Bush Brothers' Tiered Strategy for CM/CP Partnerships

Who foots that bill?

In test mode, we eat that cost. We live with the cost because it’s about being sure we execute the test correctly, so we get a good read of the market. But should we decide we’re going to stay in market, or expand that work, then we are far more likely to look harder at how we could do it internally. Or if not internally, we ask ourselves if we have a partner that could handle the greater scale, even if we had to provide some equipment for them to do so. This might be someone that already handles a lot of our outbound shipping, like a local 3PL to our plant. There’s a good chance that we could move it back there.

It sounds like a tiered or graduated network of partners for different phases of product launch. How have you moved work around for this current four-pack project?

The partner supporting our test phase is about 200 miles from our producing plant. We have done some really successful projects with them. They operate manually—literally, they’re manually doing the cartoning—and they’re good at making fixtures to accomplish that. They like to say they supply labor to our problem. They have helped us by completing the initial inventory builds and replenishments for our test.

All manual seems fine for a test, but not to scale. What would be the next phase?

Even if we aren’t sure we have the space or the appetite to spend the capital in our plant to automate this function, we would need to address the over-and-back nature of how we are executing the test phase. With the contract packager, we ship them product in the original primary pack format, they convert it, and we bring it all the way back to our producing plant or a nearby 3PL provider we use for shipping orders. It just incurs too much transportation cost and risk to be a sustainable process in the long run.

One of the biggest factors that doesn’t keep us from testing with a partner—but often keeps us from fully commercializing with that same partner—is systems integration, electronic data interchange (EDI), and the like. A more local 3PL’s ability to actually ship our orders and maintain traceability is a must-have for full commercialization. More complete systems integration is crucial so that we can count on maintaining traceability, accurate inventory records, and keep as many transactional activities as automated as possible.

The 3PL has a lot of factors in their favor, but can they actually make the four-pack formats?

Not yet. Even if we have to get someone up to speed on the actual capability, we still might move to the 3PL where the systems integration pieces are already in place and they transact orders for us every day. But rather than make that investment in-house, or with a 3PL, just for a test up front, instead we take the hit on what it costs to run the tests at a more manual facility. We know it’s going to stay contained to a certain number of stores, or a certain constrained geography where you’re going to distribute the four-packs for the test. During that time, we are just taking the hit on cost, but crucially, we’re finding out what value we have in the marketplace.

Say you move packaging operations to your local 3PL, and the four-pack continues to do well over some time. At what point does a brand owner start to consider taking the project completely in-house?

This isn’t a very satisfying answer, but it really depends. Let’s say we rolled out these four-packs nationwide. That still doesn’t mean we’re going to be shipping entire truckloads of this format, because we’re probably not going to see retailers order full truckloads. So, it’s still going to be mixed product orders, right? Because if it was going to be full truckloads, then we would have spent our money getting our original partner’s systems upgraded to become EDI-capable and system-capable instead. Because they can make the product correctly already.

But since we’re not going to be able to just have them ship only that product, and we’re not going to be able to ship it in the quantities to make that make sense, we have reason to look at bringing it back to our plant, or back to a more localized 3PL even if it changes the investment from systems investments, to physical equipment or other capability investments.

Your contract packaging business moves around from partner to partner at different phases of commecialization. How do you manage taking business away from one partner in favor of another?

Part of the key to making this work is transparency, both from us and from our partners. They tell us, “We may make fixtures, and we may even store a little bit of product, but what we really do is we provide labor. We sell you labor. We do, mostly manually, things you either can’t do, or don’t want to do yourself. That doesn’t mean that we want to grow to the entirety of your scale, because what we’re really good at is getting labor together to attack problems for our customers.”

Because they are transparent with their core competencies and what they do best, we’re able to say, “If this really takes off, we have to figure out another answer.” Up front openness on those conversations is a huge deal.

It’s just an important element to be continually talking about what is, or isn’t, helping this work. We all have to have some agreed-upon understanding of what our pain points look like. What does that trip point look like? What is that triggers you to say, “Hey, we have to make a change here?”The eight-pack carton is a popular seller at club stores, but likely too large a format for traditional grocery. Thats's why Bush Brothers is testing smaller four-packs, using CM/CP partners to help commercialize the project.

How’s this multipack project going for you so far?

We’re just now, after a few months of selling in this particular test, beginning to talk about how we are going to solve for next steps. Are we going to add more capital equipment on our own line, so we could at least build the pallet? Since we know that doesn’t work for a retailer, that answer is not the whole solution. Are we going to build pallets, then rehandle it to get it cased? Who is going to do the re-casing part? We’re just starting to think of questions like that now, what we could actually need to tackle as we talk about how we could go bigger, go larger, go more permanent with this, assuming we ultimately make the decision to do that.

It sounds like you have some big decisions on the horizon. How do you handle your vendor relationships as you make them?

It’s important that they [contract packagers] understand up-front what you need them for, what you’re contracting with them to do, and most literally, what you’re using them for. And it’s important for you [brands, CPGs] to understand that at some point, your scale may be out of their comfort zone. They need to have the right to say, “We’ve probably helped you much as we can really help you. We’re not going to dump you, but you’re paying this much, and there’s got to be better ways of doing this.”

We love being important to our partners, but if we’re too important to them, then we can start feeling constrained. If we’re a halfway decent customer—and it is important to us to be a good customer—we’re feeling constrained about how quickly we can pivot away from them. We don’t want a trail of used up, unfairly treated partners in our wake. Because the next one’s going to say, “I know what you did to so-and-so on that four-pack product Packaging World wrote about. I’m not sure I want to take a phone call from you guys.” We don’t want to become that, either.

That’s why mutual, up-front transparency is one of the keys to good relationships between our contract packagers and us.