Playing Both Sides of Contract Manufacturing

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P L A N T O P E R AT I O N S

Contract Manufacturing:

Partnering with others to make your product — or

Playing Both Sides

theirs — offers benefits to both partners.

By Bob Sperber, Plant Operations Editor

I n addition to running their own products on their own production lines, food companies of all types and sizes routinely pack products for customers who want their own label on the product, or don’t want any label at all. Then there are food companies who call on outside plants for a new product launch, a test market or in some cases: everything.

“I don’t know how to run a manufacturing facility, and I never wanted to run one,” says Patty Stewart, a former Chicago stock broker whose celiac disease – and accompanying gluten sensitivity – led her to develop yummy-healthy cookie recipes that in the past two years have landed her retail chain accounts, a web business and a small plant that her business would quickly outgrow.

“The little bakery we were working out of grew so fast, I had to make a decision,” she says. And this past summer, her company, Whole Bakers, gave all of its production to Pac-

Moore (www.pacmoore.com), a contract mixing, blending and packaging specialist based in nearby Hammond, Ind.

“I just figured that I would focus on my strengths, on media and distribution and getting our cookies in every grocery store all over the country,” she continues. “That’s where I’m strong. And where my weaknesses are, I can turn that over to the professionals.”

Working from her strengths, she’s made contacts with

“so many different people on the customer side, and some very high profile media outlets, from TV shows and magazines to online outlets.” Freed of production chores, Stewart can now give full attention to sales and marketing, new cookie formulations and eventually line extensions, including muffins, bread crumbs, pizza crusts and, in the future, extruded snacks. She’ll have pretty much a full line of certified gluten-free baked goods.

But most of the dollars and products trading hands don’t involve start-ups. In fact, most of PacMoore’s business comes from

Fortune

100 food companies, which generally call on the company for ingredient blends to be further processed. “That’s our bread and butter,” says Chris Bekermeier, vice president of sales and marketing, “but we’re moving to put more retail capability in our portfolio.” Whole Bakers is a step in that direction, as are other consumer brands now in talks with Pac-

Moore. Beckermeier sees expanded retail capabilities as “an opportunity to offer more value.”

Contract manufacturers as well as food processors with their own brands and a little excess capacity will make products carrying other companies’ brands. Reasons include:

• To cover plant operating overhead for greater efficiency and

24/7 capital investment payback.

• To saturate category sales. “If you’re going to eat pasta, we’d prefer you eat ours,” regardless of the label, says Walt

George, executive vice president of operations and supply chain at the nation’s largest pasta-maker, American Italian

Pasta Co. (AIPC) (www.aipc.com), Kansas City, Mo.

• To gain insight into market trends. That’s often the case when a larger marketer with its own manufacturing chooses to use a smaller one for a new product.

• To reduce transportation costs. Some East Coast or Midwest ern customers ship fruit and soft-drink mixes and concentrates to the docks of Tree Top Inc.’s West Coast processing plants rather than shipping the final product, which has a high (and heavy) water content. Or to better manage fleets (or negotiate freight contracts) by having empty trucks pick up materials once a customer delivery is made. That’s something “not at all uncommon” in the private label industry, where in-house fleet utilization and carrier contracts alike are a major source of costs, foodprocessing.com november 2008 food processing • 37

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• To handle temporary spikes when demand exceeds production capac ity. For example, AIPC in the summer calls on other pasta-makers to supplement its production of bow-tie pasta, which sometimes exceeds its capacity as summertime pasta salads grace many a picnic tablecloth.

The Whole bakers line o k 0Pro ak ers ers or savings, says consultant Jim Wisner, president of Wisner Marketing

Group (www.wisnermarketing.com), Libertyville, Ill.

Likewise, companies large and small turn to others to handle various manufacturing chores for many reasons. These include:

• To gain manufacturing expertise while minimizing capital in vestments.

• To reduce the costs of long-distance distribution by choosing part ners in one or more local markets.

Playing both sides

Tree Top Inc. (www.treetop.com), Selah, Wash., is an apple growing and processing cooperative with its own well-known brand. But it also has a growing contract manufacturing business, especially with food marketers trying to supply Tree Top’s Pacific Northwest home area.

“There’s a certain dollar-per-case value we need in order to cover the plant overhead,” says Terry Morgan, director of contract packaging. He notes the company makes a “concerted effort to sell some of our excess line time” as a hedge against the global volatility in apple supplies and prices.

It works both ways. In addition to packing drinks for others, Tree

Top for more than five years has outsourced filling of its 10-oz. singleserve PET bottles rather than expand any of its half-dozen plants. “So far, it’s been more cost-effective than investing in a new high-speed line, which could cost anywhere from $4-6 million,” says Morgan.

Also playing on both sides is Sargento Foods, Plymouth, Wis.

To supplement its branded cheese portfolio, Sargento contracts-out for some of its products. It also has an ingredients division (www.

38 • Food Processing november 2008 FoodProcessing.com

sargentofoodingredients.com) that does copacking for products such as 3-oz. pouches of mozzarella for salad kits, cheese blends

times more. When AIPC opened a state-of-the-art facility outside Phoe-

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