Operations
How Franchise Brands Are Dealing with Their Disrupted Supply Chains Written By JOYCE MAZERO & EMILY DOAN
F
rom the first reported outbreaks of Covid-19, franchisors and franchisees providing products and services to their customers have had their supply chain arrangements disrupted – in effect, turned on their proverbial heads. Long-term manufacturing, distribution, and other supply relationships can no longer provide certain products, are delayed in providing products, or go out of business because others they depend on in their supply chains can no longer provide critical components or ingredients. Buyers including franchisors and franchisees cannot maintain purchase commitments because they are closed or cannot open because inventory is too low.
Various approaches to weathering the disrupted supply chain have been used by companies to stay in business and not be in breach of their contractual obligations. These include ceasing to offer certain products, modifying specifications and menus, finding alternative suppliers, canceling orders, and reaching the customer in new ways. What can we learn from the businesses that have responded to Covid-19 supply chain issues? What options do franchisors and franchisees have to deal with uncertainty and risk in their supply chains? In this article we discuss how some companies have dealt with the effects of Covid-19, and propose recommendations for those continuing to face supply chain disruptions. MAINTAIN FREQUENT COMMUNICATIONS Franchisors will likely need weekly or even daily communication with suppliers to stay apprised of any predicted product shortages or bottlenecks in production or delivery. Papa John’s CEO Rob Lynch credits “work[ing] very closely with [its] supply partners” for the company’s ability to withstand supply chain fluctuations. Lynch noted that Papa John’s “knew
a lot about how [Covid-19] was going to play out from our markets in Asia – particularly China, Korea – and we got out in front of it.” Open communication with suppliers has allowed Papa John’s to reinforce its supply chain, double inventory, and create redundancies by engaging new suppliers. Franchisors should maintain frequent, proactive communication with franchisees who are dependent on the supply chain by providing updates to changes in goods and services from supply chain issues. For example, Qdoba has been hosting daily webinars to keep in touch with its franchisees. Businesses may consider increasing their use of data and analytics to predict and model the impact of supply chain disruptions and share this data with franchisees to ensure system-wide updates on product availability and estimates. Franchisors should prepare and guide franchisees for reopening once government restrictions are lifted or as thresholds for open businesses increase, including operational and financial guidance. Hand & Stone has been holding weekly calls with franchisees to discuss the “market by market, county by county” approach to reopening franchised locations, with the franchisor supporting the decision of four of its eight Georgia franchisees to reopen as early as April 24. Franchisors should also maintain open communications with customers to keep them informed of any changes to products and services normally offered, how long changes are expected to last, and the substitute products or services now available. For example, Planet Fitness launched a United We Move campaign and has been offering users live online “work-in” fitness classes as a substitute for going to Planet Fitness gyms. ADOPT FLEXIBILITY IN BRAND STANDARDS AND REQUIREMENTS Franchisors should be flexible in establishing and enforcing their standards and requirements to deal with supply chain issues. This may involve relaxing certain brand standards during the period in which they re-enter the market. For example, Marriott International has deferred renovations for 2020 by one year, has deferred required expenditures for franchisees to update furniture, fixtures, and equipment, and has ceased conducting brand audits. Franchisors also should consider sourcing alternative suppliers to preserve continuity of supply. Approved supplier/ supply provisions in franchise agreements should be carefully reviewed, and franchisors must consider whether their current approved suppliers will be able to meet demands. Some franchisors may allow franchisees to propose alternative suppliers or source goods from local, alternative suppliers – especially for high-demand items – with franchisor approval. Recently, home health franchise system BrightStar Care and consulting firm FranWorth established an online fulfillment center for BrightStar franchisees that permits them to request personal protective equipment (PPE), including hand sanitizer, gloves, masks, and thermometers. Before FranWorth got involved, BrightStar had difficulty sourcing PPE. Because BrightStar and FranWorth identified alternative supply chains, BrightStar has been able to invest in PPE and provide its surplus of PPE at cost to other businesses in need. FRANCHISEUpdate
ISSUE 2, 2020
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