1 — There is an inherent problem with traditional long-tail supply chains made of small-medium contract manufacturers.
2 — There is a mix-match of incentives between brands and contract manufacturers that sees these relationships breakdown regularly.
3 — The misalignment of incentives is derived inherently from the contract manufacturer's business model. CMs have expensive capital assets that they need to maximise up-time on (keep the machines running) in order to generate reasonable returns.
4 — CMs are essentially interchangeable with one another. This interchangeability means that differentiation is low and competition is high. Pricing trends towards commoditisation, margins get squeezed and CMs look to lower costs.
5 — Lowering costs means finding efficiencies in ordering. Those efficiencies come in the form of scale of raw materials & higher MOQs to ensure larger runs & uptime on machines. This pushes CMs to make more of the same thing — which leads to more & more white-label products
6 — The challenge is brands want the opposite. They want just-in-time manufacturing with low-runs so they can minimise their inventory risk and have more free cash to spend on growth AND they want on-brand, unique product to sell to their community.
7 — We call this kind of product fit-for-community and CMs can't deliver it.
8 — If CMs had their way we'd be a world awash with samesy products.
9 — The future of CPG (we play in beauty, health and wellness) is unique/bespoke product made specifically for communities that congregate around brands.
10 — This is a big shift for contract manufacturers. The path forward is through aggregator platforms like Atelier that can aggregate demand and provide a CM with 60-100% of their capacity.
11 — We can take up 60-100% of a CMs capacity, removing the need for them to have BD and sales. A high cost that, up-until-now has been necessary.
12 — New business models, enabled by technology, can transform the way the CPG manufacturing industry works. Atelier is proving that every day.
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