With quality in mind, finding effective methods to cut costs and expand your production is a complex proposition.
To this end, one important factor of your business to analyze is supply chain management. Across the disparate parts of this dynamic, and deeply relative system— specific to your company—is the potential for massive growth.
Contract manufacturing is a form of supply chain management, that offers the strategic advantages of saving time and money on product line development. This is accomplished through a series of on-demand services, which essentially outsource production to a third-party company.
Will Contract Manufacturing Work for Me?
Like any business, contract manufacturing is customizable to the firms involved in the manufacturing agreement. In many cases, the contract manufacturer will be responsible for producing the goods, as well as sourcing all of the constituent, raw materials involved in production.
In other cases, specifically as is the case for many food production companies, contract manufacturing will take the form of copacking.
Similar to contract manufacturing for other industries, Copackers will handle either manufacturing and packaging, or simply provide primary and secondary packaging for products.
That being said, effective selection of a contract manufacturer or copacker, can greatly increase overall output of a company as well as increase the overall Value Added Margins (VAM). This is largely associated with labour and facility costs, as well as volume material costs.
How to Select a Contract Manufacturer
For a company that makes its living selling a physical product, selecting a contract manufacturer can be a serious decision. However, there are some important factors to consider at the onset which will likely result in a more successful transition to a supply chain vendor for a branded or private label product.
First and foremost, the lowest price quote does not necessarily mean the highest margins. Prices quoted by many contract manufacturing companies typically only account for about eighty percent of total supply chain costs, especially with smaller Contract Manufacturers which don’t have allocated resources intended to discern bottom line cost to the contractor.
In other words, there are often fees and charges which will adjust the margins by capturing and identifying any additional costs. Cost manufacturing is a low-margin business, and also highly competitive, so appropriate selection may entail active management of the manufacturing process.
Technical competence of a contract manufacturing partner is not the end all be all of the selection process.
Certainly, a company’s facilities and technical capacity is essential to producing the product you require. That being said, depending solely on the technical capabilities of a contractor will put the responsibility of this contracting agreement in the hands of your product development team.
This can be a huge mistake considering that a contract manufacturing agreement is a complex business agreement, that will integrate various commercial elements. Therefore, technical performance should only be one aspect of various other business requirements, essential to meeting your goals.
Contract manufacturing can save time and money while ensuring the highest quality output of your products. Many manufacturing firms have turned to this form of supply chain management because it offers a broad range of opportunities. Contracting an expert to manufacture your products will result in:
- lower costs,
- decreased capital requirements, and
- a more efficient focus of time and energy
This will give you more time to focus on growing your business in other ways, rather than getting caught up in the minutia of manufacturing.
Should you be interested in developing your own exceptional products with an engaged and committed partner, please contact Dure Foods today.