“We have added a total of 165,000 square feet of manufacturing capacity in our new plant in Reno, Nevada,” Emme told NutraIngredients-USA during a interview at last week’s Natural Products Expo East trade show in Baltimore, MD.
NOW has for many years had a manufacturing and warehouse facility in Bloomingdale, Ill. Recent expansion at that facility necessitated relocating the company’s headquarters to a nearby suburb outside of Chicago. But with increased manufacturing capacity and an expanded lab, the footprint of the Bloomingdale plant has reached its maxiumum size, he said.
“In Reno we have added supplement manufacturing expertise that we didn’t have in-house in the past, such as softgels. The Reno plant is closer to distribution points and is a good place from which to ship to Asia and the Middle East,” Emme said.
Supply chain transparency
Emme said NOW Foods has long had an emphasis on controlling the supply chains for the ingredients for its hundreds of supplement SKUs. Even those supplements that were made by contract manufacturers were made with ingredients supplied by NOW, he said.
“We would always buy the ingredients and control that end of the process,” Emme said.
But Emme said the increasing sophistication of the modern consumer means traceability in supply may no longer be enough. Consumers are starting to warm to the idea that more vertical integration may mean higher quality. For example, in a recent TV ad, a natural pet food manufacturer was highlighting the fact that its pet food products are made “100% in our own US-based plant.” If consumers of pet foods care about where products are made, what does that say about the corresponding level of concern among supplement consumers?
“As our volumes increased we thought there was a point were it was time to gain more control of the manufacturing process. The average consumer is becoming more educated than ever and is demanding higher quality and that is a good thing for all of us,” Emme said.
Cost of capital
Emme said that NOW wanted especially to make the investments in the Bloomingdale and Reno plants during a time when capital has been especially cheap. Since the financial crisis in the US in late 2008, the Federal Reserve has held base interest rates at historic lows. With the aim of fostering economic recovery, the Fed has held the interbank lending rate at less than 1% for years now. Those low rates are unlikely to last, and Emme said that companies that don’t have higher rates dialed into their long-range supply and inventory planning may be in for an unpleasant surprise.
“At some point the costs of inventory and just the carrying costs of day-to-day operations are going to go up. I think that’s on the horizon and the days of cheap capital will be over,” Emme said. “I’m more influenced by my own experiences. I came into the food industry during a period of double-digit inflation. We had to be extremely sensitive to the costs of ingredients and of packaging.
“Higher rates may fundamentally change the ingredient supply model, especially as it relates to the role of brokers. The way you deal with fluctuating costs is with long term contracts directly with suppliers. A lot of people will do aggressive payment schedules, paying earlier to get a lower price.
“Those partnerships are key. The linchpin is assured quality. A supplier has to be offering an ingredient of the best quality in order to justify extraordinary procurement efforts,” he said.