Every week, we will seek out expert advice to help a small or medium-sized company overcome a key issue it is facing in its business.
Every time Dr. Oz touts hemp on TV, Mike Fata panics a little.
The co-founder and chief executive officer of Winnipeg-based Manitoba Harvest Hemp Foods knows the U.S. TV talk show host’s very mention of hemp will send demand for his company’s hemp-based food products through the roof.
Of course, Mr. Fata loves the plugs for hemp. But he never knows when they are coming, and Manitoba Harvest sometimes simply can’t fill all the orders that follow the attention.
“We inevitably miss some new opportunities,” said Mr. Fata, whose 60-employee company, which made revenues of $20-million last year, has grown into one of the world’s largest hemp-food manufacturers.
By Mr. Fata’s count, Dr. Oz has talked up hemp 10 times in the last 18 months. He’s not the only one: Oprah and Martha Stewart are among other celebrities that have given hemp their endorsements.
When that happens, demand can immediately double for the company's products, such as hemp milk and butter, which are sold online and in 5,000 health-food and grocery stores across North America.
That can be tough to handle. Mr. Fata’s hemp supply is dictated by how much is grown. He works with about 60 farmers, giving them seed and buying whatever they grow. His company takes about half of the hemp on the Canadian market; the rest is purchased by smaller companies that also buy directly from farmers. It’s only if and when some of them renege on commitments that more hemp might become available; there’s no way to know whether, or when, that will happen.
He also can’t just produce more products and hope they sell; some foods go bad after eight months, he said.
“It’s impossible for supply to instantly meet demand when so many more people want our products,” Mr. Fata said. “There’s an amount of scale-up time.”
The Challenge: How can Manitoba Harvest better prepare for unexpected spikes in demand?
THE EXPERTS WEIGH IN
Jerome Ferber, board member of the Purchasing Management Association of Canada, Calgary.
The first thing they need to do is figure out when these shows are going to mention hemp. It may not be easy, but they should consider hiring a marketing person who can figure out when and where these spots typically air. See if there’s a trend. If hemp is often mentioned in a specific month, then maybe they can start ramping up production in the months prior. Just call Dr. Oz’s show and ask what’s going on the air.
They also need to see if carrying extra inventory is worth it. What’s the cost of having extra supply [that could go bad]versus the cost of lost sales if they can’t fill demand? Maybe if they make sure they carry additional inventory all the time, even if it’s not used, it’ll be more cost-effective than not filling orders.
Robert Tousignant, Canadian supply chain leader at Ernst & Young, Montreal
Consider partnering with another manufacturer. You have a main facility that you own and produce the bulk of the goods, but when you get a peak, you have a place to access alternate capacity. It may be more expensive to get someone else to produce those goods during a spike, but if you need to supply a key customer, you don’t want to run out. Even if you chew into your profits in the short-term, at least you maintain customer satisfaction.
Also, customers are not created equal. Most organizations will segment their customer base into online versus retail. As a consumer, when I go to a retailer, I expect to find the goods right there on the shelf. If I buy online, I expect delays from when I want the goods to when I get the goods. They should prioritize retail customers and let online buyers wait a little longer.
Tim Kimber, CEO of Plasmart Inc., Ottawa
We recently hired a supply-chain specialist to help with our demand and supply balance. This is all they do. They look at historical demand, changes in market conditions and then plug in future demand. The person can also help determine lead time, or how quickly they can get new supply.
They may also want look farther afield for supply channels. China, for instance, is one of the world’s largest hemp producers. It could cost more to ship something from overseas — it costs us more to shorten the lead time and get something here faster — but it could be worth it. With the way the hemp business is growing, demand will continue to rise. So it could be a good idea to look outside of Canada for supply anyway.
Three things the company can do now:
Hire a marketing manager who can track the mentions of hemp. If a pattern appears, the business will have a better idea of when products will be in greater demand.
Partner with another manufacturer
Connect with another manufacturer from whom to buy additional product when needed. It may be more expensive but at least demand will be filled.
Online customers are used to waiting for products; retail buyers want their goods now.
Special to The Globe and Mail
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