Order Accuracy

Subway's purchasing co-op's promotion software keeps track of product to avoid shortages and gluts.

Chain Leader

Mary Boltz Chapman

When Subway rolled out its Toasted Chicken Parmesan sandwich in September, it had a new tool to help ensure its operational success. Independent Purchasing Cooperative, the Miami-based supply-chain management organization of U.S. and Canadian Subway restaurants, used Web-based software to look inside the product pipeline and carefully monitor and alter its flow.

IPC, which represents about 20,000 Subway units in North America, began testing the promotion-management system in mid-2005. The technology is meant to make limited-time offers, promotions, product tests and rollouts more profitable by preventing the chain from running out of product or from having leftover inventory. It automatically sends daily reports to IPC, allowing the co-op to see what its distributors have on hand and what they have ordered from manufacturers. The software also enables IPC to set limits, telling the system to send an alert if inventory levels get too high or too low.

Roll with the Changes

The Chicken Parmesan sub features a new product, breaded chicken tenders, topped with marinara sauce and cheese, then toasted. IPC used the data to help the suppliers determine when they needed to produce more chicken tenders and when to slow down. "It was a national launch, so we were using the information daily to see how the distributors were selling the product, how they were tracking week-to-date, so that we could see when the inventory and sales started to level off at the distribution centers so we could tell suppliers to scale back on their production," explains Beth Gambrell, IPC purchasing manager.

She tells of an instance when a distribution center looked like it was running low, and they hadn't placed an order yet. "We contacted the center and recommended that they might want to place an order, that based on what we were seeing, they would potentially run out of stock," she says.

Saving Time and Money

The system is different from Subway's procurement software, in that it enables IPC to see what distributors actually have on hand, what they are selling and what they have on order. In the past, if the co-op wanted that information, it would have to phone each distributor to request the information, wait for it, then translate the data from each distributor's reporting system. That's assuming each distributor answered the request.

"That information is necessary because when we bring in new items and we are testing them or they are limited-time only and we are trying to determine if they will become permanent menu items, we want to see what the sales are on a weekly basis, sometimes even daily," Gambrell says. IPC then can ensure that manufacturers are keeping up with demand. Or if the item isn't meeting expectations, that suppliers are adjusting production accordingly.

Ten years ago Subway didn't do a lot of new product introductions, so there weren't a lot of changes to the menu. But now, the chain might have six different sandwiches in test markets at the same time as a national limited-time offer.

"If we didn't manage those inventories, we could end up either advertising something we don't have to sell and running millions of dollars of advertising for naught, or we might finish a promotion and have millions of dollars of inventory sitting at the distribution centers or at the manufacturers because the promo or test did not go well," IPC Vice President of Purchasing Dennis Clabby explains. "We look at our role as one to reduce costs to the franchisees. And those are significant costs that will eventually find their way back into our system."

Future Development

Clabby hopes the next step in the software's development will be to allow access to the chain's manufacturers, so they can better plan production and be proactive on their own. He says it would allow suppliers to even out production, helping to eliminate rush orders and overtime, and ultimately keep costs low.

Redwood City, Calif.-based Instill Corporation, which developed the promotion-management software, also serves as IPC's procurement-system supplier. Jeff Smith, Instill's vice president of marketing, says the new software also has functions to collect franchisee commitments prior to a test or promotion and to analyze the results, but IPC is not yet using them.

Subway's results are analyzed at corporate headquarters in Milford, Conn. Neither the chain nor IPC is able to quantify the software's success.

But, Clabby says, "We consider a successful promotion or test is done when we've minimized the cost, minimized inventory and made sure that everyone had product when and where they've needed it."