Six Ways to Keep Your Co-Packer Happy: Keep Both Your Tucks and Payments On Time
Managing your co-packer is a mix of art, science and at times, a lot of patience. They’re the lifeblood of your products, manufacturing for you the very thing you’ve worked tirelessly to bring to market, sell and promote. But at times, the process can be maddening, especially when you, the co-packer’s customer, have little to give by way of production volume. You’re struggling to meet their minimums, your trucks are never on time, and you’ve asked for one to many favors – whatever the case may be, it’s very easy for a co-pack relationship to go amiss.
Fortunately or not, I’ve experienced just about every co-pack go-wrong scenario imaginable: getting pushed off the schedule (told famously in one case that I should simply tell my customers they need to wait), having ingredients rejected, had product mislabeled, was told to take my business elsewhere, and nearly everything else in between. The simple reality is, when you’re small and not taking up significant line time, which essentially is all your co-packer wants, it’s tough to have leverage in the relationship. Moreover, and let’s be honest, working capital can be an issue, which often leads to headaches of their own with the accounting department which in turn leads to operational headaches that strain the relationship as well.
But there are ways that you can keep the relationship on the “up and up”, even in the absence of massive volume to throw your co-packer’s way. I’ve outline six tactics that might help your company in the choppy waters of co-pack management, but I would love to hear your recommendations as well.
- Set appropriate expectations: the worst thing you can do is give your co-packer unrealistic volume expectations. A quick exercise: put yourself in your co-packer’s shoes, and think for a second on what their biggest challenge is – in a very simplistic way, all they want to do is maximize their throughput in the most profitable way possible. Just like we are constantly trying to maximize our profitable daily sales, a co-packer is constantly juggling volume, making sure that their lines are always at or near capacity. To do so, they are continually trying to understand volume, both current and future. If we as a vendor begin setting unrealistic demand forecasts, it creates not just a credibility problem, but ultimately scheduling/capacity issues for the co-packer as well. Keep their expectations appropriately managed.
- Learn the rules of the road: quickly get an idea of how the co-packer likes to manage their business and play (and stick) by the rules. Do they want purchase orders remitted a certain way? How do they schedule production and what lead-time is required? By extension, what are some of the softer rules of how their business operates and how can you follow them (for example, I once had a co-packer that under no set of circumstances wanted a client to deal with anybody but the him (the owner) – in one instance, he found out we were dealing directly with some of the plant staff and freaked out. Lesson: play by the rules)? Make sure that if there are general operating procedures and best practices that you abide by them.
- Always hit your appointment times – both pick-up and delivery: co-packers hate when trucks are late for pick-ups and/or deliveries. While your job as the entrepreneur isn’t to drive the truck per se, you are required to make sure the trucks run on time. While in reality, this isn’t always conceivable, you can make certain that if your truck is running behind that you alert the co-packer appropriately.
- By extension, make sure that all ingredients or raw materials (you are supplying) are on hand for production. Co-packers typically have a cutoff as to when this should take place (i.e. all ingredients need to be on hand 48 hours before production) – know this deadline and adhere to it.
- Be transparent with your storage requirements: it is extremely easy to have inventory, both finished and raw, begin accumulating at your co-packer. In some cases, this is okay, while in others, it can lead to an unpleasant surprise (i.e., they call and tell you to get your stuff out, or surprise you with a storage bill). Be aware of what you have on hand at your co-packer and have an idea of their storage policy.
- Pay quickly!: this ultimately is your biggest bullet and one that, above all else, keeps the co-packer happiest. This can be tough as you are starting out or at times when cash flow goes sideways, so understand the cash realities as you submit a purchase order and get them paid as quickly as possible (or at a bare minimum, keep within terms).
- Be a good customer: all of the above will definitely contribute to keeping the relationship on the right track, particularly from an operational standpoint. But do not forget the softer needs as well – make sure to be present periodically for production runs and take the time to meet with the key decision makers or influencers within the organization. Schedule an annual review (or more frequently if necessary), asking the questions of what’s going well and what’s not, while specifically asking how you and your team can be a better customer. Are there ways that you can incentivize/motivate the line employees (i.e., sponsoring a lunch), or other avenues for simply acknowledging the work required to make your products?
Why does all of this matter? On a certain level, of all the relationships you manage, the one that exists between you and your co-packer is arguably the most important. What difference does it make if you have stellar customer relationships if you can’t get the product to them in the first place? In a sense, your co-packer and the employees who literally make your products interact with your customer and consumers just as much as you do (perhaps even more), so your keeping the co-packer a happy partner in the process is critically important to the ultimate consumer experience.
I briefly worked for a company that took co-pack relationships as serious as customer relationships. It was obvious: our senior management involved themselves from the very beginning, took the time to understand the co-packers’ operations, and made themselves available as much or as little as required (in one case, co-investing in special equipment). But far and away the greatest strength was their ability to pay as quickly as possible, even in advance of terms, recognizing that their power of the wallet, even with our small volume, made us an easy customer for the co-packer. In the long run, this was to our advantage, as the special co-pack favors were typically at our disposal, and in the instances we were in an inventory pinch but did not require a production run that met minimums, we could typically slide it through.
One financial trick I learned that may apply to your business: we would swap cash terms for “free” warehousing. To translate, rather than taking the 2% cash discount (for fast payment) we would still pay within ten days but leave our raw and finished inventory at the co-packer for up to 60 days. I believe the math was in our favor and the co-packer had plenty of space, so everybody won.
Call to Action
I have listed six tactics above that keep customers happy. What else have you found that contributes to happy vendor relationships? I’d love to hear them.