Franchising Supply and Distribution

At the heart of franchising is the root concept of taking a business model that has proven effective and distributing it so that other aspiring business owners can reproduce it.  For a franchise to be successful, it must mirror the bulk of the key aspects of the original company, or reflect the changes implemented by the franchisor across all franchises.  This requires uniformity, not just of appearance and procedure but of each franchise’s products and/or services.

To achieve a uniformity of products or services across a wide geographical range of franchises, a franchisor may place certain restrictions on franchise owners regarding acceptable sources of supplies.  This control may range from strict guidelines as to what vendors may be used, to simple guidelines regarding product quality.  There are a number of basic models employed by franchisors to ensure uniformity and any, or a combination of several types, may be used by any given franchisor.

Unrestrictive

In some instances a franchisor may completely forgo setting restrictions on what vendors or distributors its franchisees may use.  Rather, the franchisor will establish guidelines concerning the quality of product used and guidelines for the products and services provided by the franchisee.  The franchise is free to pursue its own supply sources, so long as the standards of the franchisor are upheld.  This model, however, is relatively uncommon.

Franchisor as Supplier

A slightly more common model of supply and distribution features the franchising organization playing the role of supplier and distributor for its franchises.  Though this is the most effective means of ensuring absolute uniformity across all franchises, it is really only an effective approach for relatively small franchising organizations.  Larger franchisors attempting to fill the role of supplier could quickly find that the bulk of the company’s resources are wrapped up in the supply and distribution end and the focus is taken away from franchise development.

Approved Vendors

For larger franchising organizations, the approved vendor-distributor model often works best.  This method allows a greater control of uniformity than the non-restrictive model, but does not put the burden of supply and distribution on the franchisor.  Instead, the franchisor seeks out vendors that meet the quality standards of the franchisor and franchisees are contractually obligated to obtain supplies only from these approved vendors and distributors.

Purchasing Cooperatives

Many well established franchisors may choose to allow and encourage their franchisees to establish purchasing cooperatives in conjunction with obtaining supplies from approved vendors.  As with the above mentioned model, the franchisor has final say over which vendors and distributors the franchise owners may use for obtaining supplies.  However, under this model the purchasing cooperative of franchisees bargains collectively, on behalf of franchisees, to purchase supplies in bulk.

By this method, franchisees are able to enjoy greater purchasing power and can obtain supplies at reduced prices.  Franchisees purchase their supplies directly through the cooperative, paying into the cooperative rather than to the individual vendors.  The purchasing cooperative can then oversee the distribution, or bargain for distribution via the supplier.