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What is Contract Manufacturing?

What is Contract Manufacturing?

Contract manufacturing is often called private label manufacturing and refers to an agreement where a firm hires a third-party contract manufacturer to produce products components or a final product.

The Purpose of Contract Manufacturing

Contract manufacturing is a form of outsourcing that allows firms to have their products produced by specialist manufacturers. Third-party contract manufacturers typically specialize in one of the following:

  • Product assembly
  • Product design
  • Product distribution
  • Product component manufacturing

Contract marketing is a business model that is implemented by many industries over the world, including the technology, medical, pharmaceutical, food, and cosmetics industry.

Benefits of Contract Manufacturing

There are several benefits to contract manufacturing including:

Lower Input Costs per Unit

Since the hiring firm doesn’t produce their products, they don’t need factories and the necessary production equipment. Labour costs are also typically lower, especially if the contract manufacturer operates in a low-cost country like China.

Contract manufacturers are also better suited to benefit from economies of scale, especially if they purchase large quantities of raw materials for several clients. As a rule, the cost per unit decreases as the number of units in once shipment increases.

Mutual Long-term Benefits

Contracts between hiring companies and contract manufacturers that last for years are beneficial to contract manufacturers in that they represent a steady flow of business.

Long-term benefits are also beneficial to the hiring company since the contract manufacturers eventually gain extensive knowledge about the hiring company’s product requirements.

Quality

Established contract manufacturers have extensive quality control policies in place to detect defects or poor quality at an early stage.

Skills and Expertise

The hiring company may not necessarily have the skills and equipment to produce high-quality products from raw materials in a cost-effective manner. One of the most prominent benefits of a relationship with a contract manufacturer is that it allows the hiring firm to take advantage of these skills.

Emphasis on Core Competencies

By leaving production to specialists, hiring firms free their resources to focus on their core competencies and strengths.

Risks of Contract Manufacturing

Lack of Control

By entering into a contract manufacturing agreement, the hiring company forgoes a high degree of control over the production process. High-end contract manufacturers will, however, work with the hiring company to meet their requirements.

Inherent Risks

Outsourcing production or assembly can be risky, especially if the contract manufacturer is in another country. Working with local contract manufacturers may mitigate risks such as long lead times, language barriers, and cultural differences.

Lacking Flexibility

If a hiring company outsources the production of their goods, responding to fluctuations in demand can be a challenge. Lacking flexibility can be particularly problematic if the hiring firm does not constitute a large portion of the contract manufacturer’s business.

In Conclusion

Contract manufacturing is a valuable model for role players in the food industry. If you’re in the food industry, and you want to build on the strengths of your business and need a partner to take care of the production end, head over to Dure Foods to learn more.

Growth of a Family Business

The Growth Journey of Our Family Business

As a family company, Dure Foods Ltd. started out small and still remains small enough to truly care for each and every product and customer. Over it’s almost 40-year life span, Dure Foods has been building a family company based on our original values to create a trustworthy brand that creates quality food products.

Despite the setbacks and challenges that growing a family business poses, Dure Foods has successfully scaled while maintaining strong commitment to our community, our standards, and our core mission.

Founding

The idea for Dure Foods was conceived by Scott Malcolm in 1978 and began operating under this one-man team. He rented a corner space in a dilapidated Brantford, Ontario, warehouse to begin filling orders for liquid dish soap, Dure’s first product.

Malcolm hired his first employee to help him at the warehouse, and they grew such a strong bond that the two still work together today.

Initial Stages of Growth

By the end of the first five years of operation, Malcolm was able to hire a staff of five to help him pack soap, sugar, and coffee whiteners. Building off the specialty coffee trend of the 90s, Dure Foods began developing products within this niche. Our company found success with flavoured cappuccino mixes and began growing exponentially.

Soon after, Malcolm was able to construct a brand new packaging facility and even added on additional square footage a few years later to add more loading docks and rooms for production.

The Family Business

Scott Malcolm’s two sons later joined him in the family business, flanking him to help direct and guide the company through the many stages of growth, learning, and success. The three of them faced the same challenges large corporations must deal with, but as a smaller team with fewer resources, it proved to be a bit more testing.

Overcoming Challenges

They needed to remain ahead of the competition, constantly innovating and finding something unique they could add to the market. Eventually they found a successful and comfortable niche in fine blended powders such as coffee drinks, soup bases, teas, mousses, gravies and creamers.

Another challenge came in building relationships with both suppliers and with customers in order to provide the best products and receive the best reactions. For a small company like Dure Foods, there are fewer connections already built-in, and these relationships must be forged from the ground up through our own dedication to networking and pitching.

While this was a large challenge to the Malcolms, it also provided an opportunity for Dure Foods to create authentic relationships formed out of genuine alignment of values and goals, rather than out of corporate loyalty or industrial red tape.

Maintenance of Quality and Values

Even after building up a large team of production staff and executive members, Dure Foods has still been able to maintain the closeness and care that the original one-man operation began with.

Despite the extra complications that a family-operated business must take on compared to corporations, Dure Foods has been able to remain in a period of growth and success since its founding due to its primary goal of producing incredibly high-quality food products to each and every customer.


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