CASE STUDY

3rd Party Manufacturing

Start-ups in particular need laser sharp focus as their resources are still extremely limited just after launch. Very often their disruptive concepts need full focus on marketing and sales rather than on production.

Hence it is crucial to check if it is wise to produce still in house, once they have achieved a level of distribution enabling small scale industrial production. This is often a tough subject for start-ups as they have a strong emotional bond with their products.

InnoMotion analysis for a Ready-To-Drink start-up highlighted a key bottleneck and cost issues of the in-house production as orders started to grow:

  • One partner had to hire extra help to meet customer requests after the other partner created new listing opportunities.
  • Being employed at minimum wage the help often needed close supervision, not freeing up significant amounts of the partners time for dealing with customers.
  • The extra personnel reduced the bottom line, taking cash away from growth activities.

Problem:
In-house production is resource intensive, but the main goal is growth

Solution:
Outsource production

Action

Make or buy: A review of the supply chain revealed that demand was sufficient to shift to a commercial factory that offered bespoke, small batch production cycles. Costs proved to be favourable, once overheads for renting production space had been reflected in the cost of goods, as well as savings from increased batch sizes due to a longer shelf life.

IP Protection: The production process could be restructured in such a way that a ‘black box’ was developed for the 3rd party manufacturing, maintaining confidentiality and control over the recipe.

Result

Both production and customer service became significantly more efficient as 3rd party manufacturing management took only a fraction of the time one partner previously dedicated to maintaining in house production.

The tangible benefits included more time spent with customer, resulting in improved sales. The measurable KPIs were the growth rate of sales as well as shortening time between 1st customer presentation and securing the listing.