Topics Covered In This Article…
Supply Chain: “The sequence or system of organizations or operations that work together to design, produce, and deliver a product or service to a market, extending from the extraction of raw materials to the distribution of finished products or services.”
Hemp Manufacturing Supply Chain
Welcome to our on the article on the hemp manufacturing supply chain. This article is brought to you by Spring Creek Labs, a U.S. Based CBD Manufacturer and Private Label CBD Product Fulfillment Company.
The hemp industry is so new that it’s become nearly impossible for most retailers and manufacturers to develop a great supply chain before massive demand hits.
Look up “hemp manufacturing supply chain” on Google. The one word you’ll see most often connected with it is “reliable.”
Too many CBD manufacturers and other businesses attempting to grow a hemp-based business find themselves struggling to get a consistent supply of product, the right quality, and then to move it to the retailers.
Retailers have been inundated with fly-by-night companies that have a supply for a few weeks, but as soon as the retailer creates demand, the supply dries up. Many hemp growers have increased production to meet demand, only to find that they have more product than their manufacturers can handle, simply because the entire supply chain has gotten bound up.
The Traditional Hemp Manufacturing Supply Chain
With most products, the traditional supply chain is simply. It goes:
Producer -> Manufacturer -> Wholesaler -> National distributor -> Regional Distributor -> Retailer -> Customer
The hemp supply chain is different. It’s a lot more complex. Each partner in the supply chain has relationships with everyone else. The customer often even has access to the manufacturer and the producer. This can short-circuit the entire chain. But, it also forges strong relationships between the players in the supply chain.
This is because everyone is monitoring the supply chain as it moves forward. What’s missing from this process stability/reliability.
The Making of a Hemp Manufacturing Supply Chain
Building your supply chain is a process that is best handled in stages. From beginning to end, it requires a slow, methodical plan to get you from where you’re at now to a supply chain that delivers consistently.
Interestingly, and you’ll see this as we move through these steps, each player in the supply chain needs to take each step, whether it’s the producer, the regional distributor, or the retailer.
1: Identify Demand
The first step is to be clear on the demand. For example, for the producer, the farmer, just planting every acre you have in industrial hemp might not be a great idea. You need to know who’s going to buy your hemp when it’s matured, what kind of hemp they need, and more.
The retailer should consider similar ideas. You don’t want a store full of inventory, and no one is buying. A very in-depth study of supply and demand in your area is the best way to break into the hemp market, whether it’s CBD, hemp oil, or other hemp products.
In the demand vs inventory concept, one needs to consider expiration dates and potency are vital to understand. Not all hemp ingestibles are the same. You need a clear idea of what the end consumer is going to want so you’re creating, distributing, or selling exactly that product.
2: The Right Sources
Everyone in the supply chain has someone they source from. The farmer sources seeds that are the right strain. The distributor needs to source the products that will move in their region. The retailer needs sources that are reliable and will move off the shelves.
There are thousands of companies offering products at different points along the supply chain. Choosing the right one is a challenge, especially for the retailer. There are some considerations for everyone along the chain:
Each stage along the hemp supply chain, each player needs to look at these factors and decide what will work best for their customers and their customers’ customers.
3: Sales Strategy
CBD is still a new product on the market. As most hemp products hit the market, there will need to be a conscious sales strategy.
In the short term, a vital part of everyone’s sales strategy is to educate. Everyone on the supply chain needs to make sure that their partners are fully informed about the products, the effects, and the misconceptions. This education needs to make it to the consumer as a clear and honest message.
In any quality hemp-based business, dispelling myths has been a large part of their efforts.
When looking for partners that will supply you with hemp products, especially CBD, you need ones that will tell the truth. If they’re offering their products as a cure for everything from cancer to sunburn, you probably don’t want them in your supply chain.
Some of the ways you can build a stronger down-line supply chain is to offer them the right information:
4: Sales Strategy
Unless the strategy is to be the lowest priced CBD or hemp products in the area, your pricing should reflect your demographics. The best CBD products can be over $100 per small dispenser bottle. Hemp oil alone can cost over $30 a bottle. And consumers are paying those prices.
As a manufacturer, understand who will ultimately sell your products and who their customers are. If you’re a retailer, a clear understanding of what your market will bear is the key to success.
