Manufacturing growth in Colorado will pivot on the supply chain, and prospects are mixed

By Bart Taylor | Mar 23, 2015

Aerospace & Electronics Bioscience & Medical Consumer & Lifestyle Food & Beverage Industrial & Equipment

Two weeks ago, the Denver Business Journal reported Gold Star Sausage Company was moving manufacturing operations to Nebraska to be "closer to its suppliers," as president Rick Rue described it. For the DBJ, the news was a real estate story, understandable given the high anxiety around Denver's commercial sector. Today there's probably more interest in the resale value of Gold Star's building than interest in why a manufacturer would transform its supply chain. At least for the DBJ.

We'll speculate though and guess that for a sausage and hot dog maker, much is to be gained from moving manufacturing operations closer to its source of raw materials. For Gold Star that probably means the farms and ag operations in the midwest providing beef and pork. It's a good bet that Gold's volume business will be well-served by reducing what must be substantial shipping and handling fees required to move perishable materials from there to here. In short, it's about supply chain efficiency.

Gold Star is a good example of how much manufacturing growth in Colorado will pivot on supply chain development. And here, some sectors are better served than others. It's why manufacturing is developing unevenly across industries and why the economy will be well-served by efforts to shore up resources that will drive Colorado's unique mix of manufacturing businesses.

Colorado agriculture is generally a good partner to food and beverage manufacturers here, if not ideal, apparently, for a company like Gold Star. Colorado's the 10th largest cattle producer among U.S. states, its top ag product, followed by dairy products and corn. Nebraska ranks in the top ten for both hog and cattle production.

Colorado's no stranger to the national ‘top ten' list in ag commodities. If you're a manufacturer utilizing any of the following raw materials supply is generally not an issue:

But is Colorado ag aligned with trends shaping the new food and beverage manufacturing opportunity?

Yes, if you're one of the state's innovative food makers utilizing organic millet, lamb, beef and barley. The supply of naturally raised meat is growing with increased demand. And while Colorado peach and apple growers can't match the volume of states with longer seasons, Western Slope farmers are providing a steady stream of fruit to small and mid-sized makers, including craft brewers who prize local produce that's consistent with the brand-related objectives of the sector.

But Colorado's natural and organic food manufacturing sector is nationally renowned and as companies continue to relocate or launch here to be part of the scene, many will source elsewhere for the products necessary to drive volume businesses. The reality is that a short growing season and extreme weather limit availability. Hops, grapes, peppers, tomatoes -- natural and organic ingredients of many types and flavor -- often must be sourced elsewhere. It means that companies in the state's hot food and beverage sector must be, like Gold Star, adept at managing the supply chain.

With companies seeking more integrated operations this can be a challenge. This week’s profile of Utah’s Black Diamond, and Colorado’s global powerhouse Woodward, provide examples of how companies are seeking supply chain efficiencies by locating research and development, manufacturing, testing and shipping under one roof - or as much of the ‘value chain’ as possible.

Clearly not every business or sector will be able to fully ‘vertically integrate’ operations. Woodward relies on precision foundries in the midwest, an expertise developed over generations that will never be replicated here. But it can manage its supply of talent and deploy technology in support of global operations, with supply chain partners adept at providing those resources.

Colorado and other states pursuing manufacturing opportunity will do well to help align supply chain resources with unique manufacturing opportunities.

We’ll look at how supply chain issues are transforming other sectors in future editions.