Managing Product Sales to Franchise Owners

Fulfillment service companies can handle distribution needs and free franchise systems of difficult chores.

By Mary Rogers and Peter McCann

One of the many benefits franchisors offer to franchise owners is to provide competitive sources for quality products and services. As Abrakadoodle grew, we found that this service became more and more time-consuming and costly for both headquarters and the franchise owners. Increasing staff time was being devoted to managing multiple vendors, sourcing products, negotiating prices, handling and quantifying inventory and supervising shipping. Additionally, rising costs for oil boosted both product and shipping costs. The company was losing an internal battle to contain prices, offer top quality products and get them into franchise owner’s hands in an effective and timely manner.

Communicate product ordering changes to franchise owners.

The solution? Turn the whole thing over to a fulfillment service. Currently, a fulfillment company is handling product distribution needs, allowing the franchise company to focus on its core business of franchising art classes for children. Other franchise companies might manufacture several products or source products from a variety of vendors. If such companies used a fulfillment service to distribute one of their products, it might be a logical place to start looking for a solution for distributing a wider range of products. Basically, a company might be seeking a company or service that could:

• Manage most product sales, creating a one-stop shopping experience,

• Provide online ordering services,

• Expand the product line,

• Handle all aspects of fulfillment from sourcing, processing and shipping to inventory management,

• Offer printing and imprinting services,

• Offer cost-effective pricing and more attractive shipping arrangements, and

• Fill orders quickly and efficiently.

How does a franchise find a competent fulfillment service? Franchisors should consider interviewing several companies and focus on the one most applicable to its needs. Consider visiting the operation to see first-hand how the company is operated. Meet the staff. In this way, the franchise company can learn more about what that vendor can do for it. Talk with some of the company’s clients.

To find a fulfillment company, consider looking through the International Franchise Association’s Supplier Forum lists online or ask for referrals from other franchisors. Companies can also find more information on fulfillment organizations on the Web site of the Mailing and Fulfillment Services Association at www.mfsanet.org. The MFSA has been around for more than 80 years and has more than 700 members in the United States and Canada.

Once a fulfillment company is chosen, the next step for the franchisor is to prepare and finalize a contract. Both parties want to make sure that the contract is fair and workable. Here are the major issues that need consideration:

• Inventory: Specify who owns the inventory. It should also outline who is responsible for selecting, sourcing and tracking the inventory. If the fulfillment company owns the inventory, what obligations are there to re-purchase items if products in the inventory don’t sell?

• Reporting: Outline reporting issues such as frequency of reports, access to data and required data.

• Expectations: Address each party’s expectations for sales and other areas, such as promotions.

• Order Processing: Address how orders will be processed, including a time frame for delivery of products. If the order processing is being conducted online, the contract should outline who is responsible for building and maintaining the online ordering systems. Information about downtime ordering and procedures for product returns should also be included.

• Quality Control: Determine how quality control issues are handled, including an approval process for new inventory items.

• Pricing: Clearly outline how prices for products are determined and any and all fees that might be due to either party. Expect differences depending upon who owns the inventory.

• Disputes: Disagreements or differences may occur so spell out how disputes are handled.

• Termination of Contract: All conditions regarding termination of the contract should be spelled out including financial obligations, inventory disbursement, timetables and other pertinent issues.

What to Expect Upon Making a Change

Once the agreement is signed, the franchisor can begin moving existing inventory and choosing new items to be added to the inventory. Most fulfillment companies today offer online ordering, so all the items for the online store will need to be photographed. Product descriptions need to be added. The franchisor will want to stay involved in this process so that the products are accurately represented.

The franchisor should communicate product ordering changes to franchise owners so that they can plan their ordering processes without having a delay in delivery. Once inventory is in place, ready for disbursement and the online store is functional, ordering can begin.

Franchisors should expect that franchisees will go through a “getting to know you” period. Using a fulfillment service represents a change. Some may be slow to order, waiting instead to make sure that other owners are happy with the service.

Take an active role in
promoting the products.

Franchisors may have staff members who have been involved in order processing and find many of their daily tasks transferred to the fulfillment company. Prepare staff members ahead of time for the change and help them to transition into other roles in the company. Franchisors will also want to monitor any complaints that arise regarding the fulfillment service and make sure that they are resolved quickly to everyone’s satisfaction.

While there was a smooth transition to using a fulfillment company, Abrakadoodle learned some things along the way:

• Communicate the change to existing vendors. Not only is it fair, but it also leaves room for the possibility that the company may purchase its products sometime again in the future.

• Check every product for quality and suitability before adding it to the product line. For example, art aprons that were ordered from a foreign source arrived in the wrong colors with an inferior fabric. Though the delivery was refused, it set the company back several weeks in stocking inventory for that product.

• It takes longer than anticipated to move inventory and stock to an online supply center. Nine months later, the company is still moving products to the OSC.

• Educate the fulfillment company about the particular business and its needs. For example, the fulfillment company was accustomed to bagging every T-shirt for a nice presentation, but the franchisor didn’t want plastic bags because of the hazard they present to kids.

• Spend time communicating the change to the franchise owners. Some of the owners have built relationships with other suppliers and may not like the change. Others may be skeptical.

• Take an active role in promoting the products.

• Let the fulfillment company do what it does best because it provides experts in packaging, packing and managing the entire process.

• Build the relationship with the fulfillment company. View the relationship as a partnership in which both parties provide benefits to each other.

This has proved to be a solution that works for everyone in our company: franchisor, franchisees and fulfillment company. There have, of course, been some bumps in the road. But at the end of the day, it is simply a program that works.

Mary Rogers is CEO of Abrakadoodle Remarkable Art Education and Peter McCann is president and CEO of Ideal Images. Rogers can be reached at Mary@abrakadoodle.com or 703-860-6570 and McCann at Petermccan@ideal-images.com or 402-596-1002.