ASSIGNMENT2

OMGT2199 Operations Management

Chosen topic: Material Requirement Planning (MRP)

Team Members:

1. Nguyen Pham Nhat Minh – s3618783@rmit.edu.vn

2. Pham Truong Tuyet Nhi – s3618760@rmit.edu.vn
3. Pham Nguyen Hai- s3625747@rmit.edu.vn
4. Le Nguyen Trong Kha – s3633871@rmit.edu.vn
5. Ha Minh Trang – s3325270@rmit.edu.vn
 ASSIGNMENT2

Table of Contents
I. EXECUTIVE SUMMARY..............................................................................................3
II. BACKGROUND..............................................................................................................4
III. PROBLEMS.....................................................................................................................4
IV. RELEVANT CASES........................................................................................................6
V. DATA COLLECTION & ANALYSIS...........................................................................8
VI. DISCUSSION.................................................................................................................13
VII. RECOMMENDATION.................................................................................................13
VIII........................................................................................................................... REFERENCES
15
IX. APPENDIX.....................................................................................................................16

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I. EXECUTIVE SUMMARY
In this report, we will discuss about Material Requirement Planning (MRP) topic, and
that concept will be applied to the real case of Subway in Vietnam. In order to collect the
information of Subway for this report, we had interviewed Ms Ly who is the operation
manager of Subway in Vietnam. First of all, the report will provide some backgrounds of
Subway consisting of the scale of business, its foundation in Vietnam and the board of
director’s structure. Secondly, through interviewing Ms Ly and collecting some sources on
the Internet, the report will identify the problem that Subway in Vietnam cannot manage
lead time of requirement material, so it affects the quality of foods and reduces Subway’s
sales. Additionally, the report also provides some relevant study regarding how lack of MRP
affects the supply chain of companies. Thirdly, after collecting some data regarding required
materials, lead time and projects on hand from Ms Ly, we conduct the MRP for the next
order for Subway so that Subway can manage the lead time of required materials to make
sure the materials is ready for fulfilling the order. Last but not least, the report makes some
recommendations for Subway to improve its performance in the future.

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II. BACKGROUND
Subway is the biggest sandwich chain with more than 45,000 stores all over the
world. The development of Free Trade Agreement along many countries overtime has
created a lot of opportunities for various foreign brand to open their businesses in Vietnam,
included Subway. The brand has entered Vietnamese fast food market since 2013 and is a
subsidiary of IFB Holdings Company which also is the owner of well-known brand all over
the world: The Coffee Beans and Tea Leaf. Until now, there are four Subway stores in Ho Chi
Minh City which is quite in small scale if compare to the competitors in fast food industry
such as: KFC, Lotteria, Pizza Hut.
Subway Company in Vietnam is divided into 4 departments: Directors, Finance,
Supply Chain and Operation. Every Monday and Thursday, each store has to send their
orders for material to supply chain department. Then, supply chain executive will send their
purchasing orders to dry and frozen storage to deliver ingredient to stores. The supply chain
department also has to make a plan to order material from suppliers to ensure there are
enough required material for business. As in the interview with Ms Ly, who is the operation
manager of Subway, all the forecasts of material are done manually from stores to supply
chain department based on monthly inventory report of each store and the report from dry
and frozen storage. Therefore, there are a lot of problems which affect directly to the profit
of the company.

III. PROBLEMS
As Ms Ly – Operation manager of Subway stated that all procedures of ordering
goods from Supply Chain department to every store are done manually. The Supply Chain
staff always has to focus and keep up with the inventory report from both dry and frozen
storage and weekly or monthly inventory report from stores to place orders to suppliers. As
a result, if a staff was absent or keep no notice on the inventory, there will be a shortage of
materials to make sandwiches. This definitely affects the sales.
Ms Ly also let our team know the recent situation of shortage raw bread and meat at
Subway. In the nearly end of April, one of four stores of Subway – Subway RMIT has to be
closed for 3 days because the imported bread could not be delivered on time. Additionally,

