Franchise suppliers: how to prepare your supply chain

A business may run smoothly when its founder handles purchasing, yet still be unprepared to supply independently operated outlets. When building a franchise network, that reliance needs to give way to clear rules, suppliers capable of serving new locations and backup arrangements for delivery failures. Preparing your supply chain before offering your first franchise protects both brand standards and the future franchisee’s commercial viability.

1. Separate what needs standardising from what allows choice

Start by listing the goods, services and supplies needed to run the business. Include ingredients, packaging, equipment, uniforms, management systems and maintenance. For each item, record its purpose, specification, purchasing frequency and the consequences of a shortage.

Then organise purchases into three groups:

• Items essential to brand identity: those whose replacement could alter the product, customer experience or safety, such as a proprietary formulation.
• Items with technically equivalent alternatives: these can come from different suppliers, provided they meet verifiable requirements, such as dimensions, strength or compatibility.
• Items franchisees can source freely: these do not need to come from a specified source, although general quality guidelines may still apply.

This classification is a management tool, not a set of statutory categories. It helps avoid two extremes: allowing substitutions that undermine the business’s identity, or requiring exclusive sourcing for everything without an operational need.

Write down the justification for every mandatory purchase. If the only explanation is ‘we have always bought it this way’, review the requirement before passing it on to franchisees.

2. Assess delivery capability, not just the product

Approving a sample does not mean a supplier is ready to support expansion. A supplier serving your current outlet may lack the capacity to deliver to other towns and cities, issue the correct paperwork or handle returns without the founder’s intervention.

Create an assessment form with objective criteria:

• production capacity and delivery coverage;
• delivery lead times and observed variations;
• minimum order quantities and payment terms;
• shelf life, storage and traceability, where applicable;
• licences and regulatory compliance required for the product or activity;
• handling of damage, defects and incomplete deliveries;
• procedures for notifying customers of unavailability or specification changes.

Place test orders under conditions similar to those a franchisee will face. Consider a more distant address, a smaller order and service through the normal ordering channel, without special treatment for the brand owner.

Record the results and any outstanding issues. Supplier approval should specify what has been approved, for which products and locations, who made the decision and when reassessment is due. The process need not be bureaucratic, but it should leave enough evidence to justify the choice.

3. Calculate the cost to the outlet

The price negotiated by head office does not, on its own, represent the franchisee’s cost. Freight, applicable taxes, wastage, storage and minimum order quantities can all change the figures. Carry out this analysis with accounting support, taking the planned operations and locations into account.

Compare suppliers by the total cost of supply, not just the volume discount. A cheaper batch may tie up working capital and expire before it can be sold. Frequent deliveries may reduce stockholding but increase logistics costs.

Build a projection for each type of outlet, showing expected consumption, ordering intervals, stock requirements and cash outlay until the next replenishment. Make your assumptions explicit and do not present estimates as guarantees.

If the franchisor also sells products to franchisees, separate that activity from its supplier-approval role. Document the commercial criteria and responsibilities for delivery, quality and returns. This makes the relationships easier to understand and reduces conflict within the franchise network.

4. Align the rules with Brazil’s Franchise Law

In Brazil, Law No. 13,966/2019, which repealed Law No. 8,955/1994, governs franchising. Article 2, item XII, requires the Franchise Disclosure Document, known locally as the Circular de Oferta de Franquia (COF), to set out clearly and in detail any obligations to purchase goods, services or supplies exclusively from suppliers designated and approved by the franchisor, including a complete list of those suppliers.

Item XIX also requires information on minimum purchasing quotas from the franchisor or designated third parties, and on whether, and under what conditions, franchisees may refuse the required products or services.

The supply policy must therefore go beyond sales discussions. The COF, franchise agreement and operating guidelines need to be consistent. With legal review, define how supplier changes, specification updates and approval of alternatives will be handled.

The COF must be provided at least ten days before the signing of the franchise agreement or preliminary agreement, or the payment of any fee to the franchisor or a person or company connected with it. Purchasing restrictions must be clear before the prospective franchisee makes a decision.

5. Prepare a response to supply disruptions

For each critical item, establish a backup: a second approved supplier, a justified level of safety stock or a temporary substitute assessed in advance. Where no alternative is possible, document the risk and the planned response.

Decide who receives the alert, who authorises the solution and how outlets will be informed. Monitor delays, returns and shortages so that recurring problems can be resolved, rather than treating every incident as an exception.

Next step: identify the supplies whose absence would halt operations. Before offering your first franchise, confirm the supplier, delivered cost, purchasing rule and contingency plan for each one.