Why Outsource and What to Look For When You Do

Why use contract manufacturing

Peter Drucker said "do what you do best and outsource the rest"Companies choose to utilize contract manufacturers for a variety of reasons.  Utilizing a contract manufacturer often reduces the need for a company to spend money for incremental facilities or equipment.  This frees up cash to be spent in other areas such as product development or marketing.  Similarly, many companies desire to capture all the benefits of focusing their efforts on their own core competencies by turning certain operational work over to the expertise of a contract manufacturer.  Peter Drucker said to “do what you do best and outsource the rest.”

In regards to new products, contract manufacturers are generally able to assist in getting them to market faster than when a company chooses to do everything internally.  In this instance there is also the advantage of risk reduction – if the product fails in the marketplace its production can be more easily shut down if it is manufactured externally.  For current products, unforeseen demand spikes can oftentimes be absorbed more quickly by a contract manufacturer.

Additionally, contract manufacturers are increasingly being utilized to reduce allergen concerns – companies either outsource production of their allergen items while maintaining production of their non-allergen items or they execute this in the reverse.  Freight costs are another variable that comes into the outsourcing decision – sometimes a company has certain customers that are far away from their facilities so they engage a contract manufacturer to cover production for that territory, region, or even country.  Lastly, when a contract manufacturer offers turnkey delivery, they take over the responsibility and hassle of raw material and packaging procurement for their customers.  And these are just some of the reasons why contract manufacturers are increasingly being valued and utilized.

Questions to ask when searching for the best contract manufacturing fit for you

You need to be able to trust your contract manufacturerDo you trust them?  Transparency is very important but even when it exists it only takes you so far.  The bottom line is “are you completely confident you can trust your contract manufacturer to deliver on their promises and have your best interests at heart even when the chips are down?”  In addition, can you trust that your intellectual property, formulations, and business in general are not at risk due to the knowledge the firm will gain about your business?

Does the firm have exceptional quality procedures and 3rd party certifications?  Do they have a dedicated quality team and a documented quality system they follow through each stage of the process (purchasing, receiving, raw materials storage, allergen handling, production, testing, finished goods storage, shipping, etc.)?  Are they prepared for new FSMA requirements that will impact them and you?  Will they allow you to visit unannounced?

Does the contract manufacturer’s equipment have all of the necessary features in place to ensure your finished product will meet or exceed your required specifications?

Does the firm have more than enough available capacity to take on your business without delays?

Do they have a range of manufacturing capabilities that provides a menu offering and ability to meet more than just one of your needs?

As you discuss your plans for future growth, does the firm indicate a willingness to add the necessary capabilities to support your growth?

It is important for a contract manufacturer to train personnel in dept to solve customer problemsDoes the firm have a competent and tenured staff in all key functions (office, supervisors, production, engineers, maintenance, etc.) with proven training programs in place?

Can the firm demonstrate an exceptional track record in key performance criteria such as safety, on-time delivery, on-spec delivery, quality measures, product loss, etc.?

Can the firm demonstrate adequate ongoing reporting capability for areas such as inventory and performance criteria that will meet your needs in terms of accuracy and timing?

Does the firm have an organizational vision and mission?  Do they know where they want to be in 5 or 10 years and does that align with where you will need them to be?

Is their pricing value based?  Value will be found when a contract manufacturer provides the exact solution to your needs (not more, not less) and then charges a fair price for it.

Do they have a customer complaint system that demonstrates complaints are taken seriously with responses that are provided quickly and include both corrective and preventative actions?

Are plans in place to handle emergencies that threaten on-time or on-spec delivery?  Issues can include the extreme such as natural disasters or the everyday such as raw material shortages or product testing delays.

Does the firm have extra services that are important to you such as turnkey delivery, product development resources including equipment and experienced personnel, in-house product testing capability, warehousing for extended periods of time, direct shipment to customers, etc.?

If the contract manufacturer has a single owner, is there a succession plan firmly in place?

Is upper management accessible to you if needed?

Can the firm supply customer references that are respectable and provide reassurance of their ability to meet or exceed your expectations?

List the important requirements up front

I suggest companies develop a document containing qualities, features, and characteristics that are important for the contract manufacturer(s) they work with to possess.  Depending on the current need, this list may need to be altered slightly for each search, but it will provide a foundation.  The list should be segmented between must-have requirements and nice-to-have differentiating requirements.  Once the list is prepared it can be sent out to contract manufacturers you believe have the potential to fill your need.  The responses will help narrow the field down to the primary candidates you want to consider and that you are willing to allocate your resources to for assessment.  Now you are ready to move out!

Chris Bekermeier

Vice President, Marketing and Legal Affairs

Chris’ experience with Scott Paper and ConAgra has allowed him to sell and manage leading brands such as Scottissue®, Viva® Towels, Healthy Choice® and Butterball®. He received his B.S. in business management from Eastern Illinois University and his M.B.A. from the University of Chicago. Chris currently leads marketing efforts to grow PacMoore’s food contract manufacturing business in the areas of dry blending, spray drying, extrusion, re-packaging, and consumer packaging.

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