When dairy brands look to introduce new products to the market, they often do not have the capital to manufacture the products themselves. A co-manufacturer can provide this capacity as well as offer a brand multiple product and packaging options at a fraction of the cost they would incur if they manufactured themselves.

After stating those benefits of co-manufacturing, Edward Tilley, senior vice president and chief operating officer of beverage and dairy foods at Kansas City, Kan.-based Dairy Farmers of America, also said these partnerships help brands gain market differentiation.

Overall, co-manufacturers provide a wide range of services for brands from product development assistance all the way to manufacturing of finished products. These relationships have become even more important in the past year as the strain of the supply chain and labor crises coupled with increased demand for products have placed pressure on both manufacturers and brands.

Challenges

Carla Fabian, senior director of sales in custom solutions at Agropur, La Crosse, Wis., said sales in dairy co-manufacturing have surged during the last year despite record increases in inflation and raw material and packaging pricing. Additionally, she said supply chain constraints are leading both manufacturers and consumers to buy more than ever to ensure they do not run out of supply.

“This surge in buying has contributed to increased orders and demand for our services and subsequently caused many businesses to try and vet new co-manufacturers either for secondary support or to find additional line time given the unprecedented labor shortage facing nearly all vendors and co-packers,” Fabian said.

Not only are brands ordering high levels of product to keep up with demand, but there are challenges for manufacturers in producing enough product.

“Sales of shelf-stable retorted beverages have been strong and have grown to the point that there is not enough capacity, across all contract manufacturers, to meet current demands,” Tilley said. “Despite sales growth, much like other industries, contract manufacturers of shelf-stable retorted beverages have been challenged to find, hire and retain employees to run their plants at capacity.”

Additionally, Fabian said supply-chain issues have impacted sourcing for every aspect of their business from canisters to lids, scoops, raw material ingredients, labels, corrugated boxes and pallets.

“This truly has been the toughest year with respect to mitigating risks and trying to keep lines running given all the uncertainty with port congestion and delays, and extremely limited ocean, rail and domestic freight options,” Fabian said. “Our team has worked extremely hard each and every day to secure necessary materials, but oftentimes they are trying to mitigate variables well out of our control.”

Fabian said facilities making canisters and lids have experienced high turnover, which has led to increases in lead times. She said lead times that used to be eight to 12 weeks have now extended to nine months, and they are now issuing purchasing orders a year out.

She added the availability of various dairy proteins and powders has been constrained, and said Agropur’s manufacturing plants continue to have challenges producing cheeses. While the company has been able to keep production going at its La Crosse facility, Fabian said, there have been times when it has been unable to operate at ideal efficiency and has been running with a skeleton crew.

Similarly, Tilley said there have been times when Dairy Farmers of America plants have been forced to shut down production for several hours while waiting on packaging and ingredients. Due to the decreased availability of these supplies, the company has been forced to explore other options and has conducted extensive product and packaging development testing in order to identify and approve alternate sources, he said.

“This has been an ongoing challenge that we’re continuously addressing in order to find solutions and keep customers supplied with products while also controlling costs,” Tilley said.

The benefits

Given the supply chain and labor situation, perhaps the most beneficial asset a co-manufacturer can provide its partners in the current environment is its expertise in navigating these issues.

“Brand owners might not like to hear of the challenges facing the industry, but by being transparent they can react and plan as best as possible,” Fabian said.

Fabian said Agropur’s customers depend on the company’s industry insight and formulation skills to assure it is bringing products to market that have value, and its forecasting and demand planning tools help in this effort.

“Our brand partners benefit from our large volume and footprint, our extensive strategic procurement knowledge and our solid network of market contracts,” said Bart Child, chief commercial officer for Nellson, Anaheim, Calif. “Being proactive is key as we anticipate the next hurdle and find creative solutions to counter it before it happens. We are working closer than ever and communicating frequently with suppliers regarding longer-term visibility of requirements so they can in turn plan and anticipate.”

Tilley said another benefit of co-manufacturing is these partners’ abilities to oversee workforce staffing at the plants and manufacturing facilities, which is a significant benefit to brands in the current workforce environment.

When looking for a partner, Tilley said brands should seek out dairy co-manufacturers with expertise in manufacturing and technology and have a reputation as a reliable, quality supplier with a commitment to integrity and customer service.

Overall, a successful co-manufacturing relationship is built on mutual agreement.

“Having this agreement in place ensures that both the contract manufacturer and the customer are aligned on key deliverables,” Tilley said. “Additionally, regular communication and ongoing business reviews are important to maintain a good contract manufacturing partnership.”

Fabian said Agropur is looking to partner with companies that have great integrity, a quality especially essential today as everyone in the industry is faced with the same challenging environment and temptation to cut corners when faced with difficulties. The company provides its partners with research and development assistance as well as services in organic, cheese, dry blending, and aseptic and retort fluid manufacturing.

“Our future depends on maintaining and building robust relationships with vendors and customers and ensuring the products we manufacture exceed quality standards each and every day,” Fabian said. “The only way we can do that is with partnering with vendors who also have the same allegiance.”

Looking ahead, Fabian said Agropur is committed to enhancing its processes in ultrafiltration and ion exchange. Additionally, as it is building a new facility for cheese production, the company is considering future equipment and technology needs in order to ensure the facility will be well-suited for the future.

“As brands scramble to find new resources in a volatile market, they are seeking out co-manufacturers and full-service providers such as Nellson,” Child said. “Our strong supply chain foundation helps our brand partners find solutions to overcome these formidable challenges.”