Section 8 deals with options relating to where and how to manufacture a product. This is a major decision for entrepreneurs and expanding food businesses. It is a particular challenge for startup companies that have limited funds for buildings and equipment. Some of the options available to an entrepreneur are co-packing, using a commercial kitchen, and building a manufacturing facility. For technology-based companies, there are advantages to setting up processing operations in one of Canada’s food technology centres. Each of these options has advantages and disadvantages that must be considered.
The Food & Beverage Processing in Manitoba Reference Manual (Third Edition, 2017) provides more detail on manufacturing options, particularly looking at the advantages and disadvantages of each option. The Reference Manual includes a discussion of issues and zoning requirements to consider for selecting a long-term production site.
MANUFACTURING STRATEGIES OVERVIEW
For a new food processing business to compete effectively in the market place, it must carefully assess options for manufacturing operations and site location. Strategic planning for manufacturing entails consideration of competitor strengths, customer needs, and the resources available to the business when making decisions.
Within these broad categories, there are many specific issues to consider including: investment, unit cost, revenue/pricing, quality, delivery/supply chain (including reliability, timing and flexibility), new product capabilities, and risks.
Many of these business areas have conflicting objectives. For example, producing a very high quality product requires high input costs which results in a high finished product price. Food processors must learn to trade off the value of one performance criteria against another when making manufacturing decisions.
Co-packing is a cost-effective way of producing a product, in which co-packers process, package, and even distribute the product on another company’s behalf.
Co-packing is a business relationship where a food or beverage processing company (the co-packer) is hired by a second food or beverage business to process, package, and/or warehouse and/or distribute the second company’s products. Some co-packers exclusively dedicate their processing capacity to manufacture products for other companies. Other co-packers rent out their excess capacity (equipment, facility and personnel) that is not required to manufacture their own products.
There are definite advantages to co-packing:
- Provides a consistent product cost
- Eliminates or postpones the need to invest in facilities and full production equipment
- The co-packer provides the benefit of their manufacturing expertise
- A co-packer provides production personnel who are already trained
- Start-up time is reduced
- It is the co-packer’s responsibility to maintain the plant and keep the equipment up-to-date
- There is ongoing technical support from the co-packer’s personnel
- Production time is paced to match the market’s needs
- Time commitments to oversee production are reduced which creates more time to focus on other aspects of a business
Co-packing is a good option for those who lack the facilities and equipment to produce their own food products, as well as for those who lack the certainty of how successful their food product would be.
Key criteria to consider when selecting a co-packer include:
- Experience making a similar product
- Capacity to handle expected volumes
- Seasonality where peak production periods limit accessibility
- Confidentiality of trade secrets and other confidential information being accessed by the co-packer, or by their other clients
- Equipment suitability based on your product’s requirements
Before choosing a co-packer, visit their production facilities and inquire about their inspection reports, manufacturing procedures, and financial stability. Prior to providing any specific details about your product or business, sign a non-disclosure agreement with the co-packer. (See Section 3 for information about trade secrets and non-disclosure agreements.)
Food & Beverage Manitoba assists its members in identifying and connecting with potential co-packers in Manitoba and the rest of Canada.
- Food & Beverage Manitoba
A shared-use commercial kitchen is a facility where food processors prepare their food products for sale and/or distribution in a licensed establishment. Kitchens are often rented out by the hour or day at affordable rates, thereby providing opportunities for start-up and established food businesses to explore or expand product lines. In addition, shared-use commercial kitchens allow food processors to share technical and managerial skills with other users of the kitchen.
Key issues to consider when assessing whether to use a commercial kitchen includes:
- Security – assess the trust-worthiness of other users, and the level of security in place to safeguard your own equipment, raw materials, finished goods and business information, when you are on-site and off-site
- Regulation – ensure the facility has a valid Food Service Establishment permit issued by Manitoba Health
- Sustainability – consider the kitchen’s availability from a long-term perspective
- Availability – determine if there will be sufficient processing time available for current volumes and allowing for reasonable growth
- Space – decide if the available space will allow for growth of your business over an initial time period
- Equipment – assess suitability and availability of the facility’s equipment, and space requirements for placement and /or storage for your business’ own equipment
- Storage – determine if there is sufficient storage for ingredients and finished product
- Cleaning Standards – determine who has which responsibilities and what standards are followed for cleaning and sanitation
A listing of community commercials kitchens in Manitoba is available on a government website.
- Manitoba Agriculture
Food Development Centres
There are several food development centres in Canada (see Section 4). Several of these facilities operate pilot plants where equipment for processing and packaging can be used for process development and depending on the facility, commercial production as well. This type of arrangement should not be considered as a long term option as the rental costs for space and equipment are quite high. The tradeoff is having ready access to the technical experts that work at these facilities. This can be beneficial in the early stages of manufacturing operations.
FOODTECH Canada has a searchable database of the services and equipment available at eleven of Canada’s food development centres.
Home-Based Commercial Kitchens
Municipality/regional zoning may allow commercial kitchens to be operated from a personal residence if it is separate from the domestic kitchen used by the family. Before developing a home-based commercial kitchen, there are a number of issues to consider, including cost/benefit of creating such a kitchen, zoning bylaws, permits, and the impact to the neighbourhood.
In addition, there are limitations regarding:
- The types of foods and beverages that can be produced in home-based kitchens for commercial sale, based on food safety risk
- Where products produced in home-based kitchens can be sold
PRODUCTION SITE LOCATION
When deciding on a production location there are many factors to be considered such as rental cost, leasing arrangements, customer location, labour force availability, raw material accessibility and trucking access.
To guide the search for an optimal location, a facility space plan should be developed. This plan outlines the space (e.g. kitchen’s needs) and proximity needs of each of the business’s operational areas. Looking at the surrounding businesses will often give a good indication if the area is appropriately zoned for a new business. Check with the city hall or town administrator to determine the zoning bylaws for a business location, as each city and rural area in Manitoba have their own unique set of regulations.
The environmental effects of food processing operations are among the many concerns facing food processors. All development with any amount of environmental impact is subject to a site-specific assessment and approval under Manitoba’s Environment Act prior to construction or operation.