Protect Brand Standards: Finding the right supply chain balance

In the complex world of franchising, few operational elements generate as much tension between franchisors and franchisees as supply chain management. While franchisors need to maintain brand consistency and quality standards across their networks, franchisees face increasing pressure to protect their profit margins in an inflationary environment. This fundamental tension has led innovative franchise systems to develop approaches that balance both parties’ interests.

Franchise agreements traditionally have given franchisors significant control over supply chains, often requiring franchisees to purchase everything from raw materials to equipment from approved suppliers or directly from the franchisor. In many instances, the ability of the franchisor to ensure that their entire franchise system will be purchasing from a specific supplier enables them to negotiate better pricing across the board, but that is not the only goal. 

There are times when a franchisee could source products or equipment for a low price outside of the specific approved suppliers, yet maintaining supply chain limitations will be crucial to the success of brands and franchisees. Having access to approved suppliers that have been tested and have long-standing relationships with the brand is a main benefit of joining a franchise brand. Those suppliers help ensure consistency of quality, availability, and deliverability even in critical situations where supply might otherwise be affected. When Covid-19 hit, franchisors often leveraged their relationships with suppliers to help overcome supply chain problems that all businesses faced. 

It is important for franchisors to understand how the limitations of the supply chain might impact the economics of individual franchisees. In quick-service restaurants, food costs typically represent 28 to 32% of sales. When franchisees pay premium prices for proprietary items or use expensive approved suppliers, the cost of goods sold can climb several percentage points higher than independent operators in the same category. 

This cost differential becomes problematic during periods of high inflation or supply chain disruption. While independent operators can quickly switch suppliers or substitute ingredients to manage costs, franchisees often lack this flexibility. Franchisors should be sensitive to these realities and work with franchisees when issues arise. Franchisors should focus on creating strict supply chain requirements in only those areas crucial to maintaining brand standards and adjusting those restrictions in extenuating or changing circumstances.

Forward-thinking franchise systems have begun implementing flexible approaches to supply chain management that protect brand standards while giving franchisees increased control over costs. These solutions include key elements that other franchisors might consider adopting.

Flexible options

Performance-based specifications represent one promising approach. Instead of mandating specific suppliers, franchisors establish detailed quality standards and testing protocols. Franchisees can then source from any supplier that meets these standards, creating competition among vendors while maintaining quality control. This approach proves effective for nonproprietary items, like cleaning supplies or basic ingredients. In some systems, this ability to go outside the specific supply chain limitations can be earned over time based on performance metrics or completed training.

Some franchise systems use blockchain and IoT sensors to monitor their supply chains, allowing franchisees sourcing flexibility while maintaining transparency and quality control. These systems can track temperature, handling time, and other factors regardless of the supplier.

Tiered supplier programs offer another approach. Franchisors maintain a network of approved suppliers at different price points, allowing franchisees to choose based on local market conditions and cost structure. This creates competition among suppliers while maintaining baseline quality standards.

Some franchise systems have established purchasing cooperatives owned and operated by franchisees. These cooperatives leverage the system’s collective buying power while giving franchisees control over supplier selection and pricing negotiations. The cooperative structure ensures that any volume discounts or rebates go to the franchisees rather than to the brand as a whole.

Purchasing cooperatives can help small franchise systems improve pricing by combining their volume with other brands. These multi-brand cooperatives maintain separate specifications for each system while creating large purchase volumes to reduce costs.

Artificial intelligence and machine learning enable sophisticated approaches to quality control and supplier management. These technologies can predict quality issues before they occur and identify optimal sourcing strategies based on multiple variables.

Sustainable sourcing has become increasingly important to consumers, creating new challenges in supply chain management. Franchise systems must balance environmental and social responsibility with cost control.

The emergence of ghost kitchens and virtual brands has created new opportunities for supply chain innovation. These concepts often operate with flexible ingredients and specifications, allowing creative sourcing solutions that maintain quality while reducing costs.

The most successful franchise systems recognize that supply chain management must balance the needs of consistently meeting brand standards with the economic realities facing franchisees. Good franchisors constantly evaluate their supply chain restrictions and evolve them as circumstances require. This evolution requires trust, transparency, and willingness to embrace new solutions.

Franchisors should regularly review their supply chain requirements and seek franchisee input. They should also stay informed about new technologies and methods that might enable flexible approaches. Meanwhile, franchisees should actively participate in system-wide initiatives to optimize supply chain efficiency and share successful local sourcing strategies with peers where allowed.

By approaching supply chain management as a collaborative challenge rather than a control issue, franchise systems can develop solutions that protect their brands while enabling franchisee success. This balanced approach strengthens the entire system and positions it for sustainable growth in an increasingly competitive marketplace.

Andrew Seid is senior consultant at MSA Worldwide. Contact him at [email protected] or 860-604-9189.

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