For startup food, beauty, and natural product companies that are interested in outsourcing their manufacturing, choosing the best partner is a critical decision that can impact their long-term success.
Outsourced manufacturing — often referred to as co-packing, co-manufacturing, or contract manufacturing — can provide compelling benefits for companies, such as:
- Scaling up production quickly to reach the market faster
- Eliminating the need to invest in production equipment
- Offering expertise in refining recipes at higher volumes
- Providing regulatory experience and guidance (and shouldering many of these food safety requirements)
- Reducing costs by purchasing ingredients in higher quantities
But maximizing these benefits depends on collaborating with the best co-packing partner for your company and its needs. Making that choice, in turn, depends on understanding your options, asking the right questions, and enlisting expertise to evaluate the agreement with your co-packing partner.
Understand Your Goals
An important early step in choosing a co-packing company is understanding why you’re interested in doing so. Are you looking for a short-term arrangement to get your product into the marketplace while you build your own manufacturing capacity? Are you interested in testing a product? Do you see outsourced manufacturing as an important part of your strategy going forward?
Thinking about your goals for working with a co-packer will help you ask better questions as you begin talking with potential partners and exploring their capabilities.
Identify Co-Packers that Align with Your Values
The next step in your process will be identifying co-packing companies that may be suitable partners. If your brand is about sustainability, quality, vegan, or a similar characteristic, dealing with companies that share those same goals and values will save you time and headaches in the future. A co-packer that cuts corners, for example, can damage your brand reputation with substandard products or if unsuitable business practices come to light.
The most effective arrangements go beyond manufacturing to include true collaboration, so you want to look for potential partners that will uphold your standards for quality, ethical performance, and other factors that may be important to you. Visiting with co-packers at trade shows or similar events, networking with industry peers, or reviewing third-party sites (like partnerslate.com for food and beverage) can provide valuable insights into a company’s experience and capabilities, as well as how easy they may be to work with.
Most co-packing arrangements are confidential, but industry peers and suppliers may be able to discuss co-packers and their reputations, or share their experiences informally.
Before you begin evaluating co-packers, it’s important to understand the criteria you’ll use to make your choice. Some important considerations include their:
- Experience in your sector. Are they familiar with products similar to yours? Do they have the required certifications for your industry?
- Ingredient sourcing. Are you expected to provide all the ingredients or raw materials, or can you save money by sharing portions of larger purchases with other clients?
- Minimum order requirements. If a company will only make a large quantity of your product, you’ll need to be confident you can distribute those items before their expiration date.
- Cost structure. Along with production costs, will you be expected to pay a set-up fee? To pay for storage of ingredients, packaging or finished product? A company with seemingly low costs may have hidden fees that dilute or eliminate apparent savings.
- Required lead times for production or product changes. If you need to ramp up for the holiday season, for instance, when do you need to make that commitment?
- Reporting capabilities and practices. Your relationship with a co-packer should be collaborative, and you should be consulted (or at least informed) if, for instance, the co-packer changes an ingredient or manufacturing process that affects the taste or performance of your product.
Understand the Contract
Another critical consideration is understanding the contract you’ll have with the co-packer before you sign it. In addition to the minimum order and cost provisions, you’ll want to understand liability issues such as protecting your intellectual property, and how they’ll handle any product recalls.
It’s also important to understand how the co-packer maintains the traceability of ingredients in its facility in case there’s a recall or other production issue. Some co-packers use dedicated software that lets companies monitor production, while others trace ingredients with paper invoices and spreadsheets. You’ll need to understand the potential co-packer’s reporting system and evaluate your confidence in the accuracy of its numbers.
Because your contract is so important, it’s critical to enlist your own professional counsel (that’s well-versed in contract manufacturing agreements) to review the document so you understand its provisions and any contingencies. So many factors can influence the ultimate success of a co-packing arrangement that it’s important to understand the potential risks as well as the benefits before you make a decision.
Armed with this understanding, you can leverage a co-packer’s expertise to expand your product successfully beyond small-scale production in your house or a test kitchen into the broader marketplace.
For more information on how to prepare, watch our on-demand webinar, Avoid a Co-Packing Disaster: Tips, Advice, and Questions to Ask Before Outsourcing or download our checklist for questions to ask during your evaluation.