How a Healthy Supply Chain Builds a Strong Franchise System

A hand graphing a healthy supply chain on paper.

The supply chain is the lifeblood of the brand and its franchisees. When the supply chain is healthy and running effectively, franchisees receive their goods on time, the product is made and delivered to guests seamlessly and the brand prospers. When you have an ill-performing chain, production is disrupted, customers are disappointed and the brand suffers.

There are several moving parts to a supply chain, but in order to have a well-functioning chain you must have the following components:

  • Reputable Suppliers – They have the financial fortitude to stay in business without undercutting pricing. Undercutting often leads to going out of business. When this happens, businesses have to search for a new supplier. Reputable suppliers are also mindful of food safety. You don’t want to be that story in the media about food contamination because you didn’t do a good enough job vetting your suppliers to make sure they have third-party audits and food safety protocols in place.
  • Fair Pricing – Don’t always go for the low-price supplier. Instead, aim for pricing that is sustainable over time. Make sure you are leveraging the overall franchise system volume to get the best pricing for the chain.
  • Distribution – You want a distributor who will get your supplies where you want them to go. In Smoothie King’s case, we have a distribution partner who maintains our cold chain and food safety protocols. Make sure the distributor has enough locations to service your stores in a reasonable amount of time. They should have enough volume and be efficient in their routing so you can get the lowest margin possible. This is part of managing the cost of goods at the store level.
  • Scrutiny of Inbound Freight – Pay close attention to all freight logistics. Sometimes you get a manufacturer/supplier that doesn’t have an internal distribution team and don’t do a good job of shopping freight rates—or do it at all. If they’re not managing their costs well, then you pay for it in the end. At Smoothie King, we have someone dedicated to just logistics. She takes the manufacturer/supplier’s freight rate and looks for a better rate. If we can find a better rate, she has our manufacturer/supplier use the freight company we secured.

No Disruptors Allowed

When you have these pieces in place, a healthy supply chain should work seamlessly getting goods from supplier/manufacturer to each store in your franchise system. Your franchisees are your end-users and the supply chain should be something they don’t have to think about.

I had our distributor develop custom reports that get emailed to me daily, seven days a week, 365 days a year. They give me visibility of inventory levels and every distribution point where they’re storing inventory for us, as well as weekly movement, what the trends are and when more product is arriving. This way we can oversee that entire supply chain from the manufacturer all the way to the store. Doing so ensures we never have any supply disruption.

If you want to be a world-class retail concept, you can’t disappoint your customers. You don’t want them coming in today and finding out they can’t get their favorite smoothie because one particular ingredient is not available today.

On the franchisee level, ordering should be something they don’t have to think about.

  • You have online ordering
  • You know when you’re supposed to order
  • You know what day your delivery is supposed to arrive
  • It always comes complete and it’s seamless for you.

That’s an effective supply chain.

Supply Chain Role in the Franchisee/Franchisor Relationship

A healthy supply chain is a benefit to the relationship between franchisee and franchisor. If the franchisee is receiving everything they need on time, in good condition and at the right price, then the franchisee is happy with the franchisor, who manages the supply chain.

But, if you don’t have a well-functioning supply chain, then the franchisor is unable to supply the products at a reasonable cost and a reasonable margin for the franchisee to make a profit and provide good value to the consumer. Then you don’t stay in business.

The franchisee also serves as more than the end recipient and person placing the order. The franchisee plays a significant role in shaping the supply chain by providing feedback and suggestions on it to the franchisor. For example, based on consumer trends reported back to us from franchisees in a particular part of the country, we’ve added ingredients for smoothies to our supply chain for that region.

Supply Chain Forms Reputation

A healthy supply chain is fundamental to a franchise concept’s reputation.

If you have a strong system where the franchisees feel supported and they’ve been given all the tools, including those pertaining to the supply chain, then they’re telling their friends and they’re telling other people they used to do business with what a great concept this is. In the end, it helps perpetuate the flow of people becoming franchisees.

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