Operators need to become better at walking away from uneconomical contracts, according to a supply chain expert, who pointed to KFC’s issues with its new DHL Supply Chain contract as a cautionary tale.

Richard Wilding, professor of supply chain and logistics at Cranfield UK and chairman of the CILT, told MT that businesses of all sizes are guilty of not understanding their cost to serve.

“There have been points raised that maybe KFC shouldn’t have gone for the lowest bidder.”

“We’ve created a culture where people believe that each time a contract is renegotiated, that it will be cheaper. If we carry on that race to the bottom, that isn’t going to serve anybody and you’ll end up with unstable businesses," he said.

Wilding will speak on the topic at the Microlise Transport Conference in May, where he will advise operators to examine the true cost to serve its customers.

“If you have clarity of what your service costs at the level of service your customer wants, the customer can make a decision about what they want. And if they want to pay less, the operator needs to walk away," he said.

Wilding added that it’s important to remember that there’s no such thing as a free delivery, and that it’s up to the industry to educate their customers about this.

“It’s about understanding that, in a world where everybody wants free delivery, particularly when we’re going out to consumers who want free deliveries and returns, there’s no such thing," Wilding said.

He added: "Somebody, somewhere is having to pay. And that could be from the perspective of the organisations concerned, or it could be in terms of a society we’re putting in a position where it’s difficult for people to make a living."