Is an All-Inclusive a Good or Bad Deal with Co-manufacturers?

5/4/2019

When you are first evaluating arrangements with co-manufacturers, the all-inclusive might sound like a great deal. The co-man says, “Hey look, don’t worry your pretty little head. I’m better at buying ingredients than you, and I’ll always be better at buying ingredients than you. So I’m going to charge you a dollar a bar.” And you sit there and say, “Okay, it’s a dollar a bar, no matter what.” And maybe a dollar a bar sounds good to you, because you’ve been slaving away 14 hours a day, making far fewer bars than he’s promising you, and your costs weren’t that far off from a dollar a bar anyway.

So maybe the deal looks pretty good at first. What you don’t know is that you’re really going to get screwed as your sales go up. Why? How? Read on.

Let’s say you start find good places to sell your product, and so you end up ordering more and more cases of bars from the co-man. However, as quantities increase, they’re still charging you a dollar a bar, but they’re buying all your ingredients a whole crap load cheaper. So while they used to spend 75 cents a bar on ingredients, now it’s only costing them 56 cents a bar, and they’re keeping all that extra cash.

Also, they now have freedom to buy your ingredients from anyone they want. So if you make hard candies, they’ll buy your corn syrup from an unverifiable source. Because deep in that contract, they’ve gotten you to sign that you’re okay with them buying through a broker who doesn’t have to disclose to who the manufacturer of the corn syrup is.

That stuff can come from anywhere. It can come from China; it can come from South America. It can be organic; it can be dog food. It can be anything. But it’s completely masked from you because it’s completely masked from them. They don’t care, because they’re just buying on price, and it’s your brand, not their brand. So they don’t give a rat’s behind. They’ll just buy from whatever suppliers are cheaper that week, because all they care about is their bottom line.

Not only does this cost you a lot of money you could have saved, but it also makes your traceability a really big problem in event of a recall. If somebody gets sick, you’re up a creek without a paddle.

This can also result in a very inconsistent product, which can be awful for your branding and reputation. McDonald’s sells billions of dollars a year based off consistency. You have to consistently deliver the same product to the consumer if you ever want to develop loyalty.