Table of Contents
- Key Highlights
- Introduction
- Understanding the Breaking Point
- Making the Decision to Take Control
- Building Direct Relationships
- Creating Clear Systems for Order Projections
- Taking Control Gradually
- Resilience and Growth: The Outcome of Transformation
- Conclusion
- FAQ
Key Highlights
- Supply Chain Control: IQBAR founder Will Nitze moved the entire supply chain in-house, significantly boosting profitability and operational resilience.
- Market Response: The pandemic revealed vulnerabilities in contract manufacturing approaches, leading to critical operational changes in IQBAR.
- Strategic Relationships: Building direct relationships with suppliers has proven vital for navigating supply chain complexities.
- Scaling Strategies: Identifying key thresholds in volume allows businesses to negotiate better terms and reduce costs, paving the way for scalable growth.
Introduction
In a landscape where consumer packaged goods (CPG) brands operate under increasingly unpredictable economic conditions, the concept of "taking control" has surged to the forefront of strategic decision-making. According to a recent survey, supply chain disruptions have resulted in a staggering 43% of companies reporting stockouts or significant delays in fulfilling customer orders. For Will Nitze, founder and CEO of IQBAR, this reality became personal when the COVID-19 pandemic exposed the fragility of traditional manufacturing practices. “We literally couldn’t make the product,” he reflects, recalling the moment his supply chain crumbled under external pressures. What once seemed a straightforward path to profitability morphed into a fight for survival, leading to a transformative pivot that reshaped not just IQBAR’s operational capabilities, but its entire business model.
This article explores IQBAR’s journey toward reclaiming control of its supply chain, the strategic decisions that drove its explosive growth amid adversity, and actionable tips for other CPG founders aiming to enhance profitability in an increasingly volatile market.
Understanding the Breaking Point
The initial challenge for IQBAR was symptomatic of a broader industry issue—the limitations of the "turnkey" manufacturing approach. This system, in which brands rely heavily on contract manufacturers for everything from sourcing ingredients to billing, can offer short-term gains. However, it often masks deeper vulnerabilities that may surface during times of crisis. For IQBAR, these vulnerabilities led to an inability to procure essential materials, a struggle amplified by the pandemic’s disruptions.
Hidden Costs of Contract Manufacturing
Will's experience highlights three key shortcomings prevalent in the turnkey model:
- Supply Dependency: Relinquishing control to contract manufacturers often leads to a lack of agility in sourcing required ingredients during shortages.
- Gross Margin Pressure: Contract manufacturers typically charge management fees and mark up ingredient costs, leading to gross margins that can be 3-5% lower than if brands were to source directly.
- Stunted Growth Potential: With manufacturers focused on their profitability, the tendency to forgo renegotiating terms as production volume increases results in missed opportunities for margin improvement.
Understanding these dynamics became a catalyst for Will, urging him to pivot away from the easier path offered by contract manufacturing. “The co-packer is not gonna go back to each one of your suppliers and negotiate to reduce prices as your volume goes up,” he notes, illustrating the friction present in the traditional model.
Making the Decision to Take Control
Will’s resolve to bring the supply chain in-house was not borne out of idealism but necessity. “When faced with a potential business collapse, you make hard decisions,” he shares. Crucially, his decision came without a detailed roadmap. “There is no preparation,” he affirms, underscoring the often tumultuous nature of startup growth.
The paradigm shift began with IQBAR embracing a “co-manufacturing” model, where the brand takes control of sourcing raw materials while partnering with manufacturers that focus on production. This model not only fortified IQBAR’s position but also laid the groundwork for future growth.
Mapping the Supply Network
One of the initial steps in restructuring IQBAR’s supply chain involved meticulously mapping out suppliers related to every aspect of the bars. This meant identifying not just the primary ingredients, but also packaging materials and processing aids. “I opened an Excel spreadsheet and I said, what are all the compounds that have been shown to be good for your brain in research?” Will recalls, highlighting a systematic approach to product development and supply chain management.
Understanding the nuances of their input materials allowed IQBAR to identify potential weaknesses. Will emphasizes the importance of knowing not just what goes into a product but where it comes from and the reliability of those sources.
Building Direct Relationships
Once the suppliers were mapped out, the next phase involved establishing direct relationships. This required outreach and consistent engagement, as many suppliers typically prioritize larger clients. Persistence and credibility became central themes as Will and his team interacted with potential suppliers.
