stakes of getting it wrong.
Case Study 1: Hershey’s 1999 Data-Driven Breakdown
In the late 1990s, Hershey Foods Corporation, a titan in the confectionery industry, undertook a comprehensive modernization of its supply chain and IT infrastructure. The goal: streamline operations and boost efficiency ahead of the lucrative Halloween season.
Instead, Hershey’s $100 million technology overhaul triggered one of the most notorious supply chain disasters in consumer goods history, costing the company dearly in sales, reputation, and market value.
Timeline
Stage 1: Ambitious Modernization (1996–1999)
Background: Hershey invested over $100 million to implement three major systems simultaneously: SAP’s R/3 ERP, Siebel’s CRM, and Manugistics’ supply chain management software. The plan was to go live in April 1999, allowing ample time for stabilization before peak demand.
Critical Decision: Project delays pushed the go-live date to July 1999. Against expert advice, Hershey launched the new systems during its busiest season, hoping to salvage the year’s Halloween and Christmas sales.
Stage 2: System Integration Failure (July–September 1999)
Immediate Impact: The new systems failed to communicate appropriately. Inventory was not visible to the order management system, and orders could not be processed or shipped efficiently.
Operational Breakdown: Hershey was unable to fulfill $100 million worth of orders, including $40 million in Halloween candy, at the most critical sales period.
Data Point: Quarterly profits dropped by 19%, and Hershey’s stock price plummeted as Wall Street reacted to the missed earnings and operational chaos.
Stage 3: Financial and Reputational Fallout (Late 1999–2000)
Lost Sales: Hershey missed $150 million in orders, including key holiday shipments, resulting in widespread shortages on retail shelves and damaging relationships with major retailers.
Market Reaction: The company’s share price fell sharply, and Hershey’s reputation for reliability took a significant hit, with long-term effects on customer trust and loyalty.
Root Causes
Simultaneous Implementation: Launching three major systems at once, rather than in phases, multiplied risk and complexity.
Go-Live Timing: The decision to switch systems during peak season left no margin for error or remediation.
Integration Failures: The new software platforms were not properly integrated, resulting in breakdowns in inventory visibility and order processing.
Inadequate Testing: Insufficient end-to-end testing under real-world conditions meant critical bugs went undetected until it was too late.
Lessons learned for Supply Chain Professionals
1. Never Launch During Peak Season
Major system changes should be scheduled during off-peak periods to allow time for stabilization and troubleshooting.
2. Phase Implementations
Rolling out complex systems in stages reduces risk and provides opportunities to resolve issues before they cascade.
3. Prioritize Integration and Testing
End-to-end testing under realistic conditions is essential to ensure all systems communicate and perform as intended.
4. Heed Expert Advice
Ignoring warnings from consultants and internal experts can have catastrophic consequences.
5. Align IT and Business Goals
Technology should support, not dictate, business operations. Cross-functional alignment is critical for successful transformation.
case study 2: How KFC’s uk Supply Chain Switch Led to Restaurant Closures
In early 2018, KFC UK experienced an unprecedented crisis: over 750 of its 900 restaurants were forced to close temporarily because the chain ran out of chicken, the very core of its business. This large-scale shutdown was directly triggered by a significant change in KFC’s supply chain strategy.
Timeline
Stage 1: The Strategic Switch
Prior to 2018, KFC UK relied on Bidvest Logistics, operating a decentralized network of six regional warehouses that ensured reliable and flexible chicken delivery to over 900 restaurants.
February 14, 2018: In a move aimed at cost optimization, KFC switches its logistics contract from Bidvest to DHL, which, together with software partner QSL, centralizes distribution through a single warehouse in Rugby.
Stage 2: Immediate Operational Breakdown
February 16, 2018: Delivery failures begin almost immediately after the switch is made. The Rugby depot faces operational issues (software glitches, staff inexperience, and capacity overloads), leading to stalled deliveries and undelivered chicken.
February 17–20, 2018: The crisis rapidly escalates. Up to 750 out of 900 KFC restaurants are forced to close, with others operating on limited menus. Media coverage intensifies, and the shortage becomes a national topic of discussion.
Stage 3: Escalation and Recovery Efforts
Late February 2018: KFC estimates losses at £1 million per day. The company is expected to face a 2% decline in same-store sales and a 5% reduction in operating profit for the quarter. The brand suffers reputational damage as the crisis dominates headlines and social media.
March 2018: To restore stability, KFC partially reverts to Bidvest for 350 restaurants, while DHL continues to serve the remainder, gradually bringing operations back to normal.
Root Causes
Over-Centralization: Moving from six regional depots to a single distribution center eliminated redundancy and created a single point of failure.
