Franchise network procurement: ensuring reliable supply

Your existing business’s trusted supplier may not be able to serve several independent franchisees across Finland. Before expanding through franchising, you therefore need to establish how products, supplies and equipment will be sourced reliably. A good procurement model protects the shared customer promise while giving franchisees flexibility where appropriate. This guide helps you define procurement responsibilities and contingency arrangements before opening your first franchisee-operated outlets.

1. Separate essential purchases from those left to franchisees’ discretion

Start with your own business’s purchasing records. List the raw materials, products for sale, packaging, tools and equipment that are essential to the customer experience. For each item, explain why a particular specification or supplier is necessary. The fact that you have always bought from the same source is not enough.

Divide purchases into three groups:

• Essential to the concept: for example, a product made to your own recipe or equipment without which the service cannot be delivered as agreed.
• Subject to quality requirements: the franchisee can choose the supplier, provided the product meets predefined specifications.
• Freely sourced: purchases that have no significant impact on the shared customer promise or safety.

Make quality requirements measurable. Simply stating “quality approved by the network” leaves the approval criteria unclear. Specify, for example, materials, compatibility, ease of cleaning, delivery temperature or availability of maintenance, according to the needs of the business.

At the same time, design an approval process for alternative products. Who reviews a franchisee’s proposal, what evidence is needed and when will a response be given? A transparent process helps the franchise network improve procurement without turning every exception into a dispute.

2. Test the supplier’s ability to serve independent businesses

The purchasing history of your own outlet tells you only part of the story about a supplier’s suitability. Ask for a written description of delivery coverage, ordering schedules, minimum orders, delivery charges and complaints handling. Also establish whether the supplier can open a separate account for each franchisee and invoice them individually.

Compare total costs, not just unit prices. A large minimum order can tie up a new franchisee’s working capital and increase waste. Similarly, inexpensive equipment can prove costly if a service engineer cannot attend and operations have to stop. The same supply agreement can result in very different cost structures in different locations.

Run a practical delivery trial in the area where you plan to expand. Check the ordering process, delivery punctuality, product condition, invoice accuracy and how any problems are resolved. Record your findings so that supplier selection is based on actual service capability rather than sales promises alone.

Agree with the supplier on how you will plan for growth. Present planned openings as forecasts, not confirmed orders, unless binding volumes have been separately agreed. Do not promise purchasing volumes on behalf of franchisees unless you have the authority to commit them.

Also assess how long it would take to bring an alternative supplier on board. If approving a replacement product or changing equipment takes considerable time, contingency arrangements must be prepared before the first supply interruption.

3. Document purchasing obligations and check competition law

Finland has no separate franchising act, statutory franchise register or specific legislation governing franchise disclosure documents. However, procurement terms are subject to general legislation, including the Finnish Contracts Act, Competition Act and Unfair Business Practices Act. The Sale of Goods Act may also apply to purchases of goods. EU competition rules may apply where an arrangement is capable of affecting trade between Member States.

The EU Vertical Block Exemption Regulation (EU) 2022/720 and its accompanying guidelines are central to the competition law assessment. The Regulation does not automatically permit every purchasing restriction imposed by a franchise network: relevant factors include market shares and the nature and duration of the restrictions. In particular, have exclusive purchasing obligations and bans on selling competing products reviewed by a lawyer specialising in competition law.

Do not confuse joint procurement with setting franchisees’ resale prices. Imposing fixed or minimum resale prices is generally prohibited. Even an ostensibly recommended price can become problematic if compliance is enforced through pressure or incentives.

The contractual arrangements should clearly explain:

• whom the franchisee must buy from and what the obligation covers;
• who sells, invoices and is responsible for delivery errors;
• how prices, delivery charges and payment terms are determined;
• on what grounds suppliers or product ranges may be changed;
• whether the franchisor receives rebates or other benefits from purchases and how these are handled.

The Finnish Franchising Association’s Code of Ethics is self-regulation, not law. It does not replace a legal review of contractual terms. Give prospective franchisees the key purchasing restrictions and the basis for costs early enough for them to assess these properly.

4. Prepare a procedure for supply disruptions

Draw up a short action plan for situations where an essential product runs out or a supplier stops delivering. Define who receives reports of disruption, who approves a replacement product and how the decision is communicated to all franchisees. Where safety is involved, the statutory obligations relating to the product or service must also be followed.

Agree in advance when a franchisee may make an urgent replacement purchase. For example, limit permission to approved alternatives and require the purchase to be documented. This avoids forcing franchisees to choose between suspending operations and risking a breach of unclear contractual terms.

Monitor supply reliability, incomplete deliveries, complaint resolution times and total procurement costs. Review the results regularly with the supplier and franchisees. Experience across the network reveals problems that data from a single company-owned outlet will not show.

Practical summary: before expanding, draw up a procurement list, assign responsibility for every critical supply and secure an approved fallback option. Have purchasing restrictions reviewed before signing agreements. An effective procurement model protects both the shared customer promise and franchisees’ day-to-day operations.