franchising aspects Jul, 24 2009

Optimising vendor selection

When the market offers you vendors who are reasonably priced, how do you deal with a company vendor who overcharges?

By Neha Malhotra
Sub Editor, Franchise India Holdings Limited, Web Division
Optimising vendor selection

In a franchise arrangement, the franchisee is supposed to procure merchandise and supplies from vendor specified by the franchisor only. This is done so as to maintain standards. But in certain cases, some franchisees feel that these vendors at times over charge for certain supplies which are available for a lesser price in the market. In such a situation, the franchisee feels that he is not putting his money to best possible use. Some franchisees also feel that the franchisor should allow them to make purchases from other vendors offering a better deal but as the franchisor needs to maintain standardisation across his outlets he may not permit this to happen. So what can be the probable solution in such a situation?

As a franchisee you can at such a time suggest the franchisor about the availability of same quality products at a better price with another vendor. Instead of waving off the idea, the franchisor can act upon it. The franchisor can appoint an inspection team which could visit the vendor with the franchisee who gave the proposal. On their visit, according to the company parameters the team can distinguish if the vendor meets the pre requisites or not. In case, they do not, you would have to continue procuring from the same vendor but in case they do match the criterias, then you can be allowed to purchase from the new vendor. However, he can change the vendor not only for this particular franchisee but for all his other franchisees who can now add more to their profits. This in a way can be beneficial for the franchisor also. To site an example, if the franchisor has 10 stores in a region out of which five are franchised and five are company owned, so when he appoints the new vendor for all his stores then he would also be saving a percentage of money on supplies from these five stores. Pawan Gadia, Vice President, Ferns N Petals on the need to reconsider such a situation says, “Absolutely, why not! If we can get the same product and quality at a cheaper price than what is currently being offered by the company vendor, then definitely we will offer a pragmatic plan towards it. Such a deal is favourable for the franchisee, the company and the customer.” He further adds, “If your competitor can provide better price, then what’s the fun of doing business?” Ferns N Petals has also been in such a situation where they did change a vendor on the suggestion of a franchisee. Ajay Saini, COO, Yo! China tells, “A lot of ad hoc goes into the selection of a vendor so it is not very easy to change a vendor every now and then as a lot of things need to be considered before making such a decision. However, there is no hard and fast rule or a 100 per cent deal that it cannot be done at all, just that the probability of such a situation is five to 10 per cent. Franchisors need to be flexible and such a thing is definitely possible.”

Forcing such decisions on the franchisor or not talking about them at all is not the path towards a solution. The franchisor should be given ample time to work out details and act on them. Just wait and watch to see if it was meant to be or not.

Related: Franchisees take on promotional strategy

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