Recently I was on a call with the president of a co-manufacturer. Long-time operator, candid, runs a specialized plant making products for food brands. The company has been flat, and relatively small, for years. He buys about 250 ingredients a year. He has exactly one person in procurement, and by his own description, she would run more bids if he let her. He doesn’t let her.
I asked him a question I ask a lot of manufacturers: does it ever make sense to check market pricing on an ingredient, even if you have no intention of switching suppliers? Just to know whether the market moved.
“No. It sucks up time. For what?”
I was curious. Suppose you learned today that you were overpaying by 15 to 20 percent on one of your top ten ingredients. Not to switch. Just to negotiate with the supplier you already have.
“No.” Then the sentence I haven’t stopped thinking about:
“It’s irrelevant. I’m not the one paying.”
His customers pay for the ingredients (this is called turnkey). Increases pass through. So in his math, checking the market is pure cost. An ingredient might be 2 percent of a recipe. Even a meaningful overpay on that, he argued, “comes back to zero net value” once you count the hours it takes to find it. His customers complain about price, he told me, “but that’s not the mover.”
He is not a villain, and he is not rare. I’ve heard the same worldview from other co-manufacturers across hundreds of calls. Most dress it up. He skipped the dressing.
To be clear: this is not most co-manufacturers, and it is nowhere near all of them. Some of the most disciplined sourcing operations I’ve ever seen sit inside contract manufacturers, and a few of them show up later in this piece. Plenty of co-mans treat their customers’ ingredient costs with more care than the customers themselves do. But the worldview is real, it is more common than anyone says out loud, and from the outside the two kinds of co-man look identical. The rest of this piece is about telling them apart, and about the work both sides of the relationship should be doing regardless.
The part he gets right
Let me steelman him first, because the strongest version of his argument is one every brand CEO should understand.
Switching ingredient suppliers in food is expensive. Butter is not butter. Two suppliers can hand you identical spec sheets and identical GFSI certifications and still ship you different ingredients: different flavor, different functionality, different behavior on the line. Requalifying a single ingredient can run mid five figures by the time you count trials, documentation, and customer approvals. And customers often lock the formula. Organic, gluten-free, kosher, retailer specs. In plenty of cases the brand dictates the supplier outright. Beyond all of that, not all suppliers are reliable.
All true. The best procurement teams I know would agree with every word.
Where he goes wrong is the leap: because switching is expensive, knowing is worthless.
Knowing is not switching
One contract manufacturer we work with has north of $150 million in annual spend. They take essentially all of it to market every year. Well over a thousand items, bid annually. Not because they switch every year. They mostly don’t. They do it to know: what capabilities changed, what terms moved, where pricing went. When they sit across from a supplier, or from a customer asking about cost, they are never guessing.
A buyer at a supplement contract manufacturer put the same mindset in one line while we were talking about citric acid: “I want to get pricing from everyone who carries it. And there may be more that I don’t even know about.”
A contract bakery we work with watched wheat trend down while a flour supplier argued for an increase on renewal, and walked into that negotiation carrying the market data. It was the same supplier; they didn’t have to switch. The conversation just went differently.
The numbers here are not pennies. When manufacturers take spend back to market, categories that have been bid recently typically return 3 to 5%. Categories nobody has touched in years return more, often 8 to 12%. In an industry where ingredients and packaging run roughly half of revenue, that is the difference between a real margin and a story about one. Pennies on one ingredient, maybe. Across 250 ingredients, on every case shipped, for years, it’s the whole ballgame. And here’s the thing: the pennies aren’t his. They belong to his customers, where they show up as points of gross margin the brand never knew it lost. That gross margin can be used to drive sales and marketing, or profit.
The bet underneath the sentence
“I’m not the one paying” only works as a strategy if you believe one of two things about your customers: they won’t look, or they can’t act.
Both are breaking.
Start with looking. The same president told me, with some irritation, that his customers “are always looking at the market prices,” calling him to say they’d seen an ingredient cheaper, and that his time gets spent explaining why they can’t have that price. Sit with that for a second. His customers already check. His plan is to keep meeting their data with an argument.
