Franchise suppliers: how to prepare your supply chain

A supplier that serves your shop well may not be able to supply other cities with the same lead times, costs and quality. Before franchising, turn your purchasing arrangements into a supply system that works without relying on favours or personal negotiations. In a franchise network, this groundwork protects the customer experience and helps prospective franchisees understand their purchasing obligations.

1. Separate what needs standardising from what allows choice

Start by listing the goods, materials and services needed to run the business. The aim is not to assemble opening stock, but to decide which purchases must follow common rules throughout the franchise relationship.

Classify each item according to its impact on what the customer receives:

• Essential to the business’s identity: a proprietary ingredient, branded packaging or a component that determines product performance.
• Critical to safety and quality: a material whose unsuitable replacement could create health risks, technical faults or problems with product preservation.
• Standardisable through specifications: an item that different companies can supply, provided they meet verifiable requirements.
• Open to local sourcing: a purchase that does not compromise franchise standards and can remain a local responsibility.

Avoid imposing a single supplier simply for administrative convenience. Record the reason for each restriction and consider whether a technical specification would be sufficient. The more concentrated the supply chain, the greater the need to plan alternatives.

A coffee shop, for example, might require coffee with a defined flavour and aroma profile, while allowing different suppliers of cleaning materials that meet the applicable requirements. The decision should reflect how the business actually operates, rather than the founder’s personal preferences.

2. Approve suppliers using verifiable criteria

Supplier approval means assessing and approving a supplier against predefined criteria. Simply adding a company to a list because it already supplies the original business is not enough.

Create an assessment form covering product characteristics, production capacity, delivery areas, lead times, minimum orders, payment terms and procedures for dealing with damaged goods. Include the licences and documents required for the activity concerned, without assuming that every supplier has the same obligations.

Request samples and place trial orders. Check that the goods delivered match the approved sample, that the Brazilian tax invoice (nota fiscal) is correct and that transport conditions protect the product. For perishables, also assess the remaining shelf life and storage conditions.

Compare the total delivered cost, not just the list price. Freight, wastage, minimum orders and replenishment frequency can make a low-priced offer unviable for a smaller or more distant outlet.

Then formalise the commercial terms with the supplier. Clarify who places orders, who pays, who receives deliveries and who resolves discrepancies. Approval by the franchisor does not, in itself, mean that it will guarantee franchisees’ payments or compensate them for any delivery failure.

Also define when approval will be reviewed: changes in composition, a move to a different factory, repeated delays or substantiated complaints are examples of circumstances that warrant reassessment.

3. Align mandatory purchasing with Brazil’s Franchise Law

In Brazil, Law No. 13,966/2019 governs business franchising and repealed Law No. 8,955/1994. It requires the franchise disclosure document, known as the Circular de Oferta de Franquia (COF), to provide clear, detailed information about any obligation to purchase goods, services or materials exclusively from suppliers designated and approved by the franchisor, including a complete list of those suppliers.

The law also requires disclosure of any minimum purchase quotas and whether, and under what conditions, franchisees may refuse products or services required by the franchisor. A supply policy should therefore not be buried in informal guidance issued after the agreement has been signed.

Keep three elements consistent:

• COF: informs prospective franchisees of the restrictions and conditions relevant to their decision.
• Agreement: sets out purchasing obligations, responsibilities and procedures for changes.
• Operating procedures: explain how to order, receive and check deliveries, and report problems.

The COF must be written in Portuguese, in clear, accessible language. In a standard private contracting process, it must be provided at least ten days before the franchise agreement or preliminary agreement is signed, or before any fee is paid to the franchisor or a person or company connected with it.

Have these arrangements reviewed by a legal adviser, particularly where they involve exclusive supply, minimum purchases or remuneration received by the franchisor in connection with purchases.

4. Prepare an alternative before the first shortage

Define the procedure for stock unavailability, serious delays or failures to meet quality standards. Franchisees need to know whom to contact, what evidence to provide and who can authorise a temporary substitution.

For critical items, assess a second supplier or a previously tested solution. If there is no equivalent alternative, establish how to adjust the customer offering without improvising products that compromise safety or brand identity.

Record exceptional authorisations, including their duration, the outlets covered and the accepted specifications. After each incident, review the cause and monitor the supplier’s performance.

In practice: before offering your first franchise, put in place a purchasing matrix, assessed suppliers, transparent terms and a contingency procedure. A supply system that can be replicated is one that also works when the usual supplier lets you down.