Growth creates opportunity. For food and beverage companies, one of those opportunities is figuring out how to produce more of what customers want and whether the production model that helped the business get to this point can support where it wants to go next.
Co-manufacturing or co-packing provides a logical path, giving businesses access to equipment, people and established production capabilities without having to build or fund them from scratch. As volume increases, however, capacity constraints, quality requirements, margin pressure or the desire for greater control can cause companies to reconsider how and where their products are made.
There are more options than simply outsourcing production or building a plant. A company may rely on a co-manufacturer or co-packer, bring production fully in-house or operate somewhere in between. Each approach comes with a different level of control, investment and responsibility. The starting point is understanding what the business is trying to accomplish and what each option will actually require to support it.
Start with the Product and Process
Food and beverage covers an enormous range of products, and manufacturing requirements can be completely different from one to the next. The process may require specialized equipment, controlled environments, unique packaging or specific ingredient handling. Food safety, quality, regulatory and customer requirements add layers. Together, those factors can narrow the production options quickly.
Even when outsourcing makes sense, there still has to be a qualified co-manufacturer with the right equipment, certifications and available capacity at the required scale. As a product or process becomes more specialized, that pool can get smaller. Bringing the same process in-house can require significant capital and technical expertise.
For companies with multiple products or types, there may not be one production model for the entire business. High volumes of a core product might justify dedicated equipment or internal production, while a newer, seasonal or specialized product may be better suited to a third-party partner.
Understand What is Driving the Decision
Sometimes a business simply needs more capacity. In other situations, the pressure may be coming from margins, quality, innovation, customer requirements, risk or the need for greater control. Adding another co-manufacturer may solve an immediate capacity problem, but if the business is repeatedly competing for production time or struggling to make product changes, additional outsourced capacity may leave the underlying issue unresolved.
Growth projections are also important. Companies have to consider the volume they need today, where they expect it to go and how much confidence they have in that forecast. Committing significant capital to capacity that is not needed creates one challenge. Designing around today’s volume and becoming constrained again sooner than expected creates another.
This is where the business objective has to be translated into an actual production requirement. A growth target has to connect to production volume, process and equipment requirements, labor, capital, timing and eventually the physical infrastructure required to support it. Working through those decisions together can expose gaps in the assumptions before they become commitments that are harder or more expensive to change.
Get to the True Economics
This is one of the areas where we often see expectations and reality separate. A company knows what it is paying someone else to manufacture its product and can compare that with the anticipated cost of producing it internally. The harder part is capturing everything required to reach the volume and performance assumed in the business case.
Equipment is only one piece. Depending on the operation, bringing production in-house may also require a facility, infrastructure, utilities, automation, labor, maintenance, quality and food safety capabilities, inventory and working capital. Implementation, startup and commissioning also have to be considered, along with the time it takes to reach consistent production at scale.
That ramp can materially change the economics. A business case may assume a certain volume at a certain cost and by a certain date, while the operation may take time to reach that level of throughput. Testing the production, facility, capital and schedule assumptions together can identify the gap between what a project is expected to take and what will actually be required to execute it.
The economics also have to account for uncertainty. Excess capacity carries a cost, but being unable to produce enough product when demand is there has a cost as well.
Determine How Much Control Matters
Control tends to become a bigger part of the conversation as a business grows. When another company manufactures your product, you are relying on that organization to execute a process that ultimately represents your brand. Contracts can establish standards and responsibilities, but customers are unlikely to make that distinction when something goes wrong when they only see the name on the package.
Food safety and quality are obvious considerations, but control can also extend into production scheduling, capacity, proprietary processes, product consistency and the flexibility to introduce new products. The value placed on those areas will vary by company and product.
Greater control also brings greater responsibility. Owning the production environment means owning more of the capital investment and operational risk. Companies need to understand where additional control creates meaningful business value and where a third party may still be better positioned to provide the capability.
Balance Speed with Flexibility
A rapidly growing or seasonal business may need additional capacity well before an owned facility can be developed and commissioned. In those situations, co-manufacturing may provide a faster path to capacity even when internal production remains part of the longer term plan.
Flexibility can be built into any production strategy. A hybrid approach might use third-party production to bridge a near term capacity need, support variable product lines or provide overflow. An in-house operation can also be planned with flexibility in mind, allowing the business to adapt equipment, processes or capacity as products and demand change.
That matters because manufacturing assets tend to have much longer lives than the products running through them. Products, packaging and customer requirements evolve, and new revenue streams emerge. Planning for that change early can help keep today’s production decisions from limiting the business later.
The organization also has to be ready for the shift. Bringing production in-house creates new responsibilities across operations, engineering, maintenance, quality, food safety and production performance. A business can have the capital and a strong financial case for internal manufacturing and still underestimate the people and capabilities required to operate it successfully. Identifying those needs early allows them to be planned alongside the equipment, capacity and facility rather than addressed during startup.
Connect the Production Strategy to the Facility
Internal production eventually has to translate into a physical solution. Food and beverage operations can have significant requirements around water, wastewater, power, refrigeration and other infrastructure. The process and equipment can narrow both the types of facilities that will work and the locations capable of supporting them.
Those requirements affect timing as well. Finding the right site or facility, confirming infrastructure, completing design and approvals, installing equipment and commissioning the operation all take time. Companies need to work backward from when the capacity will be required. Waiting until the business is already constrained can leave fewer options and put additional pressure on the timeline and business case.
The facility also needs to follow the production strategy. Trying to force an operation into an available building that cannot adequately support the process, infrastructure or future growth can create compromises that follow the business for years.
Finding the Right Balance
Co-manufacturing, co-packing, in-house production and hybrid strategies each offer a different balance of speed, control, capital and flexibility. The right balance depends on the product, the business and what the company is trying to accomplish.
The value is in working through these decisions before the path is already set. Connecting the business case, production requirements, capital, facility, infrastructure and implementation plan early can identify where assumptions do not align and where additional expertise may be needed. It also gives the business more options to adjust before significant capital or time has been committed.
The production model that got a company here may not be the one that gets it where it wants to go next. Recognizing when that has changed and planning early enough to respond allows the production strategy to support growth rather than eventually constrain it.
Have questions about co-manufacturing, in-house production, or planning the facility to support your next stage of growth? Email Tom to discuss how early planning can align your production strategy, capital and timeline before commitments are made.
Connect with Tom
Tom Porter is Vice President of Food & Beverage for Stream’s Manufacturing, Food & Beverage, and Distribution team. He helps food and beverage manufacturers turn growth goals into a production strategy and facility plan, from evaluating co-manufacturing versus in-house production to defining the capital, infrastructure and timeline needed to execute.