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one of the topping meat – salami also run out. Therefore, Subway could not sell any
sandwich that contains salami. As a result, Ms Ly pointed out that the total sales of Subway
in April decrease for 40%.
In addition, the surplus of material can also be a reason of decreasing daily sales of
Subway. With slogan of “eat fresh”, the input ingredient such as: vegetable and meat have
to be fresh and new. The vegetables will turn brown and become unusable within few days.
The meat usually also has expired date from 2-3 weeks after produced. If there is any
inappropriate order, all expired meat and vegetables have to be discarded which leads to a
serious loss of sales. Ms Ly state that the allowed level of discard for every type of
vegetables each day is only 1% of total amount vegetables received. However, the number
go up to 4 to 5%, sometimes 10%. Same situation with meat. The expired meat cannot be
used will lead to the loss of sales.

Figure 1&2: Weekly Inventory Sales Report for Le Thanh Ton Store (see Appendix)
According to the Weekly Inventory Sales Reports in 2 weeks for one of the subway
store, every week, there are a loss of vegetable from 6-7kg which costs nearly 500,000 VND
and loss of many types of meat which costs nearly 2,000.0000 VND per week.
Subway Vietnam is not the only country that has these problems. Subway has been
well-known for one of the biggest food chain in the world. With “make your own sandwich”
style & a huge range of ingredients, customers are able to choose from more than 38 million
combinations for their meal. According to Subway (Taylor, 2018) they use more tomatoes
than any other companies on the globe & in the U.S they have more than 100 farms as
exclusive suppliers. However, they have run into serious vegetables issue which resulted in
huge loss of franchisees & customers.
The main reason for such declines is their vegetables which are going against their
own “eat fresh” appeal. Many cases across the U.S reported that vegetables at Subway were
“mushy and rotten”.

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Not stopping at vegetables, with changing taste, growing knowledge about nutrition
& freshness among consumers, Subway is failing more and more meat-eating customers.
Today customer wants meat that is fresh and is cut from fresh meat, not wax-paper-peeled
meat.
Lack of transparency, integration, quality control, etc. Subway pushed themselves in
a dire situation where not only customers, but also workers & franchises’ owners are
drifting away from them. Subway is better address their problems in ingredient requirement
planning and fix it as fast as they can to get out of the path of Blockbuster.
As Ms Ly state that there will be a big order of 300 footlong sandwiches for Microsoft
Office in next month. The supply chain department are forecasting for their purchasing
order. In this situation, we will apply MRP (Material Requirement Planning Model) to
suggest to Subway Vietnam when, how and what quantities needed to order to fulfill the
300 footlong sandwich order.

IV. RELEVANT CASES

According to Jedermann et al (2017), one-third of fresh fruits and vegetables in the
world is wasted daily due to the unacceptable quality of it. The main reason which causes
the spoilage is because of the "non-optimized handling supply chain processes".
Based on a research by Kaipia et al (2013), there are several keys affect the
performance of food supply chain. However, the two main keys are the customer order lead
time (COLT) and supply chain lead time allowance (SCLT). The perishable foods require the
high responsiveness of the supply chain due to the short shelf-life, therefore, the lead time
of products must be as short as possible. After conducting study cases, Kaipia (2013)
indicates the spoilage of product can be decreased by sharing information among parties.
The case study "Reducing waste and improving the ability for fish products" with the packed
fish product which has shelf-life time is from 5 to 30 days reveals that sharing information
can help firm extending the shelf-life time of products. For the old method, the retailer uses
order-based replenishment system which results in the high rate of waste. This method
allows retailer track an order itself and then products will be shipped through four parties
which are the producer - the logistics operator - the wholesaler and the retailer.

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However, when applying the new method "one retail chain with 600 retail stores"
where the wholesaler places forecasted orders to producer who ships the products directly
to the wholesaler and then retailers track an order whenever they want with the
wholesaler, the retailers can receive the better-quality product - fresher with long shelf-life
time and short lead time. As a result, retailers can limit the food waste at store as well as
the empty shelf situation. Furthermore, by applying the sharing information method among
parties, the retailers' profit margin increased by 30% whereas the food spoilage decreased
by 57%.

