Chicken from Thailand 30 per cent cheaper than the UK, says Subway purchasing company as it aims...

Will Green is news editor of Supply Management
26 November 2014

The purchasing organisation that supports Subway franchisees across Europe is aiming to produce savings of £40 million this year.

The European Independent Purchasing Company (EIPC) was set up 10 years ago to act on behalf of franchisees and in that time it has generated total savings of £183 million. It aims to hit this year's target through a combination of measures, including cost avoidance, "value engineering" and tendering.

EIPC acts as a broker between suppliers, distributors and franchisees, agreeing prices and volumes with suppliers and delivery costs with logistics firms. It is then franchisees who settle the bill after goods are delivered.

Mike Attwood, purchasing director at EIPC, told SM: “The supplier has to finance the purchase up front. We agree with the supplier the forward purchasing decision. The supplier takes the risk. We commit to the volume, so the supplier can commit.”

EIPC has a staff of 80, working across 28 countries and purchasing 250 food and packaging items, which can generate two million “sandwich permutations”.

“Anything that hits a franchisee’s P&L [profit and loss], where it makes sense to do it from a central deal, we’ll do it from a central deal,” said Attwood.

This includes energy, distribution, business services, wifi and equipment. “We are beyond just a purchasing and supply chain organisation,” said Attwood. “We are almost the one-stop shop for a franchisee’s business.”

As well as sourcing, EIPC also gets involved in product development and value engineering, which resulted in an annual savings of around £600,000 by reducing the amount of beef in pepperoni and salami.

The organisation was part of work to reduce salt that began around six years ago after it was discovered meatball marinara had “more salt than 18 packets of crisps”.

In terms of sourcing, EIPC seeks out suppliers that can supply the whole of Europe, though fresh produce can be sourced at country level, and contracts typically run for seven to 10 years. Where possible prices are fixed for the year ahead.

“It’s far more efficient to buy it centrally from a few quality suppliers. Otherwise you spend all day dealing with suppliers,” said Attwood.

He said it was 30 per cent cheaper to buy chicken from Thailand rather than the UK, while offering organic chicken would “probably double the price at the end of the day”, compared to UK prices. “Food miles is one argument but actually quality food at lower prices is more of a driver for us than where its sourced,” he said.

EIPC, which is run by a board of franchisees, spends around half a billion pounds each year, but at any one time it is dealing with contracts worth £1.5 billion. EIPC takes a rebate from each sale between a supplier and a franchisee to cover its costs, with any surplus returned to franchisees at the end of the year or spent on common projects.

The first European Subway store opened in Dublin in 1992, and there were 250 when EIPC was established. There are now 4,800 stores, which are predicted to grow to around 10,000 in 2020.

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