What are some of the trends and challenges that exist in the manufacturing industry today?
I have been in the contract manufacturing landscape since 2012, where I was responsible for influencing people and identifying the right partnerships. In my experience, identifying the right partner, especially for startup companies that cannot necessarily start with significantvolumes, is cumbersome and difficult. In finalizing any pact, three things play a crucial role, which I call “the three C’s – Capacity, Capability, and Culture.” The first one is to understand if the potential partner has the capacity to support your volumes and resources to respond to requests in the long run. Finding a manufacturing partner who understands your full volume spectrum—forecast, growth demand, and more—and can support your volume growth for at least three to five years is an absolute necessity. The next big piece to take into account is capability. Some organizations may have intricate product designs and processing needs, making it hard to find a compatible manufacturing partner on the ‘first few business discussions.’ In such scenarios, finding a partner who can bring in the capability to deliver products at the best quality, performance, and cost is the viable option. Finally, amore critical factor to consider while forming a partnership is the culture of the partner company, because it would be based on this culture that your relationship and trust will be built. Many times, partnerships fail, crumble, or go into litigation due to the lack of due diligence of exposing and understanding a partner’s culture. One way to understand the partner’s company culture is to conduct at least one or two business visits to discuss expectations on not only about their capacity and capability but also to assessthe way they treat each other and their employees, and if they have a cohesive environment. I key observance I watch for is how leadership treats the janitors andthe secretaries, and if they pick up trash or just walk by it. These observancesare small, but they trigger telltale signs about their culture; because, the key to getting in a lucrative and long-term partnership is building trust, understanding their commitment, and ensuring a fair involvement from their part.
"Selecting a perfect partnership can only be done by understanding your capability, capacity, and ensuring that the culture of the partner company aligns with your values and vision"
In my experience working with Ripple Foods, I found that the key to finding the right partner for small businesses is to get them onboard during the growing stages. Most companies do not like to stay where they are and want to scale up their growth, thereby driving your products towards more consumers in the next five to 10 years. Selecting a perfect partnership can only be done by understanding your capability, capacity, and ensuring that the culture of the partner company aligns with your values and vision.
Can you cite some examples as to how these three points can make a difference in driving the value proposition for companies in the industry?
We have a manufacturing partner that produces our non-dairy products for the past few years. However, recently they suddenly increased ourpricing by almost 35 percent. Upon visiting their facility and interacting with their staff, I realized that their employee management lacks integrity , their turnover rates were extremely high, and they were not followingourformulas and quality checks. We partneredwith this company because they were affordable and had the capacity and capability needed for our products, but lacked a company culture that aligns with our values . Now, we are tied to a partner with a high price and lack of trust in how our product is made. So, we have to exhaust our resources by providing oversight every time they run our products and also end up paying twice as much in the back-end. This is an example of the predicaments arising when you do not consider the three points—capacity, capability, and culture—while forming partnerships.
Last week, we identified a secondary contract manufacturerand were delighted by their honesty while reviewing our business expectations on our partnerships. We also conductedD&B reportto understand their credit score and how they handle their billing practices. We were also able to identify a low employee turnover rate and positive work culture in the company, and this is important because how leadership treats employees is a reflection of the way they treat you as a partner. Upon evaluating the culture, we carried outa debrief process, negotiated prices, and discussed in detail about the future and expectationsof this partnership. By doing so, we built trust in that partner, empowering both of us to grow and scale together through a robust and mutual partnership.
What would be your advice to emerging players in the industry to adopt these three points in their organizations?
One piece of advice would be to take your time in carefully evaluating all the pros and cons while selecting a partner. In today’s competitive world, CPG companiesare often in a rush to identify an affordable manufacturing partner to meetshelf-resets or unreasonable new product launch timing. But, remember that it’s not always about who’s the first to the finish line but also about who sustains over the years, utilizing fewer resources and minimal efforts. A right partnership can go a long way in delivering such vital benefits, and the only way to get that is to do the full vetting of your potential partner in the front end without a rush. Try to observehow they treat workers, handle business, and respond to you through emails or in person, which will reveal the kind of company culture they hone. Therefore, my advice would be to build a pool of at least three manufacturing partners and take your time to understand their culture fully. Because, you can often find the time and money to obtain capacity and capability, but culture is the most crucial aspect that gives your partnership the competitive advantage.