CM/CPs joined with CPG and brand customers at F4SS to address how to strengthen their supply chains in spite of shortages and improve communication between companies to streamline contracts and improve the quality of the business relationship.

COVID-19 highlighted just how fragile the supply chain can be, but contract manufacturers and packagers (CM/CPs) can use predictive analytics to make their supply chain more resilient and gain an advantage over competitors.

This is according to Lesley Hume, director of digital business at Everstream Analytics, a software-as-a-service (SaaS-based) solution provider, at the Foundation for Supply Chain Solutions (F4SS) conference, held in October in Las Vegas.

Hume said CM/CPs should have a plan in place to mitigate challenges—such as shortages upstream affecting their suppliers. This begins with digitizing data collection so it can be entered into a predictive model from a supply chain insights company. If a CM/CP adds supply chain risks to planning within that predictive model and shares the generated insights and risk analytics with customers and suppliers, they can then plan according to the predicted supply chain challenges headed their way. This allows the CM/CP to lessen the impact of that challenge on its supply chain.

According to Hume, this method of supply chain risk mitigation requires identifying challenges all the way back to the raw materials supplier. In other words, a CM/CP must get greater visibility into its supply chain to better see the current and future disruptions. Such disruptions could include things like inclement weather, social turmoil and cybersecurity deficiencies.

She further explained that it’s essential to identify and plan for risks in you areas of the supply chain: planning, sourcing, making and delivering.

“If you can incorporate little bits of risk into each of those supply chain categories, you can improve your overall agility, operational efficiency, and hopefully gain some better output with your customer,” said Hume.

She made the following suggestions to start:

“You can’t rely on plans alone. Yes, we all want good forecasts, but plans only get you to the beginning. You need visibility to sense and respond quicker,” said Canitz. He explained that speed is key to identify, plan, and react to challenges in supply chain, he said.

Building a software platform with supply chain visibility allows CM/CPs to switch from paper to digital logging, which increases efficiencies in information sharing and is a surer way to collect and keep data.

The highest value to all members of the supply chain ecosystem is found in sharing detailed operational information on a near real-time basis, not just the high-level information. The seemingly insignificant details can give early indication of order status and material availability.

“You put the data into the system and get back actionable information,” said Canitz.

Effective communication mitigates supply chain issues, but it also strengthens relationships between CM/CPs and CPG customers. Carl Melville, managing partner at The Melville Group, listed six traits of highly effective and successful relationships:

More brands are also demanding CM/CPs increase their efforts to be environmentally friendly. But sustainability is either cost-neutral or it is an investment for CM/CPs, requiring CPGs to help push goals forward, according to Melville. For example, General Mills sponsors its CM/CPs and suppliers to participate in the Supplier Leadership on Climate Transition Program (SLoCT) that educates and trains suppliers in how to collect essential data to advance sustainability goals. For more information, read the full article on General Mills’ sustainability initiatives.

CM/CP panel left to right: Carl Melville (The Melville Group), Paul Whitaker (Wixon), Steve Sena (Truvant), Johnny Ferry (Honeyville). Another demand CPGs are making of their CM/CPs is to cut speed to market. “I asked brands how they view the innovation that CMs bring and the number one result was process innovation—how they could do better what the brands are doing and what methods could they share. Second was product innovation,” said Melville. He also said that one of his clients is meeting the challenge by growing its innovation team from four to 40 employees, something he said was previously unheard of in the industry.

During a panel of CM/CPs led by Melville, Paul Whitaker, director of consumer products at Wixon, an industrial seasoning and flavor custom contract manufacturer, said innovation at his company is focused on taking on new or difficult tasks in a shorter time frame.

Another panelist, Steve Sena, vice president of business development CM/CP Truvant, said his company had to innovate to keep costs down for its customers. Material costs have been rising due to recent supply chain issues, which normally means a CM/CP will increase cost for its customers, but Truvant aims to keep costs consistent for its customers in spite of these changes.

Among these innovations to solve challenges, all panelists agreed that communicating clearly the difficulties encountered to the CPG customers is essential. “There has to be dialogue. It can’t be a transaction,” said Sena. “The best relationship between brands and CM/CPs is one where you’re both in the same boat, you both care for each other’s business, and you both profit from the relationship. That requires—for lack of a better term—intimacy.”

Renegotiating contracts annually can be tense, creates more busy work for both companies, and wastes valuable time. “But if you have a three-, five-, seven-year contract you can create a longer relationship. You know you’re in bed together for a long time, so you’re much better caretakers of that relationship,” said Sena. 

That insight was backed up by a later F4SS CPG panel that revealed brand owners are also noticing the value of stronger relationships with their CM/CP partners and are moving towards longer contract periods. Some contracts are as long as five years a length of time once unheard of. 

Q: What are best practices for CM/CPs in working with CPGs?

Steve Sena, vice president of business development at CM/CP Truvant, suggested stronger functional alignment by getting both companies’ product development and quality assurance teams together to manage innovation. On the executive side, he advised that both parties get their teams together for forecasting meetings and integrated supply chain planning as well.

Q: How big do you allow your biggest customer to get?

According to Sena, one way to manage large customers is not letting them reach 50% of your total revenue stream. Letting one customer take up too much of your business is a detriment. Johnny Ferry, vice president of business development at Honeyville, a food ingredient contract manufacturer, said another option is to grow the rest of your business alongside the customer, rather than restrain one customer who has grown exponentially.

Q: How do you attract and retain labor?

Paul Whitaker, director of consumer products at custom contract manufacturer Wixon, explained that his company had to innovate in the way it recruits. His company is also seeking to leverage automation. Honeyville meets periodically  with every one of its divisions, sharing sales and business data, and explains how each individual contributed to the company’s success. This has helped them retain employees, Ferry said.