Co-manufacturing has become an essential approach for businesses looking to scale up their manufacturing operations. Below is an overview from my Ask an Expert session with Rick Williams and Paul Vilker from JPG Resources on the important considerations to find success.

JPG is a boutique consulting firm specializing in innovation strategy and execution with a dedicated focus on the packaged food and beverage space. If you need help finding a co-man and crafting the ideal contract, visit us at https://bit.ly/Find_A_Coman.

Importance of Strategic Partnerships

Working with co-manufacturers requires building strategic partnerships that are focused on achieving shared goals. According to Rick Williams, “understanding that if a good relationship has to be good for both parties in the relationship, whether it’s personal or business, and in this case that’s certainly true.” The co-manufacturer becomes an integral part of the business’s supply chain and must be closely aligned with the company’s vision and values. It’s important to choose a co-manufacturer that has a proven track record of delivering quality products and can meet the business’s specific needs.

Negotiating Minimum Order Quantities

Negotiating minimum order quantities (MOQs) can be a challenge for startups and small businesses that may not have the demand to meet the manufacturer’s requirements. However, it’s important to remember that co-manufacturers are strategic partners and should be viewed as such. Paul shared that, “a lot of mistakes that we have seen is people who think they, that they need an outsource strategy or may not have a robust enough business model to support an outsource strategy, then go and try and execute it and fail.”

Some brands are better off working with a commercial kitchen and self producing before scaling with a co-manufacturer. Some co-manufacturers are designed to work with smaller MOQs, but most operate on a high volume basis. By building a strong relationship and demonstrating a solid business plan, it may be possible to negotiate more flexible MOQs. This can help businesses to manage costs and avoid unnecessary waste.

Understanding Labor Constraints

Labor constraints can impact the co-manufacturing process, particularly during periods of high demand or labor shortages. The last few years have seen big swings in the labor pool available to work at co-manufacturers, as many have moved on to other jobs or demanded higher wages. This has increased the costs to producers. Labor shortages are more stable these days, but can cause unexpected challenges.

Managing Quality Control

It’s important to establish clear quality standards as and work closely with the co-manufacturer to ensure that these standards are met. This may involve regular inspections, audits, and testing to verify product quality. Rick and Paul both share that you should utilize the first production run to develop your product specifications including your benchmarks as well as upper and lower limits. Then every manufacturing run should have multiple evaluations to make sure the product being produced adheres to your specifications.

Contracts and Agreements

One of the most important steps is to make sure you and your co-manufacturer are setting proper expectations and communicating with each other. The contract should set out the co-manufacturers’ responsibilities, the brands’ responsibilities, intellectual property rights, pricing, product specifications, and more.

Download our comprehensive example of a co-manufacturing agreement here.

It’s fairly common that manufacturers won’t sign a full agreement with new partners, because they are still testing the relationship. In that case, it’s important to document the key components of your agreement either in a document or e-mail, and then have the co-manufacturer affirm by e-mail that everything is accurate.

Managing Production Capacity

It’s important to ensure that the co-manufacturer has the necessary capacity to meet the business’s demand. Develop contingency plans to address any unexpected fluctuations in demand or production capacity. One recommendation is to always have multiple vetted manufacturers at the ready incase you need to switch for any reason. This can help you avoid delays and disruptions in the manufacturing process and ensure timely delivery of products to customers.

Wrap Up

Co-manufacturing is a valuable approach for businesses looking to scale up their manufacturing operations. By building strong partnerships with co-manufacturers and managing key considerations such as quality control, costs, and production capacity, businesses can achieve success and growth in today’s competitive market. By understanding the challenges and opportunities associated with co-manufacturing and seeking guidance from experts such as lawyers and industry professionals, businesses can make informed decisions and build the right partnerships to achieve their goals.