Do you own a business that’s looking to align itself with a contract manufacturer, but not sure if that’s a good idea given the coronavirus pandemic? It’s a good question and one that business owners should ponder about.
Think about it — a crisis always forces people to consider new ways of doing things. Hence business strategies that have served you well in the past may no longer work.
What’s the state of the contract manufacturing sector following the Covid19 pandemic?
It’s no secret that the Covid19 pandemic has dealt a significant blow on business around the world. Many of them have had to close or scale down operations to mitigate losses. The question remains — is this true for all food businesses? Well, not quite.
Consider General Mills (a US-based food company). Well, they’ve actually had to increase the use of Food contract manufacturing services to keep up. Their products’ demand has risen rapidly because of the pandemic as people scrambled to stock up on food staples like cereal, milk, soup, and pastries.
Now ask yourself, could the same be true for your business? It might seem strange that a company as big as General Mills would need to resort to using contract manufacturers to remain operational. After all, contract manufacturing has always been geared towards start-ups that possess neither the marketing resources and manufacturing capital that bigger food businesses have.
However, the situation described above is undeniable proof of how a worldwide pandemic can significantly affect consumer demand dynamics around the world.
Should your food business follow suit?
Now you might be thinking — if a food business as reputable as General Mills is using contract food manufacturers, shouldn’t my company do the same? Well, it’s not that simple.
Yes, it cannot be denied that the demand for contract manufacturing services has gone up significantly because of the Covid19 pandemic. However, that doesn’t mean that your business should immediately follow suit.
According to a report by the Wall Street Journal, companies like General Mills are lucky that they can implement such a move and remain competitive. This is because they have established a long and fruitful relationship with contract manufacturers over the decades. If they implemented a complete change in the manufacturing process without this benefit, it is unlikely that the company would remain profitable following the pandemic.
Yes, contract manufacturing does afford business flexibility, but that comes at a cost that not every business can afford. This cost cuts into already thin profit margins, and it is believed that the majority of food businesses stand to make fewer earnings even with contract manufacturers’ help.
Still, it can be argued that a lower profit margin is better than no profit at all (products out of stock because the business is unable to keep up with demand). If that sounds a lot like the predicament you’re having, then aligning yourself with a contract manufacturing service might be the right move for your business.