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Between Now and Normal – Turning Back On the Franchise System - Part 3

By Lynne D Shelton, Esq.

We are concluding this 3-part series, on some best practices, or possibly let’s continue to say ‘anticipated best practices’ on how to Turn Your Franchise System Back On. So far in this 3 part series, we have covered Communications with the Franchisee; and Communications with the Public, in Part 1; and Communications with Prospective Franchisees and Communications with the Examiners in Registration States in Part 2. For this last portion we will cover Solving Issues with your Existing Suppliers, and a host of Supply Chain Issues to watch out for and consider.

Issues with existing Suppliers

We have governments and municipalities across the country who chose to handle COVID entirely differently whether to close businesses, reduce the size of businesses by 25%, only allow take out or delivery aspects, or only allow essential workers, to be closed to everyone, or to be fully open. Businesses across the country run the gambit of “openness”, and suppliers are no different. Yes, some of them have indeed been classified as essential businesses but not all suppliers were treated the same across the country. For example, in some states, we have found that paper product suppliers were allowed to be claimed as an essential business because of takeout businesses needing their disposable paper products whereas in other states it did not fall into a health care or emergency care category and therefore were required to close or drastically reduce their workforce. Either way, you could be experiencing some consistency problems with your suppliers delivering promptly to your franchisees.

As you open back up your businesses, keep a careful eye towards state regulations where the vendors and suppliers are located. Also, watch out for Terms And Condition Amendments that vendors are updating their contracts with that can include some modifications like removing as a reason for a breach or default of the agreement items such as late deliveries; choice of exchange items allowable by the vendors choice other than simply receiving the products or services ordered, as well as, the return of physical or damaged material modification of terms.

Ensure that you have a good working relationship with all of your suppliers and that they know that you are in it for the long haul with them. It will also benefit you to let them know that you are open to hearing any modifications they need to assist them to continue the business but that you need to work together to minimize the impact on your franchise system and your franchisees' bottom line.

Supply Chain Issues

Demand equals logistics, logistics, logistics, logistics! A typical supply chain begins with the consumer having a demand for a product. To create that product it always starts with the raw materials. Then the raw materials are shipped to the supplier; the supplier gets the raw materials to the manufacturer who in turn utilizes a distributor to ship it to a retailer who in turn sells the product to the consumer. In the supply chain, you have 5 and possibly 6 different companies that all must be working efficiently to bring a final product to the consumer. This leaves a lot of room for failures and defaults in a supply chain being timely. The Japanese coined the phrase many years ago “just-in-time supply chain” meaning that you would receive the product at the retail location just in time for the consumer to purchase it thereby reducing the amount of stock the company had to carry, which in turn improves a companies profit and loss.

To make sure that you have a solid vendor and distribution relationship you have to manage it. You need to evaluate each vendor's volume commitment and also consider alternative channels if a vendor fails at any point throughout the supply chain. If your brand also requires some high-demand products that can be an additional sourcing challenge. Also, have conversations with each of the suppliers to discuss inventory shortages as well as inventory surpluses to ensure that you can return any surplus items for exchange for other products that you may need. Plan in advance what will be the response plan for any delayed product receipt will you be receiving a discount, will they give you quicker tier adjusted pricing, or is it a cause to allow you out of an exclusive vendor agreement to allow you to look for a supplementary vendor to work alongside your current vendor as well.

As we said at the beginning of this three-part series there is no such thing as “best practices” during a pandemic but hopefully, you have gleaned some tidbits here and there that will allow your re-entry into the “Normal Business Life” again to be a tad smoother.

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Ms. Shelton in a previous life was a franchisor of a large franchise system and is currently a Senior Attorney for Shelton Law & Associates franchise law firm. Shelton Law & Associates (“SLA”) Attorneys have 50+ years’ business consulting, franchise, and trademark experience. Their knowledge facilitates an understanding of a large variety of businesses, services, and technologies. They help businesses protect their Brands through Trademark, Copyright, and Business contractual transactions. These services allow SLA to “Expand their Brand®” through Franchising. For Franchisors, SLA provides full outsourced in-house counsel and consulting.

Shelton Law & Associates additionally works with entrepreneurs buying franchises by assisting with Business Creation, Industry Evaluations, Franchise Disclosure Document Review, Fairness Factors, Opinion Letters, and Negotiations.

For more information or to schedule a customized consultation for your business, you can write to franchising@SLA.Law or call (866) 99-FRANCHISE.

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Shelton Law & Associates Law Industry Expert
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