Say you want to manufacture something and you've got nowhere to make it. There are a few options to consider, but one that lots of people think is the "easy button" is contract manufacturing.
That's a great solution, but done right, it's not an "easy button" - at least not entirely. Choosing the right contract partner and making the relationship run smoothly takes plenty of work.
A contract manager with decades of experience at one of the world's biggest international CPG companies offers his advice below for how to go about it. He requested anonymity to avoid getting inundated with questions and offers to "help" from both sides of the contract manufacturing world. Let's call him Bob.
"Right up front," Bob says, "you've got to have clarity of need." That means knowing specifically what the product is, what ranges of volumes are needed (both to start with, and into the future), and what time period you want the contract to cover. It's important to gauge the potential contractors' interest level early as well. "Does the contract manufacturer want to do it?" Bob suggests asking right from the start.
Then it's time to dig more deeply. There are three areas Bob identifies where it's crucial to be completely knowledgeable with respect to a contract partner: cost, capacity, and capability.
For cost, it's vital to get a full understanding of the total cost it will take to manufacture your product, plus any services you require (for example, raw material sourcing, lab test and other quality controls, and distribution). "Build a business model that shows the toll rate you can afford," says Bob. That way you can best avoid unpleasant surprises down the road. Be on guard for things that can drive costs way up, such as big product or volume scope changes, special sourcing needs up front, or special handling needs out the door.
With respect to capacity, you'll need to dig into what the vendor has idle time to handle. Unless they have a brand new production system, it will likely have other customers already using part of the system time available. It's important to understand what the manufacturer can make with existing equipment and staffing, and whether they're willing to add people, shifts, or equipment to provide the capacity your product needs now and in the future.
As to capability, this is where a very thorough knowledge of exactly what you want the manufacturer to make is important - and equally important is understanding of the manufacturing process it requires. That way you can thoroughly assess whether the potential partner truly has everything it takes to make your product. Look also for system flexibility to handle scope changes, especially if you're early in your product design work.
Bob suggests an in-depth visit to the production facility too. "Kick the tires," he says. "Bring your quality control people along, and look at other regulatory needs too." These could be anything from safety and environmental safeguards to food safety records and employees' working conditions. Remember, if something goes wrong with your product, all of these aspects of your contract manufacturer will be treated as though they're your own - because they essentially are.
It's best to look at multiple contract manufacturing providers. But that's not always possible. "Sometimes there may be only one option available," Bob says. "Be extra careful in that case that it'll work." It's easy to just go with the only contract option out there, but it's especially critical to consider all options in this case. Perhaps waiting until you can build your own small production system is the better way to go.
How do you find those providers? Bob recommends industry shows; for example, the Private Label Manufacturers Association Trade Show is a great place to find folks who make store brands. Of course, the Internet is the best place to search for those kinds of options in your industry. Building your network to include others who've successfully found contract partners is also a key.
It's important to have self-awareness as well. "If you're a 'big,'" says Bob, "contractors really like the potentially huge dollar signs." But it's easy to swamp them, with either your volumes or with your production requirements. If you're an entrepreneur, you have other challenges. "Start-ups will have limited options," Bob warns. "You've got low volumes and a sketchy future." You may struggle to find someone willing to buy in.
Finally, Bob cautions that building strong relationships between your team and your contract manufacturer's key people is vital. "You'll need them to be flexible, and you need them to be in your corner." If you find someone who can do those things, your job gets a lot easier. If not, as Bob puts it from his many years of experience, "Difficult contract folks can make your life hell."