Franchising Supply and Distribution Concerns

The very essence of franchising is taking a successful business and repeatedly duplicating it as exactly as possible. To do this requires a high degree of uniformity in all areas of the individual franchises, from procedural aspects to the very products and services offered. As a means of insuring this uniformity across the full range of franchise locations, many franchisors establish a system of supplying and distributing products to their franchisees.

These systems can vary widely, as all businesses within any given sector do not have the exact same needs, much less all franchising organizations across the full spectrum of business. There are essentially four basic types of supply and distribution system utilized by franchisors. These systems are written into the franchising agreement and franchisees are contractually obligated to abide by them.
Approved Vendors-Distributors

One of the more common systems is the approved vendor-distributor model. Under this arrangement the franchisor establishes a list of vendors or distributors whose products meet the standards set forth by the franchisor. Franchisees are then obligated to purchase supplies solely from those vendors and distributors permitted by the franchisor.
In some cases franchisees may be allowed to recommend new vendors or distributors to the franchising organization. However, the franchisor always has final say regarding the acceptability of any proposed vendor or distributor. This ensures that all franchises are able to provide consumers with a consistent product or service.

Purchasing Cooperatives

Purchasing cooperatives are sometimes utilized by well established franchising organizations. It is similar, in most respects, to the approved vendors-distributors model. Under this arrangement the cooperative negotiates on behalf of franchisees, and is often able to get a lower rate than an individual franchisee would be able to get on his/her own. The purchasing cooperative has the benefit of being able to obtain lower prices than the individual franchisees would be able to, by buying in larger quantities.

The franchisee then pays into the cooperative, surrendering a fee for the agreed upon products or services from the vendors or distributors. As with the approved vendors-distributors model, all products and services must conform to the franchisor's standards and be approved by the franchising organization.

Franchisor Supplied and Distributed

Franchisors often opt to act as supplier and distributer for their franchisees. Under this model all franchisees are contractually obligated to purchase all, or some, of its products and supplies directly from the franchising company. This ensures absolute uniformity across the brand, but gives no autonomy to the individual franchisees. The franchisee has no recourse to pursue less costly goods and prices are set at the discretion of the franchisor.

Non-Restrictive

A franchisor may choose to set no restrictions on what vendors and distributors are used by its franchisees. Instead, such franchisors will control brand uniformity by establishing a set criteria for all products. The franchisees are free to find their products at the lowest prices they can, as long as those products meet the standards set down by the franchising organization.