The Unique Challenges of Franchise Inventory Management
December 4, 2024 - 11 minutes readOvercoming franchising hurdles with advanced inventory management solutions.
The concept of franchising has been with us for over a century, with successful businesses accelerating expansion by licensing their name, logo, and products to others who hope to duplicate their success using an established template. As many would-be franchisors (founders) have learned, catching lighting in a bottle more than once is not always easy. Successful franchises employ a delicate balancing act that maintains key elements of the successful formula while giving each individual franchisee the freedom to adapt to their own clientele, geography, and personal preferences. Inventory management practices are among the most important components of this strategy.
The success of each store benefits the parent organization and all other franchises under the same banner. We take a closer look at the ways franchises can optimize their inventory management tools and practices to improve their bottom line.
“I knew the chicken had to be cooked the way I told them to cook it if it was going to be as popular as it could be.” – Colonel Sanders
What is franchise inventory management?
A franchise is a form of business agreement that allows a franchisee to gain proprietary access to the knowledge, processes, and trademarks of a franchisor and sell products under an established business name. While retail and fast-food franchises like 7-Eleven, McDonalds, and Taco Bell are known around the world, successful franchise models also encompass products and services such as clothing, sporting goods, and auto repair. In addition to paying an upfront fee, franchisees will typically pay ongoing royalties to the franchisor in exchange for their ready-made formula and reputation.
Franchise inventory management is the process of managing the supply chain and flow of materials for individual franchise locations within the context of the overall business. Depending on the industry and business model, this might include raw material purchasing, storage and warehousing, inventory tracking, and customer point of sale (POS) transactions. Each of these processes plays a vital role in creating the unique customer experience associated with the franchise brand.
What makes franchises different?
The symbiotic franchise business model can present both challenges and opportunities when it comes to inventory management. Depending on the organization and level of autonomy provided by the franchisor, each franchisee may be responsible for managing and replenishing their own inventory while utilizing the supply chains, volume discounts, and relationships established by the franchisor. Additional factors that can make inventory management for franchises challenging include:
- Requirements for uniformity and consistency across locations
- Supplier approval processes routed through the franchisor
- Combined ordering practices based on aggregate franchise demand
- Inventory reporting requirements to keep franchisors informed
Although they benefit from established systems, franchisees often have less freedom to control their own inventory management. This can lead to problems when local preferences conflict with high level decisions. For example, a franchisor may choose to launch a sale or promotion based on products that are already in high demand in some areas, thereby eating into profit margins for some franchisees.
7 keys to franchise inventory management
There is no single tool or practice that can unlock all the benefits of franchise inventory management, since each company establishes its own guidelines and culture. However, there are a few basic strategies that help franchise owners leverage the inherent benefits more consistently.
1. Standardize processes
Successful franchises are heralded for the consistency of their products across stores, cities, and even continents. This reliability attracts customers who may be wary of trying unknown entities when quality can be assured through a franchise model. For franchisees, standardization means following set guidelines for inventory management and other operational practices that leave less room for interpretation. Despite these constraints, standardized inventory control practices help to simplify training, ordering, pricing and forecasting while delivering the consistency customers expect.
2. Triangulate communication with suppliers and franchisors
Many supplier choices are pre-established for franchisees, but that doesn’t mean strong personal supplier relationships are no longer necessary. Along with monitoring, segmentation, and risk management, supplier relationship management (SRM) practices also emphasize communication and collaboration to build camaraderie and address issues in real-time. Collaboration with fellow franchisees and owners is useful for aligning on supplier management strategies and building collective supplier relationships.
3. Implement lean practices
Lean practices emphasize minimized waste, improved productivity, and reduced inventory to optimize efficiency and profits. The lean philosophy also includes continuous improvement and idea-sharing amongst franchisees. For example, if one location develops a packaging method that reduces landfill and expedites order fulfillment times, this knowledge can be shared company-wide to improve efficiency and maintain consistency. Lean supply chain practices like just-in-time (JIT) inventory management are ideally suited for franchises, since vendors may be more willing to accommodate small and frequent deliveries with the business of the entire franchise as an incentive.
4. Leverage economies of scale
The fundamental principle behind economies of scale tells us the cost of building products continues to decrease as the quantity increases. The reasons for these predictable efficiency gains include reduced setup time, bulk material purchases, and the ability to invest in automation and specialization. Economies of scale are one of the greatest assets for franchisees, since they can leverage combined assets, shared services, and centralized purchasing power that is not typically available to small businesses when they utilize approved supplier networks and collaborate with other franchisees.
“Great things in business are never done by one person. They’re done by a team of people.” – Steve Jobs
5. Complete regular inventory audits
Regular inventory audits and cycle counts are valuable for any business that maintains products since they ensure records and inventory management tools are accurate and effective. Franchises in the food service industry benefit from frequent cycle counts to identify spoiled or expired items and maintain cleanliness. Up-to-date inventory data also supports franchisor reporting requirements in any industry, while making royalty calculations and forecasts more reliable.
6. Choose the right POS system
Point of sale systems help franchises track real-time inventory, collect data to support customer relationship management (CRM), and automate sales processes. While some POS systems are designed for small businesses with a limited number of stores, others are suitable for franchises with thousands of locations. Franchisors and franchisees should work together to select scalable, cloud-based POS systems that are appropriate for the size and mobility requirements of the franchise. Versatile POS software can also be integrated easily with inventory management software and multi-channel commerce platforms when sales are completed online.
7. Utilize inventory management software
The choice of inventory management software should reflect the individual needs of each franchisee along with the collective requirements for standardized practices, real-time data sharing, and reporting. A franchise model based on multi-channel commerce may have different requirements than a strictly brick-and-mortar retail or food service franchise, so the integration and customization features of the software are also important considerations. Flexible inventory management platforms ensure franchisees maintain a degree of autonomy while operating in a centralized framework.
The future of franchise inventory management
Innovations including cloud-based platforms, artificial intelligence (AI), and automation are driving advancements in inventory management that continue to support real-time visibility, reduced errors, and improved efficiency. The next generation of inventory management tools and practices will impact franchises by:
- Improving access to franchise-wide real-time inventory and sales data
- Incorporating data from multiple franchise locations for demand planning
- Accelerating cycle counting and audits using robotic systems and RFID tags
- Synchronizing inventory between locations to avoid overstocks and stockouts
- Enabling seamless and consistent omni-channel commerce experiences
Franchise inventory management: Final thoughts
Franchises combine the best qualities of small and large retail organizations by backing small, local business owners with the brand recognition, advanced systems, and purchasing clout only large companies can attain. Optimized franchise inventory management practices embrace this unique position by leveraging centralized data and supplier relationships while tailoring storage practices, reordering, and promotions for each individual franchisee.
The comprehensive suite of Agiliron software solutions is ideally suited for franchise inventory management, seamlessly integrating warehouse management, marketplace intelligence, and customer relationship management in a mobile friendly, cloud-based platform. Mobile POS allows retailers to sell anywhere at any time, even without an internet connection, and all solutions are designed to integrate with the leading E-commerce platforms.
Franchise inventory management can be the secret ingredient that allows a successful formula to be duplicated across multiple locations. Flexible software tools provide an ideal balance between centralization and autonomy. Contact us today and allow our solution experts to explain how the right inventory management tools and practices can safeguard the viability of your franchise.
