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Why Your Franchise Should Have a Preferred Vendor Program


Learn why a preferred vendor program is so important for the franchisee and franchisor.

One of the major benefits of a franchise is the opportunity for franchisees to purchase quality products and services at favorable costs through a franchise vendor program. This capability of a franchisor to leverage its franchisee buying power into favorable vendor arrangements should be maximized. However, there are a number of franchisors that fail to take full advantage of this opportunity or fail to fully commit to a comprehensive vendor program.  Historically, the franchise food sector has historically been the leader in the area of establishing and administering vendor programs, due in great part to the need of the franchisor to maintain control over food ingredient quality, standards and costs.

Why Some Franchisors Donít Fully Commit to a Preferred Vendor Program:

  • Unwilling to apply the time, attention or resources
  • Are concerned about generating franchisee liability or negative reaction as a result of recommending or requiring the use of specific vendors
  • Would prefer to defer vendor decisions to individual franchisees
  •  Prefers to delegate the operation of a vendor program to a franchisee buying group. This would be appropriate in non-food franchise sectors

Each of these reasons can be overcome by the numerous benefits that a preferred vendor program provides

The benefits of a Preferred Vendor program:

  • Leverage the purchasing power of the franchise network
  • Obtain rebates from purchases, that can be shared with franchisees and used for marketing programs
  • Demonstrates to new franchise candidates that the franchise is well organized and supportive of its franchisees
  • Underwrite a portion of national and regional meeting expenses
  • Include a trade show or vendor exhibits as part of the annual meeting
  • Maintain franchise network standards for equipment, products and services
  • Contribute to reduced franchisee operating costs
  • Provide a valuable resource for franchisees
  • Eliminate the need for franchisees to devote time searching for vendors
  • Provide purchase data for system reports and audits

Before constructing a preferred vendor program make sure that your franchise attorney reviews and helps draft the program in order to avoid any potential liability, legal issues or franchise disclosure problems. Donít avoid implementing a program, because you have a small number of franchisees. Vendors will have an interest in a growing franchise system and as the number of franchisees increases the benefits from a preferred vendor program will increase.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com

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