Before implementation After implementation

Lost profit (%) 10.9 4.7

Remaining shelf life at 11.1 14.7

retailer (days)

Retailer margin (%) 17.3 22.5

Table 1: The comparison before and after applying the new method

The second case study is about the wholesaler in Norway (Chabada et al, 2016). This
Norwegian wholesaler has 5500 products from chilled to fresh products and three retail
stores which two have the high turnover rate. The Norwegian wholesaler also has the high
wasted food rate. To be specific, the major wasted food in this wholesaler is "insufficient
and short remaining shelf-life food". The wasted food is assigned into four categories,
including "in-warehouse food waste", "transportation food waste", "pre-store rejection"
and "in-store food waste". First is the wasted food in the warehouse that is usually from the
aggregated planning and order which lead to the overstock.
Secondly, the main reason leads to the "transportation food waste" is the handling
issues during unloading or loading process, or also in the transportation. The temperature
also plays an important role in the fresh of products since if the temperature is not correct,
it can affect negatively on the quality of food.
Finally, is the "in-store food waste", there is the lack of information of products such
as current volume and expiration date since they are still manually checked by the staff
without any technical equipment, so it causes the “in-store food waste”. The food

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information is very important since it helps to optimize the planning perspective of the
wholesaler. To solve the problems, Chabada et al. (2016) suggest that if the wholesaler
wants to improve the performance of the firm, it need to improve the forecasting accuracy,
ordering, inventory and safety stock in the warehouse, shorter lead time and apply the
technology to its system to gain the profitability.

V. DATA COLLECTION & ANALYSIS

As Subway is a fast food restaurant, it is recommended that Subway needs to
develop an efficient supply chain to ensure that crucial items to make final products are
available on time. Efficient schedule of preparing the items will help Subway to increase
productivity and reduce costs of inventory. Therefore, Subway’s first concern is to make a
materials requirement plan (MRP) for upcoming period for upcoming big order on Microsoft
Office and our team will help Subway to accomplish the MRP. As Ms Ly stated, the Microsoft
office just order sandwiches with no vegetable because they already had another order of
salad with other company. Therefore, in this case, we just plan for bread and meat only.
In addition, to identify the number of items needed to order and the accurate order
time, we collected information on lead times, amount of inventory on hand and lot-sizing
rules of Subway’s suppliers for those elements of BMT sandwiches and Chicken Teriyaki
breads. The information mentioned above is presented on table 2

Items Lead times On hand Lot size

(weeks)
Bread 6 75 each Minimum
150
Ham 3 5kg Minimum
6kg
Salami 4 2kg Minimum
5kg
Pepperon 4 1kg Minimum
i 5kg
Chicken 2 2kg Minimum
strips 6kg
Teriyaki 6 4kg Minimum
Sauce 9kg

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Table 2: The provided inventory from Subway’s operation manager

Firstly, after gathering data from the manager of Subway, we recognize that Subway
desire to sell 150 BMT sandwiches in week seven and the schedule for BMT sandwich is
displayed below:
Master 0 1 2 3 4 5 6 7
schedule
for BMT
sandwich
Quantity 150
Table 3: Master schedule for BMT sandwich

Moreover, to produce BMT sandwich, Subway needs 4 major elements which are
bread, ham, salami and pepperoni. Therefore, we created the Product Structure Tree for the
BMT sandwich’s elements which will help Subway in defining essential items as exhibited in
table 2. After that, we construct the plan for ordering necessary items to make BMT
sandwich. The following tables are schedules including gross requirement, scheduled
receipts, projected on hand, net requirement, planned-order receipts and planned-order
releases for bread, salami, ham, and pepperoni.
Secondly, Subway also make a master schedule for making 150 Chicken Teriyaki
breads to make sure that those 150 Chicken Teriyaki breads is ready to sell in week seven
Master 0 1 2 3 4 5 6 7
schedule
for
Chicken
Teriyaki
Quantity 150

There are 3 essential materials for making a Chicken Teriyaki bread which consist of bread,
chicken strip and Teriyaki sauce. Those needed materials are also displayed by the Product

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Structure Tree (figure 2). We also have the Material Requirements Planning for those
needed materials which is exhibited below:

BMT
sandwich
(150 units)
Figure 2: Product Structure Tree for BMT sandwich

Chicken Teriyaki
Salami Pepperoni Bread
Ham (15units)
(16 kg) (18 kg) (150
(12
units)
kg)

