This paper examines operational risk management in the context of Subway's recurring foodborne illness incidents across multiple countries. The analysis identifies training and food handling practices as preventable operational risks within the franchise model and proposes a comprehensive mitigation strategy including standardized training protocols, clear job responsibilities, regular audits, supervisory oversight, infrastructure improvements such as surveillance cameras, and stronger vendor relationships. The paper demonstrates how multi-layered controls and organizational structure adjustments can reduce the likelihood and impact of food safety failures in a franchise-based business model.
Operational risks tend to focus on employees and finding ways to ensure that employees are not a source of wealth reduction for the company. Among the operational risks identified in Horcher (2005) were those related to training, fraud, theft, and managing exposures to certain risks that arise in the course of operations. There have been many examples of operational failures over the years. While most fraud occurs at the highest levels of the organization—such as Enron—other companies have faced operational issues as their primary challenge. Operational risk encompasses a broad range of internal control failures, from inadequate processes to employee error.
One notable instance of operational failure involves Subway, which faced a salmonella outbreak in the United Kingdom in a major outbreak (Poulter, 2008), but has also faced similar situations in Canada (Mickleburgh, 2011) and the United States (Blau, 2012; Falkenstein, 2010). Food poisonings increase the risk of legal action that could devastate franchisees and have a strongly negative impact on the brand. Yet, these incidents seem to occur quite frequently at Subway locations.
Food poisoning is usually a training and handling issue. Occasionally, it can be traced to a supplier, but again often involves training and handling issues within the supply chain. The CDC estimates that each year one in six Americans gets sick from eating food, so given the number of meals Subway serves, its track record might not be statistically horrible. However, this is clearly something that can and should improve, because the brand depends on it. An estimated 3,000 Americans die each year from foodborne diseases.
The CDC notes that foodborne illness arises when bacteria are allowed to grow, which happens inside food—especially meat and leafy vegetables—on cutting surfaces, or on the hands of food workers (CDC, 2014). While Subway's supply chain risk is a distinct concern, the operational risk associated with workers failing to adhere to basic sanitation standards is an entirely preventable operational risk.
There are several ways for management to mitigate this risk. First, the organizational structure of Subway must be considered. Individual stores are owned by franchisees who receive training manuals from head office. However, Subway prefers to work with experienced franchisees, so much of the training is left to the franchise owner. The first step for Subway is to ensure that there are strict training standards and that franchisees agree to follow them. This step can mitigate legal risk for Subway and help ensure that the franchise owner bears most of the risk associated with operations.
For the franchise owner, mitigating this risk starts with establishing standards if Subway has not already provided them. It is recommended that these standards be stricter than local food handling regulations. Working to minimum standards is cheaper in the short run but also means that any failure results in the company being at risk. Therefore, the first step is to establish clear standards.
The second step involves job descriptions. Safe food handling cannot be the responsibility of only one or two people—it must be everybody's responsibility. Therefore, employees need to have a certain degree of empowerment over food safety issues so that they can always make the right decisions. The third step is training, so that everyone who works at Subway has a high level of understanding of their safety expectations. Arguably, safety must be an emphasis in training even more than other aspects of the job, because the downside risk is far more serious. It is important that employees can successfully identify risk factors—for example, that bad food does not always smell bad.
In terms of supervisory oversight, there should be lead personnel and backups responsible for enforcement. At all times, there should be two people who are not only trained on safety but also directly instructed to conduct audits and inspections at regular intervals. While this is a job for the entire team, senior people should take extra responsibility. This multiple layering of responsibility will prevent incidents from occurring.
Periodic audits—either from the franchisee (who probably owns several franchises) or head office—will help ensure a higher level of enforcement, especially when coupled with severe internal penalties. When there is a high risk that issues will be found and dealt with at the corporate level, there is that much higher level of motivation within the company.
It is also possible that infrastructure can contribute to successful mitigation of this risk. While a Subway probably has a camera on the till, it should also have one on the main sandwich preparation station. It can be used for training or to analyze specific situations. For example, if someone gets sick, the company can literally watch the video of that sandwich being made and see if there is anything wrong at that preparation level.
"Surveillance technology and vendor relationship management"
There are many different steps to reduce operational risk, and if they are followed then Subway can surely reduce the number of incidents with foodborne illness.
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