Stock management when franchising in Mexico: rules to prevent losses

A business can sell well and still lose money through expired goods, stock shortages or excessive purchasing. When you franchise it, those problems can multiply. Before adding new outlets to your franchise network, turn your stock management experience into rules that can be checked. The aim is not to fill every storeroom equally, but to maintain availability and quality without tying up cash unnecessarily.

1. Define the stock each outlet actually needs

Start by classifying items according to their purpose: products for sale, raw materials, packaging, consumables and spare parts. They do not all need the same controls. A perishable ingredient requires expiry-date monitoring; a critical spare part may justify holding a reserve even if it is rarely used.

Prepare a record for each item containing:

• Unit of measurement and purchasing pack size or format.
• Storage conditions and shelf life, where applicable.
• Recorded usage and seasonal variations.
• Typical replenishment lead time.
• Minimum and maximum stock levels, and reorder point.
• Permitted substitutions and restrictions on use.

Do not confuse minimum order quantities with actual stock requirements. A bulk discount can end up costing more if it means discarding goods or paying for extra storage. Assess each offer against the outlet’s physical capacity and usage.

Do not automatically copy the quantities held at your original premises either. An outlet with less space, a different sales mix or more frequent deliveries may need different settings. Keep a common method, but document the variables that justify each adjustment.

2. Turn the policy into consistent documentation

In Mexico, franchises are regulated by the Federal Law on the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial, or LFPPI). Article 246 requires the franchise agreement to be in writing. Its minimum content includes policies on stock, marketing and advertising, as well as provisions on the supply of goods and arrangements with suppliers, where applicable.

To organise this content, distinguish between contractual obligations and operating procedures. The agreement should state the key commitments: keeping specified categories in stock, complying with storage conditions or recording stock movements, for example. An appendix can set out parameters for each outlet format, while the operating procedure can explain how to receive, count and withdraw goods.

This division is a recommendation for organising documents, not permission to leave the agreement without substantive provisions and defer everything to future instructions. Seek legal review to ensure that references to appendices, responsibilities and update mechanisms are clear and consistent with the agreed terms.

Avoid verbally promising to buy back all surplus stock unless there is a documented commitment. Also define who bears the cost of goods that are damaged, expired or sent in error, according to the cause and the applicable agreements. A purchasing obligation without clear rules on losses can lead to disputes from the very first replenishment order.

3. Design a simple process to prevent stock losses

Control starts when goods arrive, not when a discrepancy is discovered at the end of the month. Establish a sequence that staff can follow during a normal working day:

1. Receive: check quantities and pack sizes or formats against the order and delivery documentation; inspect condition, batch details and dates where applicable.
2. Record: log incoming stock using a consistent unit of measurement and retain evidence of any discrepancy.
3. Store: place each item in the appropriate storage conditions and separate goods that do not meet requirements.
4. Rotate: use or sell stock in the appropriate order; for products with expiry dates, prioritise those that expire first.
5. Withdraw: identify goods that can no longer be sold or used, and document what happens to them in accordance with the applicable rules.

Distinguish between the causes of stock loss: preparation waste, deterioration, expiry, damage, returns or unexplained discrepancies. Recording everything as an ‘adjustment’ prevents you from addressing the problem.

For example, if a café repeatedly discards milk, the answer should not be to increase safety stock. First review the usage forecast, deliveries, storage conditions and portion sizes. Each cause calls for a different response.

4. Check that the rules protect cash flow

Before requiring a franchisee to follow this policy, apply it in your own operation and monitor the results. Review availability, shortages, expired goods, stock-count discrepancies and cash tied up in stock. Use consistent definitions: comparing percentages calculated on different bases leads to misleading conclusions.

Assign responsibility for recording incoming stock, authorising write-offs and reviewing discrepancies. Where team size allows, avoid having one person control the entire process without oversight. In smaller operations, arrange periodic checks by the outlet manager.

Finally, test difficult scenarios: a delayed delivery, a fall in sales or a product nearing its expiry date. The policy should specify what to do and who makes the decision, without relying on improvisation.

Practical conclusion: before franchising, prepare a stock management matrix, document responsibilities and validate the process for receiving goods, rotating stock and handling write-offs. Require only controls that you can explain, implement and maintain.