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How to Change your Supply Chain – What Franchisees Should Know

Posted on July 4, 2018 3:00 am;

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By Morgan International Staff Writers 

Let’s talk about franchises. McDonalds and Subway are great examples of business that operate this business model. Supply chains are typically established by the franchisor. It is fairly obvious why that is the case as the franchisor wants to protect their asset which is the brand, and wants to drive consistency and standardisation. A franchisee usually has a limited ability to change supply arrangements for goods and services they require. There may however be circumstances when the franchisee must purchase a core set of goods and services as governed by the franchisor, but can source other items independently. An example of this might be that a fast food franchisee is able to purchase fresh produce locally but must purchase all packaging from designated suppliers.

On the up side it means franchisees do not have to concern themselves with sourcing products and negotiating contracts. However, it can become frustrating if the franchisee feels they are not receiving competitive pricing, quality products and/or a good service. This is particularly problematic if a franchisee is in a lower cost area but subject to a national deal.

Therefore it can sometimes we tempting to try and switch to a cheaper deal with a direct supplier. Not only is this likely to be in breach of the terms of the contract you have with the franchisor but there are further potential issues:

  • The substituted product might not meet quality standards which could result in an inferior experience for the customer and cause reputational damage to the brand.
  • Your decision not to buy will reduce volumes for the core supplier and may impact the franchisor and other franchisees.
  • There may be issues with ongoing supply from the substituted vendor and as you are likely to only have a small contract with them, you may have limited power to secure goods/services in relation to their other customers.

In Summary

It is for the reasons as outlined above that franchisors typically make it a contractual requirement for franchisees to only purchase approved goods from approved suppliers, and arguably for good reason.

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