Chicken Strips Teriyaki Bread

(17 kg) Sauce (7 kg) (150 units)

Figure 3: Product Structure Tree for Chicken Teriyaki sandwich

Bread for 0 1 2 3 4 5 6 7 8
BMT
sandwich
and Chicken
Teriyaki
Gross 300
requirement
s
Scheduled
receipts
Projected on 150 150 150 150 150 150 150 150 0
hand
Net 150
requirement
s
Planned- 150
order
receipts
Planned- 150
order
releases

Ham Beg. 1 2 3 4 5 6 7 8
Ivn.

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Gross 12
requirement
s
Scheduled
receipts
Projected on 5 5 5 5 5 5 5 5 5
hand
Net 7
requirement
s
Planned- 12
order
receipts
Planned- 12
order
releases

Salami Beg. 1 2 3 4 5 6 7 8
Inv.
Gross 16
requirement
s
Scheduled
receipts
Projected on 2 2 2 2 2 2 2 2 1
hand
Net 14
requirement
s
Planned- 15
order
receipts
Planned- 15
order
releases

Pepperoni Beg. 1 2 3 4 5 6 7 8
Inv.
Gross 18
requirement
s
Scheduled
receipts
Projected on 1 1 1 1 1 1 1 1 3
hand
Net 17
requirement
s
Planned- 20

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order
receipts
Planned- 20
order
releases

Chicken Beg. 1 2 3 4 5 6 7 8
strips Inv.
Gross 17
requirement
s
Scheduled
receipts
Projected on 2 2 2 2 2 2 2 2 3
hand
Net 15
requirement
s
Planned- 18
order
receipts
Planned- 18
order
releases

Teriyaki Beg.Iv 1 2 3 4 5 6 7 8
sauce n.
Gross 7
requirement
s
Scheduled
receipts
Projected on 4 4 4 4 4 4 4 4 6
hand
Net 3
requirement
s
Planned- 9
order
receipts
Planned- 9
order
releases

Ms Ly also provide us the picture of the bill of holding cost for both dry and frozen
service per month (see the bill in appendix) which is: 3,618,000 VND. In this case, Subway is

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using holding service charged by month, not by quantity. Therefore, for these 300
sandwiches, the holding cost will be:
 Holding cost per week = 3,618,000 / 4 = 904,500 VND per week
 Holding cost = 904,500 * 7 = 6,331,500 VND

Our team also request to know the ordering cost. However, Ms Ly already submitted
the red invoice to finance department before having an interview with us, therefore, she
just gave us an average number of 3,300,000 VND for each time deliver meat and bread in a
reefer.

 Ordering cost: 3,300,000 * 6 = 19,800,000 VND

 MRP cost: 19,800,000 + 6,331,500 = 26,131,500 VND

VI. DISCUSSION
In terms of lead time, according the data shown above, it is obvious to recognize that
it takes a very long time for Subway to receive some elements such as 6 weeks for bread
and Teriyaki sauce. This is explained by Subway that the materials which are bread and
Teriyaki sauce are imported from New Zealand. Therefore, it takes longer time than the rest
items.
In addition, although it takes less time to obtain ham, salami, pepperoni and chicken
strips, the lead time of them which is still high has a range from 2 to 4 weeks. The reason is
that Subway makes exclusive distribution agreement with suppliers that the food supplied
to Subway must be unique, so the supplier is unable to make a mass production and the
materials will be limited. Also, as required from Subway that the food must be hygiene and
safe, so these materials have to be experienced cleaning and packaging processes to ensure
that they are safe and have longer expiry date. Therefore, Subway has to wait longer time to
receive the materials.
Moreover, there is a high disparity in lead time between different materials for
making BMT sandwich and Chicken Teriyaki. This could be interpreted that due to some of
the materials which are imported are bread and Teriyaki sauce and some which are
acquired from domestic suppliers are ham, salami, pepperoni and chicken strips.