“Many suppliers are used to working with bigger companies,” he explains, often leading to skepticism about smaller brands. Building rapport took time, consistent follow-through, and the ability to demonstrate reliability. “You do things for a couple of months and you’re like, OK, generally this is my flow for how I order all the inputs," he outlines. The trust and familiarity established over time proved vital in navigating the complexities born from supply shortages.
Creating Clear Systems for Order Projections
Taking control of the supply chain did not happen overnight. Will emphasizes the importance of developing clear systems for order projections. For a CPG brand, accurate forecasting is critical not just for fulfilling current demand but also for anticipating future needs.
The approach IQBAR adopted adhered to a phased methodology, beginning transparently with inputs that presented the most significant challenges. By focusing initially on the highest-volume ingredients, Will helped ensure that improvements in margins became evident without overwhelming the operational structure prematurely.
Taking Control Gradually
Will’s counsel to other founders is to adopt a gradual approach when transitioning to a more controlled supply chain. "You can map out a phased approach that makes the most sense for your business," he advises. This method often involves starting with critical ingredients and scaling up based on production levels and complexities.
For IQBAR, a pivotal threshold was identified around the production of 30 million units per year. Surpassing this volume not only enabled better negotiation strategies but also provided leverage to expand the brand’s product line. “Now you can do a series of things to exploit that volume,” Will explains.
Leveraging Volume for Better Terms
As IQBAR scaled, its negotiating power grew. Will highlights the strategy of approaching suppliers with data-backed insights to optimize shipping and manufacturing costs. He elaborates: “You go back to every one of your vendors and say, ‘Hey, now that I’m buying 10 times more product, I need you to ship in trucks instead of less than a truckload.’”
This systematic approach exemplified how taking control of the supply chain allowed IQBAR to fine-tune each element of its value chain. The process not only polished operational efficiency but significantly improved profitability—a necessary evolution for brands aiming to thrive.
Resilience and Growth: The Outcome of Transformation
The pivot to in-house management and co-manufacturing dramatically altered IQBAR’s trajectory. Will describes this shift as transformative, noting that the company navigated not only the pandemic’s challenges but emerged as a more resilient business.
With reliable supply chains, IQBAR saw revenue growth soar to $60 million annually, with a projected distribution of 50 million protein bars by 2024. This robust framework positioned IQBAR strategically for future expansions beyond its core offerings.
New Product Development
The newfound operational resilience led to the development of complementary products, such as IQJOE for a caffeine boost and IQMIX for hydration. “We built a more resilient, profitable business positioned for efficient scaling,” Will asserts, marking a significant milestone in IQBAR's expansion strategy.
Conclusion
Will Nitze’s transformation of IQBAR serves as a potent reminder of how challenging market conditions can spur innovation and strategic growth within the CPG sector. By taking control of the supply chain and fostering direct supplier relationships, IQBAR not only weathered the storms of a global crisis but emerged with a scalable and profitable model.
For entrepreneurs and founders navigating the treacherous waters of supply chain management, Will's journey underscores an essential truth: proactive control, systematic planning, and relationship building are critical to ensuring longevity and success in the CPG market.
FAQ
Why is it important for brands to take control of their supply chain?
Taking control of the supply chain enables brands to enhance their operational efficiency, implement cost-saving measures, and respond more nimbly to market changes. It minimizes dependency on third-party manufacturers, whose shortcomings can become critical liabilities in times of crisis.
What are the risks associated with a turnkey manufacturing model?
The turnkey model can expose brands to vulnerabilities like ingredient shortages, thinner profit margins, and reduced flexibility in scaling operations. Companies may find it challenging to negotiate better terms with suppliers since they are reliant on intermediaries.
How can a company identify the right threshold for in-house supply chain management?
Identifying a volume threshold—often around 30 million units—can provide the necessary scale to negotiate better terms and reduce operating costs effectively. Tracking growth metrics and assessing operational capabilities can aid in this determination.
How long does it typically take to fully transition to a more controlled supply chain?
The timeline for transition varies, dependent on the complexity of the supply chain and existing relationships. Building credibility with suppliers and developing systems for order projections are essential steps and can be undertaken gradually over time.
What role does relationship-building play in supply chain management?
Building strong relationships with suppliers fosters trust, reliability, and collaboration, ensuring that brands have the necessary support during shortages or disruptions. It allows smaller brands to negotiate effectively and secure better terms.
With IQBAR as a compelling case study, brands in the CPG space are encouraged to rethink traditional manufacturing approaches and adapt to the demands of a constantly evolving marketplace.