Buying a Franchise, Franchise Operations

The Franchise Supply Chain

When you think about your franchise investment, you may see yourself welcoming customers into your franchise or relaxing on the boat your franchise business will buy you. You should also be thinking about your supply chain.

The supply chain of your franchise business includes every step of the journey from raw materials to your door, for all the goods and equipment your franchise needs in order to operate successfully. That might mean the tomatoes for your salads or the cleaning supplies for your janitorial service, the intake forms for your tutoring company or the uniforms for your elder care workers.

A successful supply chain is one that gets

  • the right products
  • to the right place
  • at the right price
  • at the right time

Getting the right products to the franchisee means not only that you get those tomatoes every morning, but that the tomatoes are of the quality your customers demand. Make sure you know what procedures you’ll need to follow to return items that are not the right product — mistakes will certainly happen at some point.

Getting items to the right place doesn’t just mean pulling the truck up at the right address. Franchisees must have a plan for receiving, unpacking, and storing everything correctly, and they will need enough workers to implement their plan effectively.

The right price may be the lowest possible price, from the franchisee’s point of view, but the franchisor will also want a sustainable price that works for the supplier and the franchisee alike.

Make sure you know whether you have a choice of suppliers. Often, franchisees must buy from approved suppliers or directly from the franchisor. This can give a franchisee the lowest possible price, because the franchisor has economies of scale that independent businesses can’t achieve. But it can also be a source of frustration if a franchisee prefers local suppliers or believes he or she can make a better deal independently.

The right time means that the franchisee has the needed materials, fresh foods, or a good supply of products to sell. But it’s important for both the franchisee and the franchisor not to over-commit on inventory. If you’re throwing out food at the end of the day or stocking uniforms in every size when you just don’t have that many workers, you’re losing money.

On the other hand, being out of stock with products or running out of ingredients creates frustration for your customers… so you may lose not only the sales on that day, but also customers over the long run.

The right time may also depend on a delivery schedule. Ordering small quantities may increase your price, or you may need to work with the schedules of other franchisees in order to get smaller deliveries at the price you like.

Even though the supply chain is clearly important, franchisees may think of just one element of that supply chain: the things that are delivered to the franchise’s door. We spoke to one retail  franchisee who said she thought she could stock her store, sell everything, and then use the profits to restock. She hadn’t thought about items that would sell through quickly or customers who would want items that weren’t in stock. Keeping enough inventory on hand became a challenge for her.

Think through the supply chain for your business and make sure you understand the payment terms, how to schedule deliveries, and how to arrange returns.

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