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Regarding inventory status, there is an imbalance between the materials that

Subway already have on hand. To elaborate, the needed proportions of ham, salami and
pepperoni for making a BMT sandwich are 26%, 35% and 39% respectively which means
they need the most pepperoni and the least ham to make a BMT sandwich. However, based
on the table 2, the amount of ham that they have on hand is 5 kilograms while the figures
for pepperoni and salami are only 2 kilograms and 1 kilograms respectively. Same with the
BMT sandwich situation, the needed percentages of chicken strips and teriyaki sauce for
making a Chicken Teriyaki are 70% and 30% respectively. However, the projects on hand are
4 kilograms for teriyaki sauce and only 2 kilograms for chicken strips.

VII.RECOMMENDATION
 In terms of MRP, we had already conducted MRP for Subway to fulfil their order.
Therefore, we will not recommend the MRP
 Regarding the projects on hand, as discussion above, to make a BMT sandwich, the
proportion of pepperoni is higher than ham and salami, but the amount of
pepperoni that Subway has is less than the amount of salami. Therefore, Subway
should reduce the inventory of salami and increase the inventory of pepperoni. In
order to do that, Subway should order more amount of pepperoni in the next order.
The recommendation for inventory to make a Chicken Teriyaki is the same with BMT
sandwiches.
 As presented in discussion part and table 2, it is easy to see that lead time of most
items is quite long. If Subway is successful in reducing the lead time, Subway will gain
many benefits such as decrease in carrying cost, lower inventory and increase in
sales. As high inventory is an issue of Subway so reducing lead time can also help
Subway to decrease the number of items which being stored. Therefore, a solution
for reducing lead time is that first Subway should make a demand forecast by basing
on past data and time-series forecast to determine the number of different product
in each period. After that, based on demand forecast, Subway should make an
agreement with the suppliers that in each period, Subway will order a certain
amount of materials. By making the agreement with the suppliers, they are able to
prepare and make sure that the goods are available at the period that Subway
needs.

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VIII. REFERENCES
 Chabada L, Damgaard C, Dreyer H, Hvolby H, Dukovska-Popovska I, 2014, "Logistical
Causes of Food Waste: A Case Study of a Norwegian Distribution Chain of Chilled
Food Products", In: Grabot B., Vallespir B., Gomes S., Bouras A., Kiritsis D. (eds)
Advances in Production Management Systems. Innovative and Knowledge-Based
Production Management in a Global-Local World. APMS 2014. IFIP Advances in
Information and Communication Technology, vol 438. Springer, Berlin, Heidelberg,
viewed on 24th April, 2018
<https://hal.inria.fr/hal-01388261/document>
 Evans, P., Szeto, E. 2017, ‘What's in your chicken sandwich? DNA test shows Subway
sandwiches could contain just 50% chicken’, viewed on 4th May, 2018,
<http://www.cbc.ca/news/business/marketplace-chicken-fast-food-1.3993967>
 Jedermann R, Nicometo M, Uysal I, Lang W, 2014, "Reducing food losses by
intelligent food logistics", Philosophical Transaction Of The Royal Society A, 372:
20130302, viewed on 24th April, 2018
<http://dx.doi.org/10.1098/rsta.2013.0302>
 Kaipia R, Dukovska‐Popovska, I ,Loikkanen L, 2013, "Creating sustainable fresh food
supply chains through waste reduction", International Journal of Physical
Distribution & Logistics Management, Vol. 43 Issue: 3, pp.262-276, viewed on 24th
April, 2018
<https://doi.org/10.1108/IJPDLM-11-2011-0200 >
 Rudakov/Bloomberg, A. 2017, ‘The rise and fall of Subway: How the world's biggest
food chain lost its 'fresh' appeal’, viewed on 4th May, 2018,
<http://business.financialpost.com/news/retail-marketing/the-rise-and-fall-of-
subway-how-the-worlds-biggest-food-chain-lost-its-fresh-appeal>
 Taylor, K. 2018, ‘Subway's 'mystery meat' and 'mushy and rotten vegetables'
destroyed the 'Eat Fresh' advantage it spent years building’, viewed on 4 th May,
2018, <http://www.businessinsider.com/subway-food-hurts-reputation-fails-to-
keep-up-with-trends-2018-1>

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IX. APPENDIX

Red invoice for Holding Cost

Weekly Inventory Sales Report (WISR)

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