10: Operations
Getting Started with Operations
Operations may not be the flashiest part of running a CPG brand, but it’s the backbone that keeps your business running smoothly. Efficient operations ensure that your product gets manufactured, stored, shipped, and ultimately delivered to customers and retailers without a hitch. Whether you’re just starting out or you’re growing your business, strong operational foundations are essential for scaling.
Let’s dive into the key components of building a robust operational system for your food or beverage business.
The Core of CPG Operations
At its core, operations for a CPG brand include everything from sourcing ingredients to manufacturing, warehousing, inventory management, and logistics. While each part may seem like a standalone element, they are interconnected, and inefficiencies in one area can lead to headaches in others. Building a system that works requires strategic planning, excellent communication, and constant attention to detail.
Key Areas of Operations
Supply Chain Management
Sourcing Ingredients: One of your first challenges will be securing a reliable supply of ingredients. Building relationships with trusted suppliers is crucial to ensure the consistency of your product. At the same time, maintaining multiple suppliers for each ingredient can help safeguard against shortages or quality issues. Don’t forget about compliance—ensure that your suppliers have the necessary food safety certifications.
Packaging Suppliers: Much like sourcing ingredients, your packaging partners are critical. You’ll need to evaluate cost, lead times, and minimum order quantities (MOQs) to find the right fit for your brand. Sustainable packaging is becoming a must-have in the CPG space, so consider options like recyclable or compostable materials.
Production
Self-Manufacturing: Some brands choose to produce their products in-house, which offers complete control over quality but comes with significant startup costs for equipment, permits, and staffing.
Co-Manufacturing: Outsourcing your production to a co-manufacturer can help you scale faster. Co-manufacturers provide the facility, workforce, and equipment, allowing you to focus on other aspects of the business. However, this requires careful selection, as you’re entrusting your product to a third party. Make sure to have a strong contract in place.
Warehousing and Fulfillment
Warehouse Selection: As your brand grows, deciding where to store your products becomes critical. Third-party logistics (3PL) providers can manage your warehousing, picking, packing, and shipping, but be sure to account for lead times and shipping zones to optimize costs.
In-House Fulfillment: If you’re starting small, in-house fulfillment can work, especially if you have the space to store inventory. However, keep in mind the manual workload involved, particularly if you’re running an e-commerce channel.
Inventory Management Inventory management is the balancing act of having enough product on hand to meet demand without overstocking and tying up cash flow. Use an inventory management system to track stock levels, monitor reorder points, and avoid costly stockouts or overproduction. Software tools like TradeGecko or Cin7 are often used by CPG brands to keep a real-time pulse on inventory levels.
Logistics and Distribution Once you have the product ready, you’ll need a way to get it to your customers or retail partners. You’ll be working with distributors or shipping directly to retailers or consumers, and every step involves its own set of logistics.
Direct to Consumer (DTC): If you’re fulfilling online orders, efficiency in shipping is critical to customer satisfaction. Choosing the right carriers (like USPS, UPS, or FedEx) and offering affordable or free shipping can impact conversion rates.
Distributor Partnerships: If you’re selling wholesale, working with a distributor can streamline the delivery process to retailers. Distributors like UNFI, KeHE, or regional players often have established relationships with grocery stores, helping you scale faster.
Quality Control You need to ensure that every product that leaves your facility is of the highest quality. Implementing Good Manufacturing Practices (GMP) and routine quality checks at every step of the production process will help maintain consistency. Be sure to have clear procedures in place to deal with any product recalls, should they arise.
How Much Money Will You Need?
When setting up your operations, it’s essential to understand the costs involved. These can vary dramatically depending on the size of your business and the scale you’re aiming for.
- Startup Costs: Equipment, warehousing, and co-manufacturer contracts can require a significant upfront investment. If you’re self-manufacturing, expect to shell out for permits, certifications, and the machinery needed to produce at scale.
- Ongoing Operational Costs: Labor, ingredient sourcing, packaging, and shipping are just some of the recurring expenses you’ll encounter. Be sure to build cash flow models to ensure you have the liquidity to cover operational expenses before scaling up.
- Capital Expenditure: As you scale, you may need to invest in larger warehouse spaces, more sophisticated inventory systems, or advanced production equipment. Make sure to factor these into your financial forecasting.
Tips for Setting Up Efficient Operations
- Start Small, But Build for Scale: In the beginning, you can get away with more manual processes, like tracking inventory on spreadsheets or shipping products yourself. But as soon as you start to see consistent demand, move toward automation and digital tools to keep things scalable.
- Plan for Delays: Lead times on raw materials or packaging can sometimes take longer than expected, so always build in buffer time to avoid stockouts.
- Establish Clear Communication: Whether you’re working with a co-manufacturer, distributors, or a 3PL, clear communication and defined expectations are essential for minimizing issues. A solid operations team will build processes for frequent check-ins and updates with partners.
- Measure and Improve: Track your operational KPIs—such as production efficiency, order fulfillment times, and inventory turnover—so you can continually refine your processes.
Final Thoughts
Getting your operations in order is one of the most critical factors in building a successful CPG brand. Operations may not always be glamorous, but they’re the foundation upon which you scale. Start with a clear plan, invest in the right systems, and you’ll be ready to meet the growing demands of your brand.