With hemp products, price is not as big a factor as value. Value is defined as the quality for the money. If the quality is very high, the consumer will pay for it.
Look for hemp-CBD product prices to continue to drop over time. As more producers and manufacturers enter the market, the supply will begin to meet up with demand. Factor this into your pricing.
Setting margins requires an honest look at what your market will handle and how much you can make on a product. For many high-profile brands, the margin is set, but if you’re building a supply chain from scratch, you might be able to set margins, even at the retail level, that better meet your needs.
Hemp Manufacturing Supply Chain Challenges
Now let’s look at the specific challenges that some of the stages of the supply chain might struggle with. This isn’t a comprehensive look at every challenge, but it might bring up a few issues that can be addressed. At every level, there are two major issues: reliability and price/margin.
This entire blog has been about reliability. This has been a massive struggle for hemp suppliers to keep the supply chains up and running.
Margins are an issue in every supply chain. In the hemp supply chain, there is much less pricing/margin stability than in many others. The newness of the market, the entry of new players nearly every day, and an expanding consumer market is changing how pricing and margins are handled.
Farmers struggle with some of the same issues they would with any other crop, but since there is less infrastructure for hemp than for most other crops, it can be a bit more of a struggle.
Other issues, like transportation, harvesting issues, and more, affect farmers. Many of these issues are the same as with any other crop, but the newness of the hemp industry means farmers might struggle to find the tools and knowledge they need.
Hemp Manufacturing Supply Chain & Manufacturers
The biggest issue that manufacturers struggle with is their reputation. The biggest companies in the business have claimed the “high ground” of experience and skill. Creating the right reputation will require that manufacturers work harder to get their message out, share their techniques and skills, and prove their quality control.
Other challenges that will need to be overcome include testing and compliance, the ability to package products in ways that the consumer will purchase, and predicting which strains will meet consumer demand.
Distributors & Shipping in The Hemp Manufacturing Supply Chain
Other than margins and pricing in CBD/hemp mentioned above, distributors and shipping companies will struggle with making sure they have the right products on the shelf and that they move them fast enough to avoid spoiled products.
Meeting the demand may require a number of contacts with various manufacturers that will be able to deliver products to the distributor at the right time.
Retailers in The Hemp Manufacturing Supply Chain
The biggest challenge for the retailer is familiar: finding and meeting consumer demand.
For small retailers, CBD/hemp products in big box stores has changed the way the business is done. While there’s always room for another player in the market, it’s not necessarily going to make it easier if the big chains start competing.
Predicting consumer demand will require lots of market research. Since this a new product with a potentially massive new audience, retailers should consider doing a full market research plan. Executing it will give them a much stronger product and sales line.
“Projections are that CBD sales, just in the U.S., could reach $23.7 billion by 2023, or a 221% increase from 2020 projections.
“That is a pretty big boom for the CBD market.” – Money & Markets
This article in Money & Markets goes on to point out that legalized marijuana may have an impact on the CBD market. Some CBD users may opt for the more powerful THC/CBD blends that are on the market.
Nonetheless, we haven’t even gotten close to the top on the CBD/hemp market. We will begin to see CBD added to many more products and more acceptance of CBD/hemp products.
Hemp Manufacturing & Medical Research
As medical research releases definitive studies of the efficacy of hemp products, we may see surges in demand. Even an announcement that CBD is good for an aging brain, for example, backed by a series of clinical studies, will yield explosions of demand.
The hemp supply chain has to be braced for this. While farmers can’t instantly produce more plants, the rest of the supply chain should build in the agility of growth and contraction with the waves of demand that consumers are likely to provide to this entirely new market/product.
Hemp Manufacturing Supply Chain and CBD
The shortest explanation for best practices in creating a great CBD/hemp supply chain is to make sure you know everyone else in the chain. When forging partnerships, clarify that you would like to know who their customers will be.
Manufacturers can work with consumers via retailers using educational materials, samples, webinars, and more.
If everyone in the supply chain knows everyone else, it will make it less likely that someone will get forgotten, or that struggles in the chain won’t be communicated to everyone else.
Starting with the farmers and going all the way to the retailer, the hemp industry is small enough still that everyone can work together to promote products and increase everyone’s sales.