Supply chains, or approved suppliers, are those suppliers that a franchisor has identified, investigated and accepted to provide their product or service to the systems franchisees. The franchisee is typically required, under the terms of the franchise agreement, to purchase only from approved suppliers. The franchisee can order with peace of mind and confidence knowing that the products, equipment and services meet the franchisors specific qualifications and that they are getting a good price and level of service.
A strong franchise system will use approved suppliers to maintain control over the quality of products and services that is delivered to the end user consumer. Through consistency the franchisor is able to create a duplicable business model and ensure the customer has a consistent experience. This in turn reinforces the brand. It is up to the franchisor to set high standards and requirement for the suppliers and to regularly monitor them through the franchisees. Strong franchisors will reject any supplier who lets their quality control fall below the specified standards that were outlined at the time of approval where continuing with a supplier that is not up to par will effect brand integrity or not permit optimal franchisee performance.
There are certain considerations that a franchisor will take into account when reviewing a supplier beyond quality. Some considerations include;Is the pricing competitive?
- What is the time line between ordering and receiving product?
- Does the supplier provide regular training on product and equipment to the franchisee?
- Is there merchandising assistance to the franchisee?
- What is the warranty policy?
- Is there a time frame for taking back faulty products and equipment?
- What is the delivery schedule and charges?
- What are the payment terms? 30, 60 or 90 days?
Franchise systems will often permit franchisees to introduce new suppliers for review. This ensures that franchisees are getting the best offerings available. If the franchisee finds a supplier they feel is better than the current supplier they can send the contact information to the franchisor for screening. If the supplier is found suitable they will be added to the approved suppliers list. Some franchisees may find a specific product at a lower price, but it is important to look at the bigger picture. Although one or two of the products may be less money, one must look at the full “basket of goods” being provided by the supplier. All the considerations listed above need to be taken into account.
Franchisors will regularly monitor approved suppliers. This is often done through a supplier’s evaluation questionnaire provided by the franchisor to franchisees. If the franchisor does not provide a standard evaluation form then the franchisee can submit a short written evaluation of the service, quality of product and pricing received from the suppliers. These reports allow the franchisor to ensure that the supplier is delivering on what was originally agreed to.
Many franchisors will negotiate volume rebates from suppliers. These represent funds that are typically paid back to the franchisor based on buying performance. These rebated are typically disclosed in the franchise agreement and how these rebates are used will vary. Some franchisors will keep the rebates to offset the costs of negotiating and monitoring the approved suppliers. Other franchisors will forward the rebates directly to the franchisees. Still others will place the rebates, or a portion of the rebates, into the marketing fund for the benefit of the system as a whole.
In general, most Canadian franchisors will use approved suppliers based in Canada. Buying inventory from American suppliers can sometimes end up being counter productive. Although the price to purchase American products can initially be competitive, when you add in the duties, tariffs, fluctuation exchange rates and delivery charges, not to mention border issues, the cost of product can often become prohibitive.
There are numerous benefits to the franchisee for using approved suppliers. These benefits include;Ensuring consistency in the brand.
- Providing the best possible prices for franchisees and further discounts based on volume buying.
- Franchisees not having to spend valuable time shopping for products, and instead focused on servicing the customer and building the business.
- Additional benefits negotiated such as warranties, purchasing terms and after market support.
When a franchisor approaches suppliers to negotiate terms for multiple locations they will have more clout than if you, as an independent business, approached on your own. An approved supplier program is an integral part of a franchise model and provides real benefits to both the individual franchisee and the franchise system as a whole.