They check because the money is real. An executive at a fast-growing supplement brand told me that ingredient cost at her co-manufacturers is “one of the largest levers that we’ve found” for getting finished-goods pricing down. A pet food brand I know runs fully turnkey: the co-mans buy everything and pass it through at cost plus a tolling percentage. When proteins spiked, every increase flowed straight through, plus the markup on top of the increase, and the brand ate all of it. Many brands notice that and start shopping for another co-man.
And the pressure only runs one direction. Most retailers will accept one price increase a year from a brand, if that. So when inputs move and the brand can’t reprice at shelf, the squeeze lands in the middle, on the co-man relationship. The head of another co-manufacturer described his reality to me plainly: constant pricing pressure from customers, and “as prices go up from supplier, it is very difficult for me to increase my price.” That is what the market feels like for manufacturers who compete for their business. A co-man that never built the muscle of managing ingredient cost has nothing to bring to that conversation except someone’s margin. A co-man that can’t manage costs is one that will struggle to grow, or often even stay in business.
I’ve watched how this ends. A head of procurement at another co-manufacturer once told me that when suppliers raise prices, “our customers just pay for it. It doesn’t matter to me at all.” He was out of that job within six months. And the president I opened with acknowledged himself that contract manufacturing has wiped out most of the people who ever tried it, with much of what’s left rolled up by private equity. Holding both beliefs at once, this business destroys almost everyone, and cost doesn’t matter, takes a special kind of confidence.
The math just changed
For decades, the president’s time argument was basically right. Checking market pricing on 250 ingredients meant five suppliers per ingredient, dozens of questions per supplier, all of it over email. Nobody staffed for that, on either side of the relationship. “It sucks up time” was a fact, and indifference was, if not admirable, at least rational.
AI broke that assumption. The cost of knowing what the market charges is collapsing toward zero, and it is collapsing for both sides at once. The brands are getting the same tools the manufacturers are. One side of this relationship writes the check. Guess who has more incentive to look. At Waystation we watch it happen weekly: one customer recently discovered they were overpaying 19 percent on their number one ingredient. Another found 30 percent. Not on obscure items. On the biggest line on the sheet.
The information asymmetry that “they’ll just pay it” depends on is expiring. What a co-manufacturer chooses to do before it fully expires is, increasingly, the whole question.
A healthy relationship includes doing your own work
If you’re a brand running on co-mans, none of this means treating your manufacturer like a suspect. The best co-man relationships I’ve seen are close, long, and honest. What makes them healthy is that both sides do their homework.
Start with one conversation. Ask your co-manufacturer:
- When did you last check market pricing on our ten biggest ingredients, and what did you find?
- When one of our inputs falls, how does that reach my price, and when?
- Who on your team owns ingredient cost for our account?
Any honest answer is a fine starting point. The tell is not the answer, it’s the reaction. The good ones will show you what they know, and some will be visibly glad you finally asked. The other kind will explain why the question itself is a rabbit hole nobody should open.
Then do your own work. Know the market on your ten biggest inputs yourself, even though your co-man buys them, and even if you trust them completely. This is not distrust. It’s the same reason the best manufacturers bid spend they never intend to move: an informed party negotiates faster, renews easier, and spends less time arguing about what things cost. When both sides of the table know the market, price conversations take minutes instead of quarters. When only one side knows, the relationship quietly becomes whatever the informed side wants it to be.
If you’re the other kind of co-man
Some manufacturers will read this and get angry, because they do check. They bid their book on a cadence. They bring decreases to customers before being asked. They treat a customer’s COGS like their own P&L. If that’s you, stop being quiet about it. In a market where plenty of your competitors privately believe price is irrelevant, “here is what we found in the market for you last quarter” is the cheapest differentiation available, and the most durable. Sourcing discipline used to be invisible work. Now it’s why customers pick you, and why they stay.
