Outsourcing the production of your packaged item (food, beverage, beauty, personal care, etc.) to a co-packer / contract manufacturer is not for everyone and the pros and cons must be evaluated very carefully.
A co-packer enables you to:
- focus on your core business
- reduce the need for capital investments in equipment and facilities
- better deal with volume peaks and uneven demand.
A co-packer may be challenging because:
- it isn’t necessarily cheaper than producing inhouse. Co-packers are offering a service and must recover direct and indirect costs and want to make a profit.
- working with a co-packer means you will lose control to a certain degree over your products and how they are manufactured
- it has some limitations when it comes to equipment, facility and labor. You are also dependent on the co-packer’s schedule, processes and capacity.
Before you start searching for a co-packer, you need to ask yourself what the drivers are to outsource and whether your business is ready for a co-packer. Once you have decided a co-packer is right for you, there are a few things you can do to successfully partner with a co-packer.
Partnering with a co-packer is a critical and strategic business decision. And as such, it shouldn’t be rushed or concluded lightly. Having a thorough understanding of your product and your production processes is crucial. This foundation makes it easier to evaluate and select a co-packer that will help take your business to the next level.
If you decide to outsource, consider the following ways to ensure you are set up for a successful partnership:
Values and cultural fit
The right co-packer is not just a service provider, but a strategic partner for your business. The goal should be to grow together and form a long-term relationship.
Look for a co-packer that is passionate, engaged, committed, and transparent. A good match of personalities between your and the co-packer’s key staff helps ensure a successful relationship.
Trust is essential to a successful outsourcing relationship. Ideally, trust-building should begin before the agreement is signed. During the evaluation process, meet with the key members of the co-packer and visit their facility. You and the co-packer need to be confident that both parties are ready to work collaboratively on solving problems when they arise.
Always research a co-packer’s reputation and history. Ask for references and talk to your industry contacts. Check what other products the co-packer is producing, how the products present on a shelf, and whether the products meet your own standard.
Competence and offered services
Make sure that the co-packer meets your requirements in terms of expertise, facility, equipment, resources, flexibility, and services. Ask yourself:
- Has the co-packer serviced other clients with similar product lines and packaging needs as yours?
- Have you discussed the seasonality and peak season of their other clients and how far in advance you need to lock in the production schedule? This will give you an indication about possible capacity constraints and flexibility of the co-packer.
- Does the co-packer want a guaranteed volume? What is the required minimum run? Can I meet those?
The co-packer should be of comparable size to your company, ideally a little bit bigger. If the co-packer is too big, you will be a small fish for them and not be given priority during peak season and capacity constraints. If the co-packer is too small, you will make up a substantial portion of their business and you might not be able to benefit from synergies and learning from other clients. You want to find a partner that wants to grow with you and that allows you to scale your business.
Safety and quality programs
Ensure that quality and safety is the number one priority of the co-packer. Only work with a co-packer that has a quality program in place, undertakes quality inspections, and gets their facility audited on a regular basis. Check what employee safety procedures and policies they have implemented.
Confirm that the co-packer has all the certifications that are required for your products and your customers (i.e. GFSI, HACCP, BRC, AIB etc.). It is important to verify that the co-packer can provide the certificates you need; for example, organic, gluten-free, non-GMO, vegan, halal, or kosher. Inquire about what allergens are handled in the facility.
Do your products need to be temperature controlled? How does the co-packer apply and manage best before dates, lot codes, and traceability? Talk to the co-packer about their recall management program and who would be responsible for conducting a potential recall.
Ideally, a co-packer should be relatively close. Having the co-packer far away can create logistical challenges and additional costs with transportation and warehousing. Having the co-packer close by makes it easier for you to visit the facility for inspections and other meetings. It can help build trust and improve transparency. However, working with the right co-packer in a farther away location can easily outweigh potential transportation cost savings.
The co-packer should be located near big transit hubs and ideally in the region of your main customers.
Managing expectations (on both sides) is often the most challenging aspect of working with a co-packer. Always remember that the co-packer is likely managing multiple clients, and quite often clients with the same cycles and seasonality. The main goal of a co-packer is to maximize the utilization of their lines in the most profitable way possible, which is not your goal! So communicating well to work through any challenges is important.
Go prepared into the first meetings with the co-packer and know your products details, like:
- lead time
- packaging requirements
- production process
- special product requirements
- other critical needs
It helps if you are as transparent and realistic as possible with your demand forecasts and share production volume expectations, seasonality, your current stage of business, and future growth plans.
It is always recommended to have a comprehensive co-packer agreement in place that defines the specific terms and conditions, obligations, and requirements for both parties. The agreement should also specify the agreed services and service levels.
Following the above considerations will help you to successfully select and partner with a co-packer.
Rene Jacquat is the founder of LogiChain Solutions, LLC, based in San Francisco. He provides comprehensive support and solutions to food & beverage companies to scale operations and optimize supply chain while considering sustainable practices throughout all elements of the value chain.