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Assignment 1 I Industrial Management...

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Subway

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Major product Subway, one of the fastest growing restaurant franchises in the world 1 has one primary product; their submarine sandwich. The subs are the company's core product but they also offer salads and wraps.

Resources & materials Resources and materials could be divided into direct material and indirect material. Direct materials are groceries such as bread, vegetables, meat and drinks while indirect materials includes clothes, ovens, cash registers etc. This report focuses on the direct material. Subway does not have any production in-house. All resources mandatory for the final product are supplied by external actors. According to Subway's website 2 their franchisees own so called Independent Purchasing Cooperatives or Companies (IPCs) that are responsible for procurement of products and ingredients as well as equipment, supplies and services used in the franchisees’ restaurants. IPCs work closely with Subway's marketing and product development managers to support new demand. The company strives to deliver financial and service benefits through volume purchasing and supply chain operations. According to IPC Middle East & Africa3 , a brochure published at Issuu, a digital publishing platform for magazines, there are five different IPCs around the world. The five IPCs manage the global supply chains needs of Subway franchisees; handling collectively $5B+ worth of procurement 4. Each one manages the supply chain and procurement for all Subway franchisees in their respective geographical area because market characteristics differs between geographies. The different IPC’s are necessary to get the same high standards in every restaurant all over the world as diverse markets present diverse challenges.

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https://en.wikipedia.org/wiki/Subway_(restaurant) http://www.subway.com/en-us/aboutus/socialresponsibility/sustainablesourcing 3 https://issuu.com/supplychaindigital/docs/draft-meipc-supplychain-april2017ff 4 https://issuu.com/supplychaindigital/docs/draft-meipc-supplychain-april2017ff

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Supply chain network I made the picture below to illustrate Subway’s position in the supply network as well as its vertical level of integration.

IPC has a very significant role in Subway’s supply chain and procurement.

Suppliers The European IPC website 5 states the importance of choosing the right suppliers to ensure customers all over the world the same excellent taste and service. Suppliers should be able to supply the products, packaging and services in the volumes required. Final approval of suppliers is done by Subway FWH, the Subway Franchise World Headquarters, and after that the IPC enters a partnership with the supplier which enables investments on both sides over the term of the contract. When the magazine British Baker interviewed Bryan Griffiths 6, MD of EIPC, he said that it was common for Subway to offer suppliers long term contracts that could be between 5 6

http://www.eipc.eu/How-we-choose-suppliers https://bakeryinfo.co.uk/news/archivestory.php/aid/445/Subway_grows_with_suppliers_as_its_expansion_continues.html

one and five years. He also said that Subway was making investment decisions with their suppliers. For example, to keep up with the calculated store growth a supplier would need to install one more production line. Sustainability is of outmost importance to Subway when it comes to choosing suppliers. Subway’s website 7 states that “From streamlining our supply chains, using sustainable sourcing practices to ensuring our high food quality and food safety standards are met, we not only help reduce energy, water usage and waste but we’re taking care of the environment too”.

Risks Two main areas that might be affected by risks are cost and image. Given Subway’s size and great number of restaurants a single mistake can have a really negative impact on the brand image. If someone gets sick due to bad food at a Subway restaurant this could lead to a bad reputation all over the world, considered today’s global and instant (social) media coverage. From a sourcing perspective, food safety in transportation as well as in manufacturing and processing is extremely important. To mitigate risks Subway needs to secure that suppliers’ employment practices meet Subway’s vendor code of conduct, good manufacturing practice and to have audit processes in place throughout the entire supply chain. Costs can be affected by risks due to the current political situation in the world. For example might Britain’s exit from the EU and the new presidency in the US have consequences on regional and global trade agreements which may affect import and export costs. One way to mitigate this is to ensure flexibility in sourcing, to ensure possible sourcing from and within different countries and a mixed and balanced sourcing from global and local suppliers. Environmental issues such as drought, malnutrition, viral diseases affecting animals, etc. can also affect the availability and the price of vegetables and meat. The main way to mitigate the effects of this is the same as for the above, i.e. a mixed and balanced sourcing from global and local suppliers. In the long run a very serious approach to sustainable sourcing is of paramount importance.

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http://www.subway.com/en-us/aboutus/socialresponsibility/sustainablesourcing

Sourcing strategy I have based my recommendations on the five operations performance objectives for supply chains; quality, speed, dependability, flexibility and cost.

Quality Subway should continue to focus on food safety and food quality, further develop the vendor code of conduct, increase the number of environmentally certified suppliers and to have stringent audit processes in place. Supplier performance management best practices should also include systems to benchmark suppliers and I also suggest that suppliers get paid partly based on their performance and quality.

Speed In addition to having a well designed logistics network, the use of modern technology is something they should consider. E.g. route optimization enhanced by taking road, traffic and weather information into account and use of software for calculation of the maximal filling rate of trucks to reduce mileage.

Dependability Subway has according to their website 8 worked with many vendors and suppliers to add or move locations closer to distributors and they have established re-distribution centers to reduce shipping costs and increase dependability. Subway should continue this initiative and explore the possibilities with the use of big data and advanced analytics to further optimize their supply chain.

Flexibility Subway should increase the share of locally sourced products wherever possible, provided they are cost effective, to ensure flexibility in sourcing by having the possibility to source from a balanced mix of global and local suppliers. This is not only driven by flexibility needs but also customers’ increased interest in locally sourced products that support local businesses as well as reduce emissions.

Cost Costs arise in all parts of the value chain and are affected by everything from operational efficiency, supply and demand, regulations and taxes, to climate. Therefore Subway should invest in new technology to gain from the possibilities with mobility, integration of systems and internal and external data sources, etc. to reach visibility in the entire supply chain and by that be able to adjust and optimize. Spend analysis for 8

http://www.subway.com/en-us/aboutus/socialresponsibility/sustainablesourcing#forcedLabor

categorized products and services to be able to benchmark suppliers and the respective IPCs performance all over the world is key to successful sourcing....