The Challenge

COVID-related increases in freight, labor and overhead drove a significant increase in the cost of a key ingredient used in one of the company's most important national retail products.

Passing the increase through to retailers wasn't practical. The company absorbed the higher manufacturing cost, putting pressure on margins and cash flow. At the same time, the relationship with the primary CMO became strained and the account was eventually placed on credit hold.

The company now faced both a margin problem and a continuity-of-supply problem.

What We Found

A second CMO was already being qualified to reduce dependence on a single source. That addressed the immediate supply risk but not the underlying cost problem because both manufacturers faced essentially the same high ingredient costs.

Working with the backup CMO, we evaluated several alternatives in parallel, including alternative ingredient sources, different blending options and changes to the formulation.

Reformulation ultimately offered the greatest opportunity to reduce cost while maintaining product quality and continuity of supply.

What We Did

Working with the CMO's technical team, we progressively reduced usage of the high-cost ingredient from approximately 30% to 20%, and ultimately to 5%.

Each formulation change was independently evaluated and went through its own stability and validation process, including three production validation batches, before commercial implementation.

Packaging changes, inventory and production were managed in parallel so the transition wouldn't interrupt supply. The phased approach allowed us to reduce cost progressively while managing quality, regulatory and supply risks.

The Result

Finished-product cost decreased from a peak of $3.26 to $2.39 per unit, a 26.7% reduction, with the savings attributable to the reformulation.

The product remained continuously available throughout the transition, even when inventory at one point fell to approximately two weeks of supply.

Consumer response remained positive, with subsequent feedback indicating that taste and appearance had actually improved.

The new formula and cost structure also strengthened negotiations with the former primary CMO. Both manufacturers ultimately remained qualified sources, allowing production volume to be allocated based on cost, service and performance.

What began as a margin and supply crisis ultimately produced a lower-cost product, uninterrupted supply and a stronger dual-source manufacturing strategy.