The Disrupted Supply Chain and What Franchisees Can Do
March 18, 2022 •Oak Street Funding
The pandemic has heightened supply chain issues for many franchise owners. Covid-19 quarantines and shutdowns amplified the labor shortages in the farming, packing, and transportation industries. At the ports, shipping containers bringing needed supplies remained on their cargo vessels due to the unavailability of workers to unload the ships. In February 2022, the “Freedom Convoy” protest by truckers in Canada further disrupted the delivery of food, supplies, and equipment. All of these scenarios culminate in a supply chain shortage unlike the industry has ever seen.
Is there an end in sight?
Experts say there is no end in sight for the supply chain disruptions. Even as the effects of the pandemic lift in some areas across the nation, there will still be labor shortages and increasing costs that negatively impact the supply chain. Inflation and the Russian-Ukrainian conflict demonstrate how unstable our global supply chain stability is. The future is unpredictable, so franchisees must prepare for long-term disruptions. The cause of the disruption may change, but the issues will remain. Successful franchisees will adapt their mentality to become proactive instead of reactive to disruptions.
Relationships are key
Strong relationships with your suppliers and other franchisees are vital in managing supply chain disruptions. Your suppliers are also struggling as they face increasing fuel prices and decreased supplies from their sources. With a limited amount of product to deliver, suppliers are more likely to provide for those franchise owners that have demonstrated loyalty. Frequent communication with suppliers shows you are interested in maintaining a relationship with them and helps you be proactive. When you have a strong relationship with suppliers, they will know what you need and how you operate to give you recommendations and suggest substitutions before you have an emergency shortage. Be top of mind with suppliers, and you’ll be aware of shortages before it becomes an emergency.
Additionally, consider partnering with other franchise owners to place larger orders when suppliers offer bulk pricing or set minimum order limits. You can also share supplies with other franchise owners if you are short an item and they have excess. Finally, network with other franchisees in your region and learn tips from others who may have more experience with previous supply chain disruptions.
Anticipating supply chain disruptions will require different ordering and inventory practices. Technology is your most important factor to combat shortages. Updated inventory management software and POS systems will provide an instant look at inventory levels and forecast supply levels so you can order before it is too late. Use your technology to plan weeks in advance to avoid “eating off the truck” and risking a shortage. Increase the frequency and rigor of your inventory counts to avoid food spoilage and reduce the possibility of theft.
If you have a shortage of a particular item, do you have a substitution? Plan not only for supplying your menu items but also what alternatives you may need if your supplier is delayed or there is an unexpected increase in orders for a particular item.
Communicate frequently and honestly
Build on your customer relationships with frequent communication. Honesty with your regular customers will help build their trust in your business, and they will continue to support you in challenging times. Customer loyalty is valuable, and transparency goes a long way to maintain that relationship.
Another way to build and maintain customer loyalty is through accurate marketing. Only advertise what you have available and make it clear if a menu item has been modified in any way. Customers will be more upset if they find out an item on the menu isn’t available than if you remove it from the menu until you have adequate supplies. Accurate advertising is important for your brand’s reputation.
Additionally, consider marketing your brand, not a particular item, during these times. Supply chain issues have hindered everyone, so differentiate yourself by keeping customer experience top of mind. Communicate frequently with your employees and train them to offer substitutes for out-of-stock items whenever possible. Or, if a customer orders an item that is out of stock, consider offering a side. In the long run, the cost of a free appetizer is less than the price of losing a customer. Retaining your current customers costs less than attracting new customers, and the damage a disgruntled customer can cause online is monumental.
The supply chain practices that worked in the past aren’t likely to be the best method for the foreseeable future. However, franchise owners who succeed will adapt their strategies, strengthen relationships, and openly communicate with customers. The future may seem bleak, but it brings great opportunity and reward for innovation and adaptability.
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