Scaling an Early Stage Food Business – Part Two: Supply Chain

Managing your supply chain as your food company grows from early stage to mid-size is both complicated and a great opportunity. As your volume increases you can reduce your product costs as much as 30%. Purchasing raw materials at higher volumes along with production economies of scale drive this reduction. However, if not managed well your supply can kill your business quickly. Running short on raw materials, quality issues in finished products, and uncontrolled costs from out of code product are some of the many issues that can cripple a growing early stage food company. These issues can come up whether you use a co-packer or make the product in-house When planning your growing supply chain, you should consider the following:

  1. SELLING TO LARGER ACCOUNTS
  2. CO-PACKER OR IN-HOUSE PRODUCTION
  3. CAN YOUR VENDORS SUPPORT YOUR GROWTH
  4. ARE YOU MANAGING ALL THE SUPPLY CHAIN FUNCTIONS
SELLING TO LARGER ACCOUNTS

To grow rapidly it requires the company to sell to ever larger accounts. Selling to a large account is often complex. There are multiple touch points in a large account. These include marketing, QA, forecasting and other departments. Large accounts often have certification requirements for Quality that must be met along with regular facility audits. Volume for a
large account can be very inconsistent. Startup pipeline fills, promotions, and in-out items are very difficult to manage for the smaller company.

USING A CO-PACKER FOR PRODUCTION

Many people think once you have made the decision to use a co-packer your supply chain management is completely outsourced, and you can concentrate on the rest of your business. That is only partially true. Co-packers have varying degrees of support from only manufacturing the product to purchasing and managing all raw materials. In almost every case, demand
planning, forecasting, and logistics will remain your responsibility and require your close oversight. Be careful not to fall into the trap of getting a large volume of your product made to reduce the cost before you have sales to support it. You may end up throwing out or heavily discounting a large amount of product.

IN-HOUSE PRODUCTION

It almost never makes sense to produce a product yourself until you are selling well into the $10,000,000 plus annual sales level. Exceptions to this include when you have a highly unique production system or do not have enough volume to interest a co-packer. Co-Packer
profits run around 10%. However, with the volume they have for other customers they can spread out a significant amount of their overhead. They can also afford to have higher speed production lines that are supported by a number of projects. Finally, self-production is difficult to manage and should not be undertaken without an experienced operations person to lead the team.

VENDOR SUPPORT

The same quality and other standards that your customers will have for you and your co-packer must also be met be your material suppliers. Before starting a rapid growth plan, make sure your current vendors have the capacity to meet your volume requirements and ordering lead
times. Supply chains today are being evaluated from farm to table with transparency at all levels. Make sure your vendors are qualified to support you as you move up the volume chain.

Your supply chain is one of the most critical elements of your growth strategy. Your supply chain is made up of Logistics, Procurement, Demand/Scheduling, Forecasting, and Warehouse/Storage. All these functions must operate in unison with a high level of coordination and communication. Every place where the flow of your supply chain gets hung up creates additional cost and can create substantial problems with your customer service. Many growing food companies get so focused on marketing and finance issues that they forget this critical element.

NEXT TOPIC: CREATING A HIGH GROWTH SALES STRATEGY

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