Outsourcing Continues

Early on, the old Southland Ice Company became an icon in the fledgling convenience store industry not only because of its amazing growth and pioneering merchandising ideas, but also because of its “can-do” attitude.

Joe C. Thompson, Jr. realized that the best way to get things done was to do it yourself. This resulted in the formation of the Oak Farms Dairies in 1936, followed by the Icee Bottling Company in 1947, which was created to guarantee an uninterrupted supply source of bottled soft drinks for its stores. In 1952, Southland claimed to have pioneered “sharp-frozen fresh meat” and formed the Circle T Meat Company. These early forays led to a highly vertically integrated corporation through the 1980s—with Reddy Ice, Southland Chemical Division, Southland Foods Centers, Southland Distribution Centers, and in-house accounting, auditing, and maintenance departments.

This cultural “can-do” attitude changed when the Southland Corporation filed for bankruptcy protection in 1990 following the 1987 attempt by the Thompson family to make the company a privately held corporation. This led to the sale of all its subsidiary businesses and assets. A few years later the company began a process of outsourcing many functions it traditionally provided to its franchisees, starting with the maintenance department, followed by the auditing department.

Franchisees were apprehensive, but in many cases the former employees of Southland’s subsidiary businesses simply formed new companies and became independent contractors serving the stores of their previous employers. While the names of the companies providing these services changed, the names and faces of the people visiting the stores remained the same for many years.

In the last couple of years this has changed drastically. The Southland Corporation became 7-Eleven, Inc. (SEI), and a new laser focus on SEI’s bottom line dictated that third party providers could serve to meet the company’s needs at a greatly reduced cost.

FM Facility Maintenance was selected to manage the entire maintenance function. Two national auditing companies, WIS and Regis, are being handed exclusive contracts for all stores across the nation. A third party payment processor, Advantage IQ, has been contracted to pay garbage and recycling bills. A division of Hewlett-Packard now processes the new hire information from a store’s ISP and sends the information to SEI’s Oracle system before a franchisee’s employee can be paid. Most of the accounting employees who traditionally verified merchandise invoices have been terminated in favor an electronic paperless payment system that allows suppliers to transmit any invoice for immediate payment. The list of outsourced services seems to be endless.

Most franchisees expect SEI to be a financially healthy company. Franchisees benefit when SEI reinvests in its stores. But storeowners lose when SEI utilizes the lowest cost provider who has no relationship with its customer, the franchisee. These outside contractors have no financial responsibility to the customer—there is no perceptible ramification. A mistake of a few thousand dollars is not even a blip on their screen, but is emotionally and financially devastating to the individual franchisee who finds himself below equity. Franchisees are spending hours in the backroom of their stores creating Customer Help Desk (CHD) cases to get account payable billing errors corrected, to request the opportunity to sell items previously carried for their custo-mers, to get orderable quantities corrected, to get responses to tax notices from federal and state agencies, and to get new employees paid in a timely manner.

Franchisees are upset that there seems to be a culture of deniability; that there appears to be a lack of ownership to address obstacles within SEI. Franchisees feel there is a black, bottomless pit into which many CHD cases fall, never to be seen again. The convenient response seems to be, “No one told me until now.” It is too easy to rely on computer exception reports. Too often franchisees are told, “You are the only one with this problem.” Many would agree that there needs to be a system to collect individual CHD cases from franchisees and link the commonalities for escalation to responsive decision-makers.

The goal of outsourcing is to have a third party perform a routine task more economically, with greater skill and greater expertise. Maybe Joe C. Thompson foresaw the ultimate outsourcing when Southland Corporation bought the Speedee Mart franchise system in California in 1963.