Organising Procurement for Franchise Outlets in Saudi Arabia Before Granting a Franchise

Your existing business may succeed because you personally manage suppliers, inspect every delivery and resolve price discrepancies with a direct phone call. Granting a franchise, however, means turning those relationships into arrangements that a franchisee can use without relying on you every day. Across a franchise network, clear supply arrangements protect the consistency of the customer experience and prevent procurement from becoming an unexpected source of costs or disputes. The starting point is not simply a supplier list, but a clear definition of what is purchased, from whom, on what terms and who is responsible when something goes wrong.

1. Classify purchases before requiring outlets to use a particular supplier

Compile a list of the items your business actually buys, then classify them according to their impact on the finished product and brand identity. Do not assume that every item needs the same level of control: an ingredient that determines your product’s flavour is different from office supplies that can be bought locally without changing the customer experience.

You can build your procurement policy around three practical categories:

• Items directly linked to brand identity: These require precise specifications and a controlled source, such as proprietary blends or branded packaging.
• Items suitable for multiple sources: These may be purchased from approved suppliers, provided they meet standardised specifications.
• General items: The franchisee chooses the supplier within defined quality and safety requirements.

For each item, record the specification, unit of measurement, acceptable tolerances, storage requirements and who has authority to approve an alternative. Avoid relying on phrases such as ‘excellent quality’; they do not help the person receiving a delivery decide whether to accept or reject it.

If you require a single supplier, document the operational reason for that choice. Also ask whether the supplier can serve your target locations to the same standard. Successfully supplying your current outlet does not, on its own, demonstrate readiness to fulfil simultaneous orders from several outlets.

2. Align the supply policy with the agreement and disclosure document

Franchise agreements carried out within Saudi Arabia are subject to the Commercial Franchise Law and its Implementing Regulations. Article 11 of the Law requires the agreement to set out the franchisor’s obligations to supply goods or services, and the franchisee’s obligation to obtain them directly from the franchisor or through another party on the franchisor’s instructions.

The same article also requires the agreement to explain how any amount payable for goods or services supplied to the franchisee by the franchisor, or anyone within its group, is calculated. A general statement such as ‘the franchisor’s prices apply’ is therefore not enough to explain the commercial arrangement in practical terms. Set out the basis of pricing, what the price includes, how transport or storage costs are handled, and how the franchisee will be notified of changes in accordance with the parties’ agreement.

Distinguish between three relationships: the franchisee buying from you, buying from a company within your group, and buying directly from an independent supplier. For each, identify who issues the invoice, receives payment, guarantees conformity with specifications and handles returns. Approving a supplier does not automatically make the franchisor the seller or responsible for every delivery failure.

Article 7 requires the disclosure document to be provided at least 14 days before the agreement is signed or any franchise-related payment is made, whichever occurs first. It must also be clear and accurate. Present supply arrangements that could influence a prospective franchisee’s decision consistently with the agreement and applicable disclosure requirements, and have a specialist review the wording. Day-to-day ordering and delivery acceptance details belong in operating procedures; those procedures are not a substitute for core contractual obligations.

3. Test order costs and terms from the outlet’s perspective

An item’s price may look reasonable while its purchasing terms make the outlet expensive to run. Calculate the cost of getting an order to the outlet, not just the value of the goods. Review transport costs, minimum order quantities, delivery frequency, required storage space and the risk of spoilage or expiry before use.

Ask the supplier for a quotation that clearly states its actual service coverage, order cut-off times, lead times and payment terms. Then test those terms against the needs of outlets with different sales levels, rather than assuming that every outlet will order the same quantities as your highest-selling location.

For example, buying packaging in bulk may reduce the unit price, but it also ties up the outlet’s cash and takes up storage space. The answer may not be to require everyone to buy the same quantity, but to negotiate split deliveries, consolidate orders or approve smaller supply packs where economically viable.

Also document how agreed discounts will be passed on and how price changes will be handled. These are commercial arrangements that need to be explained, not standard percentages prescribed by franchise law. Do not promise a prospective franchisee stable procurement costs unless you have agreements that support that promise.

4. Establish a clear process for accepting deliveries, rejecting goods and approving alternatives

The outlet needs a short procedure that starts by matching the purchase order against the delivery and invoice. Specify checks appropriate to the business, such as quantity, packaging integrity, shelf life and temperature where relevant, with discrepancies recorded through photographs or a goods received report.

Designate someone to report shortages or non-conformity, and define how rejected items should be segregated and their replacement or financial settlement followed up. Agree a deadline for raising complaints and a response process with the supplier. An internal procedure alone does not bind the supplier unless the arrangements are reflected in your terms with them.

Make requests for alternatives workable: the outlet submits the specification and, where necessary, a sample; the relevant person reviews them; and written approval is then issued specifying the permitted scope and duration of use. Do not let temporary verbal approval become a permanent, undocumented change to outlet purchasing.

Practical takeaway: Before granting a franchise, prepare an item-and-supplier matrix, a clear pricing mechanism, and procedures for receiving deliveries and approving alternatives. Then test a real order using these rules. Anything the outlet cannot implement clearly needs to be revised before the agreement is signed.