A co-manufacturing arrangement allows a third party to take care of the manufacturing process for your goods. In many cases, those large businesses can manage the manufacturing process faster and more effectively than smaller retailers. However, to determine whether co-manufacturing is the most effective arrangement for your company and whether you have chosen the right co-manufacturer for your needs, you may need to take several things into consideration.
When Does Co-Manufacturing Make Sense?
In many cases, it may make more sense to take on your essential manufacturing processes yourself. However, there are several circumstances under which co-manufacturing may work better for your company.
1. You Need to Produce Large Volumes
Co-manufacturing typically makes sense for companies that need to bring in high volumes of goods. Many co-manufacturers will not offer small-volume contracts, so it’s important to make sure that the company you’re considering is able to meet your demand and your overall needs. If the company has minimums over your usual orders, especially in cases of food production, where you may have to worry about expiration dates, it can prove much more practical to manage your own manufacturing needs.
2. You Need to Start Manufacturing Without a Large Upfront Cost
Starting the manufacturing process can be expensive. You may have to worry about the cost of equipment, the facility, and the cost of hiring and training employees. If you already have that facility and everything you need in place, it may prove less expensive. On the other hand, if you are just getting started, you may find that a co-manufacturing arrangement makes more sense financially.
3. You Need to Focus on Growing Your Brand
Sometimes, you may need to focus heavily on your brand’s overall growth. The manufacturing process can involve a great deal of research, trial and error, and other complexities. That can take time away from your other tasks, including marketing and sales. Working with a co-manufacturer can make it easier to keep your focus on those other elements of your business.
4. You Want to Meet Professional Safety Standards
Some small business owners start off with a cottage-style production setup, often working out of their own homes or convenient industrial kitchens. However, those businesses may not meet the safety standards required by large retailers. As a result, you may have trouble growing your brand beyond that point. Working with a co-manufacturer can ensure that you meet those standards without forcing you to take on many of those challenges on your own.
Keep in mind that in some cases, a co-manufacturing agreement can help increase diversification, which may help you meet your manufacturing goals more effectively.
How to Evaluate Co-Manufacturers
There are a lot of details that may go into evaluating whether a co-manufacturer is the right one for your needs. Make sure you take these key criteria into consideration.
1. What Resources Does the Co-Manufacturer Have?
Look at the resources the co-manufacturer has, including whether they need to add resources to meet your needs. Consider how long it might take to begin production and how that could impact your timelines.
2. Does the Company Ensure Confidentiality?
Confidentiality is key in your arrangement with your co-manufacturer. Whether you’re protecting secret recipes or preventing customers from finding out about everything that takes place behind the scenes, it’s important to ensure that the company will protect overall confidentiality and privacy.
3. Does the Company Have a Good Reputation?
You want to make sure that the company has a solid, trustworthy reputation. This manufacturer will be responsible for your production timeline and your overall customer satisfaction, so you need to make sure that their standards are compatible with yours.
4. Does the Manufacturer Engage in Sustainable Practices?
Consider the sustainable practices that are most important to your company. You may, for example, prioritize ethical hiring or an environmentally-friendly business model. Before you choose a co-manufacturer, make sure they engage in the same sustainable practices that are important to you. Look at what waste they have, what they do with it, what type of energy they use, and what standards they maintain for employees.
5. What Resources Does the Company Offer You?
As part of your new co-manufacturing arrangement, make sure you’re familiar with what the company provides. What resources are they offering? How do they help you track production? Pay careful attention to the details of your contract so that you know what you’re getting into.
6. What Costs are You Facing?
When determining which co-manufacturer to use, carefully consider what your overall costs will look like. Make sure you know what is included in your contract and anywhere you might find extra costs, which could impact the entire contract.
A Good Co-Manufacturing Contract
Your co-manufacturing contract will cover all the details of your agreement with the co-manufacturer, from the raw materials necessary for production-to-production timelines, quality expectations, and liabilities and legal responsibilities. Your contract may also include key details about payment, from pricing to payment timelines. Make sure your co-manufacturing contract clearly lays out:
- Quality expectations
- What type of waste is expected from the production and how to dispose of it
- Customer service expectations
- Who will take on any risk involved with the creation or selling of the product and any steps taken to offset that risk
- Contract duration, including potential renewal dates
- Options for handling increases or decreases in consumer demand
- Any requirements for sourcing, especially of raw materials
Take the time to carefully look over your contract and make sure you understand all its details and penalties. If you have any questions, consider bringing in a lawyer who can help make sure you understand the terms of the contract and have made the right decision for your business.
A co-manufacturing partnership can help alleviate some of the manufacturing strain and allow you to produce products in a more cost-effective manner. However, it’s important to make sure that you have a good relationship and solid contract with the manufacturer. If you need more help managing your inventory and ensuring that you have the right flow of goods through your system, contact StockIQ to learn more about how we can help.
