A Review of the Food & Beverage Sector – Part 2

These 4 relationships are all about co-manufacturing where a larger company works with a smaller producer of world-class, niche products. These can be very valuable to both partners; the smaller gains volume and reputation whilst the larger gets access to dynamic innovation at a lower cost. However, if the main player gets complacent and forgets to recognise the important contribution of their partner then tetchiness sets in.

Co-Manufacturers 2003 – 2010

 Background

In this section we describe 4 European manufacturing relationships. These consisted of blue chip global food manufacturing companies and their much smaller, specialist partners. The latter were world class manufacturers in their own right. Through the relationship they acquired investment, volume production, knowledge such as quality management, access to wider markets and increased reputation. The larger partners gained access to unique, high quality products, flexible, cost efficient supply, product innovation and specialised market knowledge. The ‘story’ is told using quotations from the managers and categorised into positive and negative views. Their overall relationship performance is compared in the chart below.

Positive Features

• Trust

“The personal relationship and above all the high commitment of the team is worth mentioning. Being reasonable is key to the success of the relationship and maintaining trust.”

“Trust is high; they don’t tell us about other clients so they don’t tell others about us. This is very reassuring.”

“We run a very trusting system we tell them our 20 week production forecast so they know we are not selling elsewhere on the open market.”

• Interdependence

“We rely on them more than they rely on us. They do too much for us – if they burned down tomorrow we could not produce the product. Of all our co-manufacturers there is the most potential in this relationship. I rate them highly.”

“We are their major customer and they are our major supplier for this line. We try to help each other.”

“They tested the market to see if they could replace us but no one else came close.”

“We have much of the history and can help them to understand the market and the business better. They often look to us for advice and appreciate our help especially when they have new staff in post.”

• Continuous improvement

“Combining their flexibility and innovation with our know-how ensures we have a long-term, productive relationship.”

“If you go back 10 years everything was done by hand. They have automated all that and become very good at continuous improvement and process streamlining.”

“We have dramatically reduced stock in the supply chain which substantially reduces our joint costs. I am positive that there are more, significant savings to be made (total supply cost), by us taking on greater responsibility for the supply of the product to the market.”

“We have considerably improved our production techniques which has increased our ability to deliver to a variable order schedule.”

“We have agreed a three year supply contract to provide them with ordering security. It has allowed us both to invest confidently.”

“If they want a special product or innovation we do everything to make it real.”

• Joint working

“I have a good working relationship with everyone I deal with in their organisation. I even call their CEO himself on his cell phone when I have a problem and he will deal with it.”

“Representatives from the whole supply chain meet quarterly to better understand how we can improve. The concept is still developing but, if we want to adapt quickly to the market, we have all got to work together.”

“For some products we feed their forecasts directly into our production system.”

“When we are working on promotions with the buying team who have a broad responsibility for business performance, we get good results.”

“We trade pretty effectively so we should put our heads together. We want to be challenged.”

“We are offered production weeks during which they will do whatever we want. This is a very valuable service.”

“There are odd occasions when we visit each other’s sites and we discuss openly.”

• Levelling the power balance

“We exercise our power over them in a paternalistic way.”

“We like to be independent and do not normally accept capital funding from our customers; this way we can offer the best service.”

Negative Features

• Misunderstood collaboration context

“Five years ago they changed the way our account was managed. We are no longer a strategic partner, we are treated as if we are one of their production lines, we are bombarded by trivial performance measures, issues have remained unresolved and the value of our relationship has diminished by 40%.”

“Informal, strategic conversations don’t tend to happen so we miss opportunities to take a bigger view of the business.”

“We never sit down with them to have an open planning discussion about the wider issues of stockholding, demand and sales plans as I do with our other customers. We only talk about policies when there are problems.”

“There are strong differences in approach between us, which leads to misunderstandings on both sides about the motives of the other.”

“We got them out of large, expensive cold store holdings. Now they don’t hold stock until the beginning of November. I wonder if they understand the competitive advantage we have given them.”

• Inadequate planning and forecasting

“In some categories of product we disregard their system forecasts altogether.”

“Forward plans are based on our programme and translated by our partner into packaging requirements. The problem is their suppliers are not used to this type of special order and this has resulted in us not having packaging ready when needed.”

“Our biggest issue is supply chain planning. For instance we often get orders late in the day that exceed the forecasts. Orders can go from 0 to 1000 overnight regardless of the production lead times involved. Because the supply chain is ‘system driven’ this causes serious problems.”

“In the main, operations relying on the Supply Chain IT system have cost us all money. Sales and sales opportunities have been missed.”

• Communication mismatches

“In the past year due to the workload of the co-manufacturer, the working relationship was less close than previously. They are not very good at answering emails or faxes. The best thing to do is use the phone although that is not always answered.”

“We like to think that we give out a lot of information but in actuality there is not enough detail, it is often too little, too late.”

“We are very open and honest about our mistakes and they are not. This is the basis of my mistrust. It makes me wary of exposing our business to being exploited in this relationship.”

• Inappropriate performance measurement

“We use the same weekly measurements that we use in our own production lines. They are not too pleased with this because their ordering and production systems are completely different.”

“Their performance measures are focussed at low levels rather than the overall outcome. This is the system they use with their own factories but is does not match the service they buy from us.”

• Frustrated people

“Their frequent personnel changes have limited our ability to develop new products and made dealing with them difficult over the years.”

“While the people we deal with try their best but they are at too low a level, they cannot seem to make things happen. They do not seem to have access to people with authority to make change.”

“They are rather bureaucratic which means we sometimes have to chase things for a long time before for we get resolution.”

Conclusions

Large companies in this sector will often ally with small specialist companies that can provide unique products and benefits. However, managing these relationships will often challenge their established methods of dealing with ‘suppliers’. Co-manufacturing collaboration involves much closer interaction which results in the growth of interdependence and as such, regardless of the size difference, there will be a levelling of the balance of power between the partners. When the larger company fails to understand that they are managing a strategic relationship between equals, then serious problems can arise. A key factor in managing these, often long-term relationships, and achieving the considerable mutual benefits, is effective communication between the supply chain members.

“The two business cultures are so different in terms of accountability, openness and information sharing. We can come over as being a bit blunt and ‘in your face’ when dealing with problems. They are not used to this attitude from suppliers.“