Why does Maryland Packaging sometimes say no?
Maryland Packaging is a co-packer and a co-manufacturer that offers services, not products. Maryland Packaging often receives inquiries from large (fortune 100 companies), small incubators and some accelerator companies, many of which request credit and or financial terms.
A co-packer may have upwards of 200 clients and runs 5 or more production lines 2 shifts a day.
A co-packer builds no equity in a product that belongs to a client. We just provide a service relationship.
A Co-Packer funds its own operation which includes paying rent or mortgage payments at the beginning of the month, salaries and payroll every two weeks, insurance, utilities, real estate tax, property tax, environmental testing, uniforms, chemicals, equipment upgrades, spare parts on equipment, service contracts, leases for equipment, building maintenance, audits( GFSI, Kosher, Organic, Halal, Non GMO verified), creates HACCP and or HARPC planes, SSOP’S, GMP’S, SOP’S, Regulatory requirements, conduct internal gap audits, third party audits, supplemental client audits) employee benefits, bonuses (if they have a good quarter), legal fees, advertisement, marketing, bad debit, cost of on-boarding a new client and many many other expenses that are not including in this document. Many of these expenses are prepaid or due upon receipt.
A client requests Maryland Packaging services to help solve a problem, whether it is growth or cost reduction through higher speeds, R&D, food safety, packaging solutions, logistical advantage, growth of brand, launching a new item, creation of a product from scratch and usually because they had a bad experience with another co-packer or their co-packer WENT OUT OF BUSINESS .
Clients seek co-packers and or Maryland Packaging in hopes of building their Brand, generating profits and growth and eventually owning a CPG or a company worth millions.
Clients often ask Maryland Packaging to have shared risk and extended credit. I usually ask the clients or prospective client the following questions:
1. Why would we share a client’s risk?
2. Why would we fund the growth of a client’s brand?
A) Maryland Packaging does not ask its clients or potential clients to share its $20,000,000 to $30,000,000 investment, Maryland Packaging does not ask its clients or prospective clients to share the risk when they have a quarter with a million dollar loss nor does Maryland Packaging ask anyone to share the risk when a line breaks down and Management and employees have to work 100 plus hours a week to make up for that loss of time to meet client’s needs
B) When a client’s brand grows and becomes a $200,000,000, $300,000,000 or a Billion dollar brand in a few of years, such as (SUJA), the co-packer gets no equity in that brand even though in many cases the co-packer was the vehicle that created that value to the brand. Co-packers would probably be lucky if they even get a thank you note.
Clients expect Maryland Packaging to fund its own operation as well as fund the client’s brand through extended credit terms. In many ways when a co-packer is asked to extend credit to a brand ownership, they are not only funding the brand but also the operation of that client that owns that brand. In many cases we are asked to extend credit to multibillion dollar PUBLIC corporations, these are the same corporations that collect money from their own clients before they hand them the bag with the product that we would have funded. In many ways we are really asked to fund the brand and the company’s operation that owns the brand and the consumer that purchased the brand. Here is why we say that.
Maryland Packaging sells a turnkey product to Corporation A with 90 days terms.
Maryland Packaging has to pay for the raw materials, packaging materials, labor to create the product and transportation before the product is even shipped to corporation A.
Maryland Packaging financed the product.
Corporation A receives the products and sells it to its consumer and collects money on the spot and uses that money to fund its operation.
Maryland Packaging is now financing Corporation A’s operation.
Consumer consumes the product, digests it and goes and buys more.
Maryland Packaging has also financed Corporation A’s consumer, since the consumer prepaid for the product before he consumed it.
All this occurs within a week or two while Maryland Packaging is financing more product to replace what was already consumed.
Then in 90 days Maryland Packaging would get a check for what it has already paid for 210 days earlier.
HARDLY SHARING ANY RISK FROM THE CLIENTS SIDE.
All this occurs on the co-packers finance, while the brand is building value for the brand ownership and its investors but not the co-packer that actually created and financed the brand.
I am not sure how that makes any sense to anyone sitting on either sides of the table.
Imagine if Maryland Packaging has $20,000,000 in sales or receivables and imagine if we have to fund everyone for 60, 90 or 120 days. It is unreasonable to ask Maryland Packaging and or any other Co-Packer to fund its client’s products, the client’s operation and Maryland Packaging’s own services that it already provided by manufacturing the product.
Co-Packers often go broke because they can’t meet their financial obligations, they can’t meet those obligations because they are way over extended. They are over extended because they are funding their clients.
I have learned a few things in my business life.
1. We cannot make chicken salad out of chicken waste.
2. I would much rather go broke staying home watching TV, than going broke working 20 hour days.
3. We cannot pay our associates and our vendors with patience, they prefer cash.
4. If I need a loan, I do not ask the poor homeless man living underneath the bridge, I usually go to the bank.
A long time ago Maryland Packaging made an agreement with the Banks, (we do not lend money and they do not co-package food products.
The point I am trying to make is very simple, if a client needs to have credit they need to raise money through the traditional venue, banking, angel investors, round A or round B funding, borrow against their receivables.
In today’s vigorous environmental and food safety requirements, many co-packers are getting out of the business. This industry is about to be shaken with consolidation and a major resetting. Co-Packers are the gate keepers for building wealth for many industries, we hope that our clients go out of their way to keep us healthy so we can continue to be there for them, so they can grow their businesses.
AND THAT IS WHY MARYLAND PACKAGING SOMETIMES SAYS NO.