The fine line between Distribution and Manufacturing

In the food industry, there are manufacturers and distributors and some companies do both. However, the businesses that think of themselves solely as distributors, may want to expand their business view. Just because you don’t make the products you sell, doesn’t mean you are just a distributor.

Do you import products, acting as a selling agent for a country or territory? Increased regulations around traceability for product recalls have expanded the record keeping requirements for many distributors. Some need to relabel product to meet local language labelling and allergen identification rules. Others offer value added services like kitting to make the product more attractive to the local market.

If you bring a product in, relabel it, and sell it to major retailers, for example, you are expected to track the lot numbers just like the manufacturer of the food you distribute. Some distributors offer services such as bundling products together for customers like Costco. Maybe you take two flavours of a product and put one of each into a new package, making a new sku. This kitting process is a form of manufacturing and the software technology manufacturers use could make managing these situations easier.

Some food companies are more marketing and product development businesses. They develop innovative food products and then have them manufactured by a co-packer. Sometimes, these marketing companies take responsibility for procuring some or all of the raw materials that will be used by the co-packer to manufacture their product. For example, they may ship certain key ingredients or labels for use in manufacturing their products. Like manufacturers, they need to keep track of use and waste of the raw materials so they know when to buy and send more. Sometimes, they will receive the manufactured product back into their own warehouse to distribute and sometimes they’ll contract with third party warehouses or 3PL firms to pick up the product from the manufacturer and either store it until it is purchased, or deliver it directly to the customer.

Whether manufacturing is done onsite or at a third party, the planning for the combining of multiple inputs to make one or more outputs is the same as they are for the manufacturer who needs to keep track of raw materials becoming interim and finished goods.

Many manufacturers are also distributors. Whether they own a separate company for distribution, or arrange transport with third parties, they have to get their goods to their customers. Both manufacturers and distributors spend time calculating product costs, often incorporating additional costs to get the products to them as well as calculating finished goods product costs which may involve paying broker fees or retailer charge backs. Both need to plan purchases, devise inventory management and lot control strategies, and stay aware of expiry dates to avoid fines and ensure the food safety of the products they sell.

As a company in the food or consumer packaged goods industry, an industry that operates on thin margins, whether you think of yourself as a distributor, a manufacturer or a co-packer, you have to devise ways to effectively and efficiently manage information and monitor pricing and profitability. If you are frustrated with duplicate entry, disconnected systems or a large amount of manual paperwork, and looking for a better way to keep track of all that information, ERP systems like the Minotaur Business System may be the answer. With an industry specific focus, Minotaur offers software that aims to make your growth easier by combining tools to manage the plant, warehouse and office in one program.