The new reality mandates change in the automotive supply chain

Can’t Find The Chicken

Over Christmas, my in-laws were bemoaning that, other than the Morecambe & Wise re-runs, there was nothing funny on television. My children, forever inquisitive, enquired who exactly Morecambe & Wise were. My wife and I, with the benefit of YouTube videos, duly obliged by showing them the Singin’ In the Rain and Breakfast sketches. I have never seen such underwhelmed children.

Comedy, therefore, is clearly an age thing and I was reminded of this by KFC’s recent woes, or Kentucky Fried Chicken as it was when I was a lad. In particular, I recalled an old routine by Jasper Carrott from the late 1980’s – look him up on YouTube, kids, he was quite good.

This particular routine, which dates from around the time of the BSE scandal, sees Jasper talking about burgers and what goes in them. Applying something of a scattergun approach, he then targets KFC, which he reckoned stood for “Can’t Find the Chicken”.

This still makes me chuckle and I can only wonder why none of the media used this particular line when reporting on the recent KFC story. I am forced to conclude that newspapers must now be staffed exclusively by people under the age of 30.

Putting my grumpy old man persona to one side for a moment, the KFC issue highlights what can happen when things in the supply chain go wrong. While the facts are not fully in the public domain, reports appear to suggest that this particular problem was caused by teething issues at either or both of DHL, who had just taken on the KFC distribution contract, or QSL, who provide the IT solutions to DHL.

What is clear is that KFC and their franchisees have suffered a loss of profit, given that 750 of 900 UK restaurants were forced to close, some for the best part of a week. However, what is unclear is whether KFC will be able to recover this loss under their own insurance programme.

For the sake of this blog, let us make a couple of assumptions. Firstly, the issue resulted from an IT failure at DHL/QSL. Secondly, KFC, because they understand their supply chain risk, had bought a contingent business interruption (“CBI”) extension to their cyber policy, just as they do in their property programme. This CBI cover is triggered when an event occurs at a supplier, which, if it happened to you, would have caused your own policy to respond.

So far, so good. But, how do KFC make sure that this CBI cover will actually respond?

In property, evidencing that one of your suppliers has had a fire or flood is pretty easy – look on the BBC website or, if still in doubt, hire a drone. However, this isn’t going to work with a cyber event. Essentially, KFC are dependent on what DHL either publish in the media or tell them directly.

However, it’s in DHL’s best interests to keep as much as possible out of the public domain. On that basis, unless there is a clause in the contract between DHL and KFC that forces DHL to disclose the reasons for their failure to supply, KFC are going to have difficulties getting the CBI section of their cyber policy to respond.

The solution to this conundrum lies with supply contracts. Given that supply chains are increasingly dependent on IT working all of the time, surely it is not beyond the wit of man to include a clause in the contract that requires full disclosure by the supplier in the event of an IT outage or, even better, any operational issue that results in failure to supply?

The existence of this type of clause is highly unlikely to be discovered by insurers at the underwriting stage. Therefore, the responsibility sits with risk managers and in-house lawyers to address this problem before a claim occurs.

If they don’t, nobody will be laughing should insurers then reject the claim. Even at Jasper Carrott jokes…

Ben Hobby

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