Insufficient Transition Planning: The transition was rapid, with inadequate ramp-up time for new staff, technology, and processes.
Logistical and Operational Failures: The new system struggled with route planning, delivery execution, and order fulfillment.
Lack of Contingency Planning: Neither KFC nor DHL had a workable backup plan for such a large-scale failure.
Lessons Learned for Supply Chain Professionals
Avoid Single Points of Failure: Decentralized supply chains offer greater resilience, especially for perishable goods.
Phase and Test Major Changes: Large-scale transitions should be phased, with comprehensive testing and contingency planning. Both KFC and DHL lacked a robust “Plan B.” When the single depot model failed, there was no quick way to reroute deliveries or revert to the previous system. The result: up to 75% of KFC UK outlets closed for days, with others offering only limited menus
Select Partners with Relevant Expertise: Logistics providers must have proven experience in food distribution.
Maintain Robust Contingency Plans: Always have backup options and clear protocols for critical supply chain disruptions.
Case Study 3: FoxMeyer Drug’s Supply Chain Catastrophe
In the annals of supply chain history, the collapse of FoxMeyer Drug stands as a stark warning to professionals everywhere. Once the second-largest pharmaceutical wholesaler in the United States, FoxMeyer’s 1996 disaster was triggered not by market forces or natural disasters, but by a catastrophic misstep in supply chain technology implementation. This case presents a data-driven, stage-by-stage analysis of how overconfidence, poor planning, and failed execution led a $5 billion company to its downfall. FoxMeyer operated two units: FoxMeyer Corp and Ben Franklin Retail Stores.
Timeline
Stage 1: Ambitious Transformation (1993–1995)
Background: By the early 1990s, FoxMeyer was a $5 billion powerhouse, distributing pharmaceuticals in the U.S.
The Plan: To gain a competitive edge, FoxMeyer embarked on a sweeping modernization, investing in a new SAP-based ERP system and automating its distribution centers. The company projected massive efficiency gains and began bidding on future contracts based on these anticipated cost reductions.
Warning Signs: Consultants flagged risks, warning that the project was over-ambitious, lacked contingency planning, and was being rushed without sufficient end-user involvement or business process restructuring. These concerns were largely dismissed by top management.
Stage 2: Faulty Implementation and System Failures (1995–1996)
Testing Flaws: Simulations were run using low-volume data, which failed to accurately reflect the real-world scale and complexity of FoxMeyer’s operations.
Go-Live Chaos: When the new systems were switched on, constant software bugs and distribution center automation failures plagued operations. The ERP and warehouse automation systems could not handle peak volumes, resulting in frequent stoppages and restarts.
Resource Drain: Hundreds of workers were redeployed to manually fix issues, but tens of millions of dollars in shipping errors quickly accumulated.
Stage 3: Operational Paralysis and Financial Collapse (1996)
Order Fulfillment Breakdown: FoxMeyer was unable to process and ship orders reliably. Customers defected, and the company’s market reputation nosedived.
Financial Fallout: The anticipated cost savings did not materialize as planned. Instead, the company hemorrhaged cash, and its inability to fulfill contracts triggered lawsuits and unrecoverable losses.
Bankruptcy: By late 1996, FoxMeyer filed for bankruptcy. Its operating division was sold to rival McKesson for just $80 million, a fraction of its former value.
Root Causes
Over-ambitious Scope: Attempted simultaneous overhaul of IT and distribution without adequate risk mitigation.
Poor Testing: Systems were never stress-tested at real operational volumes.
Ignored Warnings: Management dismissed consultant and end-user concerns, failing to involve key stakeholders.
Lack of Contingency Planning: No backup plan existed for system failures or process breakdowns.
Top-Down Approach: End-users were excluded from planning and training, resulting in an operational disconnect.
Lessons Learned for Supply Chain Professionals
Test at Scale Before Launch
Simulations must mirror real-world volumes and complexity. FoxMeyer’s low-volume tests failed to reveal critical flaws that only emerged under actual operating conditions.Heed Expert and End-User Warnings
Consultants and frontline staff often identify risks that executives overlook. Ignoring their input can be fatal.Build Contingency Plans
Every major transformation should include “plan B” scenarios in case of system failure or delays.Involve the Whole Organization
Change management is as vital as technology. Excluding end users from planning and training undermines adoption and performance.Don’t Rush Digital Transformation
Incremental, well-tested rollouts are safer than “big bang” launches, especially in mission-critical supply chains.
Sources:HersheysZurich InsuranceCase Studies, Henrico Dolfing
KFC UKBBCWiredRotterdam School of Management
FoxMeyerIndependent case study research
