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Creating Purchasing Programsto

Maximize Savings for

Your Franchisees

February 11, 2008

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Today’s SpeakersJack Earle: ModeratorManaging Partner, Earle Enterprises, LP (McDonald’s Franchisee)Janice Dwyer: PresenterCFE, President, Luce Smith & Scott, Inc.Doyle James: PresenterCFE, President, Aire Serv Heating & Air Conditioning, Inc.

The Dwyer Group®Mary Rogers: PresenterCEO, Abrakadoodle Remarkable Art Education

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Finding Franchise Vendor“Partners”

Presented by Janice DwyerLuce Smith & Scott, Inc.

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Partners

• A franchise supplier’s success is defined by the success of the franchise system for whom they provide products and services

• Their purpose is to simplify product purchasing process, control costs and improve efficiencies

• Provide franchisors with cost-effective, value-added programs

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Not a vendor But a partner• P rotect your brand

• A nalyze a vendor’s business operation

• R eputation of Vendor is primary

• T imeliness and quality of service

• N eeds Assessment

• E xpertise of vendor in franchise format

• R esources of Vendor

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P rotect your Brand

• Control your relationship with franchisees by establishing centralized purchasing programs

• Ensure compliance with franchise standards• Maintain a big picture focus on important aspects of

franchise• Create a single point of contact for vital services for

your franchise system

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A nalyze a vendor’s business operation

• How long has the vendor been in business?• Who are the vendor’s main competitors?• What is the vendor’s market share?• What subcontractors may a vendor utilize?• Look at the significance of your endorsement to the

vendor.

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R eputation of Vendor is Primary

• Check a vendor’s business reputation, complaints and litigation

• Review qualifications, backgrounds and the reputation of vendor management

• Check with existing customers and question any problems

• Do an extensive background and reference check

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T imeliness and Quality of Service

• Establish the vendor’s ability to meet specifications • Geographical capabilities and ability to respond to

different time zones of vendor is important• Ask key franchisees to “test” quality of customer

service capability• Ask key franchisees to “test” competitiveness of price

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N eeds Assessment

• Review vendor’s experience in proposed product or service

• Does vendor have a similar-sized customer?• Assess the need to outsource the service vs.

providing it in-house• Determine if existing vendor’s can supply the service

and/or product

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E xpertise of Vendor in Franchise Format

• Do not risk franchisor’s brand of exceptional service • Can the vendor offer a unique product or service?• Does the vendor respect the use of co-branded

communications?• Does the vendor understand your fundamental focus-

franchisee success?• Large or small, all franchisees must be treated

equally.

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R esources of Vendor

• Establish the vendor’s internal controls, continuity and contingency plans.

• Review the vendor’s insurance coverage.• Do the vendors have a sufficient level of resources to

meet the ongoing needs of your franchise organization?

• What is the expertise of the sales representative and technical staff?

• Can the vendor avoid problems before they occur?• Will the vendor provide automatic reporting of

activity?

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Creating Purchasing Programs

Presenter: Doyle JamesAire Serv Heating & Air Conditioning, Inc.

The Dwyer Group®

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The 5 Cs of a Vendor Program

• Community• Commerce• Communication• Compliance• Compensation

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Community

Creating an environment where franchisees and vendors come together• What brings us together

– National conferences– Regional meetings– Vendor-sponsored training– E-commerce marketplace– E-promotions

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Commerce

Making it easy to conduct business• How franchisees and vendors conduct business

– E-commerce marketplace– Custom forms– Hosted catalogs– Purchase order dashboards– Invoice dashboards– Start-up kits– Targeted packages

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Communication

Connecting, educating and offering• How we communicate vendor programs

– Conferences– Vendor-sponsored trainings– Marketplace featured items– E-promotions– Printed program guide– Program targets reporting

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Compliance

Getting commitments and tracking results• Helping hold vendors and franchisees accountable

– Purchase tracking– Contests and incentives– UFOC reporting

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Compensation

A program to save and earn money• How the franchisee and franchisor earn revenue

– Rebates– Advertising revenue– Sponsorship revenue

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Creating Purchasing ProgramsPresenter: Mary Rogers

Abrakadoodle®

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Abrakadoodle:

• Smaller franchisor (under 100 units)• Mobile art education program for children• Products consist of classroom materials and business supplies• Growing product sales component

– Crayola and other venders– Frames (over 100,000 annually)– Student kits– Collateral

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Problem:

• Rising costs• Managing multiple vender programs• Managing product sourcing, inventory, sales,

fulfillment staff• Smaller volumes resulting in less attractive pricing• Financial burden for the company and higher prices

for franchise owners • Stepping outside company’s expertise

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Solution: Fulfillment CompanyOne company that could:

• Manage most product sales – 1 stop shopping• Provide online ordering services• Expand product line• Handle all aspects of fulfillment – sourcing, printing,

imprinting, processing, shipping, inventory management

• Offer cost-effective pricing due to volume purchasing and more attractive shipping arrangements

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Choosing a Fulfillment Company

• Relationship• Visit facility?• What is their culture?• What do they offer?• Talk to clients?• Do you want to be in partnership with this

company?

• Contract• Fair• Work within boundaries

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Issues to Consider• Inventory:

• Who owns the inventory?• How is it tracked? • What obligations for re-purchase?

• Reporting:• What back office services are provided?

• Expectations:• What are each party’s expectations for sales?• How are disputes handled?

• Quality Control:• How is quality control handled?

• Pricing:• How is pricing determined?

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How it Works Financially

• Inventory owned by Fulfillment Company (FC)– Product Wholesale Cost + FC Fee + ABK

Administrative Fee = Sales Price

• Inventory owned by Abrakadoodle (ABK)– Sales Price – FC Fee = Fee to ABK

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History

• Signed agreement in late spring 2007• Began moving inventory, adding products• Online supply center opened July 31, 2007• 60% of products dropped in price• 39% stayed the same; 1 product increased• Offered 100+ of new products• Shipping costs across the board have decreased

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Things We Have Learned

• Communicate with existing vendors• Maintain strict quality control• It takes longer than anticipated to move inventory and

facilitate the change• Be prepared to educate fulfillment company about

your particular needs• Be prepared to invest time in communicating the

change to your system• Take an active role in promoting products• Build the relationship

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Thank you!

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