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Fast growth is an inventory problem
David Protein is two years old and running at over $400 million a year, with about $300 million in sales this year across protein bars, frozen products, ready-to-drink, and a confection in three formats. Another brand launches in November. That is roughly ten years of normal growth in two.
Growth of 300% or 400% a year, or a doubling every six months, is demanding on the supply chain. The dairy market was super tight at one point. The business is not digital at all, so matching supply and demand has been very difficult, and the company has run out of stock constantly.
The frozen cod campaign ran while some products were out of stock, but the two had nothing to do with each other.
Why does fast growth consume so much cash?
A growing company pays for ingredients, packaging, and production before its customers pay for the product, so each extra sale first requires spending. The gap between paying suppliers and collecting from customers is measured by the cash conversion cycle. Faster growth makes the sums in that gap larger. Companies commonly bridge it with credit lines or new investment.
Why can't dairy supply expand quickly?
A dairy heifer typically has her first calf at about two years old, so adding cows takes years rather than months. Milk output depends on the herd, feed, and weather, none of which can be switched on at will. Whey protein is a byproduct of cheese making, which ties its supply to cheese production.
Why do demand swings grow up the chain?
Researchers Hau Lee, V. Padmanabhan, and Seungjin Whang described this in 1997 as the bullwhip effect, after studying how orders for diapers varied more at each step upstream from the store. Each link in the chain adds safety stock and reacts to the order it sees, which exaggerates the swing. A modest change in shoppers' demand can therefore show up as large swings in raw-material orders.
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