Let me guess: you are concerned that your contract manufacturer is charging you too much.
I know you’d like it to be as simple as sending a purchase order and receiving a product, but in most cases, it’s not. Unless you outsource the management of your co-man relationship, you are going to have to get involved. Nobody cares about your ROI except you, so you have to learn the details of the business and get your hands dirty. The following are a few ways to manage costs.
Start With the BOM
You need to drill down into your BOM (Bill of Materials) such that you understand what you are being charged and why. Are scraps being mixed back in or thrown away? Are ingredients being bought in bulk or on-demand in smaller quantities? Is cost-effective ingredient sourcing being practiced?
Investigate Production Costs
Ask about tolls, conversion costs, line staffing costs, quality control, production processing and warehousing and transportation costs. Then find out how your ordering process, timing of order placement and order size affect the end cost.
Ask About Transparency
A lot of co-mans prefer to work in a turnkey manner. They will produce X amount of your product for Y price, no questions asked or details disclosed. However, you’ll benefit if you spend the time looking into actual costs (ask for transparency).
If you’ve been in the business for a while, you understand how both sides of the business work. Of course the co-man is trying to make as much of a profit as possible (while keeping you, the customer, happy). Meanwhile, you need to know the co-man isn’t taking advantage of your generosity and lack of knowledge of what is actually going on at the plant.
If you aren’t well-versed in the financial aspects of supply chain solutions in the food and beverage industry, you’ll want to outsource this aspect of the business to a food consultant who know how to negotiate a favorable arrangement and can teach you the ropes. An investment not will provide the education you need while saving you expenses that could potentially take down your business.
Click here to read more posts in this series about relationships contract manufacturers. If you have any questions or need help with an existing or potential contract with a co-man or co-packer, give us a call or shoot us an email. We’ll be glad to assist!