Is Contract Packaging or Manufacturing Right for You? Part One

13 Jun2019

As your brand grows, there are many decisions to consider as you work to optimize sourcing, production, packaging, and distribution in order to keep the momentum going. Perhaps a product launch in a new market is up for discussion. Maybe you’re interested in moving a core product from bag-in-box packaging to a Stand-Up Pouch, but you want to test market acceptance before purchasing a new piece of equipment.

Whatever the situation is, there may come a time where it makes sense to outsource part of the manufacturing process, or even all of it. Launching new products, entering new markets, or transitioning into new packaging formats may be key to fueling growth, but they also come with significant costs and risks.

If you find yourself in this position, partnering with a contract packager or contract manufacturer could mean the difference between a successful product launch with a clear path to profitability, or a costly misstep that puts your company’s future at risk.

Before we determine if outsourcing a part of your manufacturing operation is the right decision for your brand, let’s discuss what these two types of companies do and what benefits they provide.

Contract manufacturers are third-parties that turn ingredients and/or raw materials into finished, consumer-ready products.

Contract packagers are third-parties that apply primary packaging to the finished, consumer-ready products.

So contract manufacturers make the product, and contract packagers package the product.

Most contract manufacturers offer primary packaging services, and many contract packagers offer some manufacturing services, so for this reason most in the industry refer to them collectively as CPCMs.

CPCMs work under contract to provide a variety of production services that become integrated into your supply chain. In order to determine whether or not partnering with a CPCM is right for you, it’s important to understand why you’re doing it and what you’re getting out of the relationship.

By working with CPCMs you’re tapping into their experienced staff and expansive vendor network, in addition to gaining access to the extra capacity of their manufacturing equipment and facilities. Most CPCMs have developed a deep understanding of specific, and sometimes niche, manufacturing processes that would otherwise have to be acquired in-house, thus enabling you to focus on increasing sales and growing your brand.

Aside from the cost-savings realized by not having to build plants and purchase equipment that costs hundreds of thousands (sometimes millions) of dollars, you may also be able to reduce your workforce to cut costs associated with health insurance, new hires, and staff training.

Additionally, many CPCMs offer the flexibility of short-to-medium sized runs. By tuning in to current market trends and consumer preferences, you can leverage these flexibilities to deliver relevant marketing campaigns and limited-time product offerings without worrying about investing in new equipment or taking a hit on costly inventory obsolescence.

This may start to sound like an obvious decision, but how do you truly know if hiring a contract packager is the right move? According to the Association of Contract Packagers & Manufacturers (CPA), there are several reasons why you may want to consider selecting a CPCM, including:

  • No available in-house equipment or expertise for a particular job
  • Geographically separated facilities could serve the product better for national distribution
  • Non-standard packaging requiring special machinery or labor intensive work is specified
  • Product may more economically be shipped in bulk to a distant market, then unit packed locally
  • Short-term requirement that may be better served by specific experience or equipment you don’t have
  • There’s a warehouse full of a product that needs re-working to make it sale-able
  • There’s a corporate downsizing in personnel, facilities or both

At the end of the day, there may be many reasons why outsourcing production may make sense for you, but it’s up to you to audit your current state of affairs to ensure you’re able to commit to making such a partnership successful.

Before jumping into a project with a CPCM, consider asking yourself a few questions like: Do I clearly understand my needs and goals related to this potential partnership? Does it make financial sense to outsource the production, vs. keeping it in-house? Is this a last-ditch effort to salvage a project? Depending on the answers, you may want to reconsider this option.

If after answering these questions you’ve decided that you’re ready to partner with a CPCM, be sure to read Part II on how to select a CPCPM that is the best fit for your brand.