CPG companies across the board have turned to contract manufacturers (co-mans) as part of their next-generation innovation strategies.
Both private label and branded organizations are increasingly leveraging contracted networks as part of their innovation and growth strategies. Selecting the right manufacturer isn’t a simple task, and the decision can make or break an opportunity. Not all co-mans are created equally, so it’s of utmost importance to align organizational goals with the capabilities of a contracted site.
Teaming up with a co-man can help brands achieve quicker traction in areas that aren’t necessarily an organization’s core competency. A couple of familiar contracted strategies are to use a contracted network to allow an organization to increase the capacity of its existing product mix or to mitigate the risks associated with developing new products.
Some key benefits of leveraging a contracted network include:
- Focus on Core Competencies: By working with a co-man, which has already financed its manufacturing infrastructure, brands can focus their resources on more strategic business initiatives that align with the organization’s core competencies. To note, many startups move toward contract manufacturers to spend more time on marketing and sales to help grow their brands.
- Agility: An organization can quickly pivot when markets evolve – your organization isn’t having to commit large amounts of capital in manufacturing assets and organizational infrastructure. If the market pivots and demand plummets, you aren’t as sensitive to the financial loss. Conversely, if market demand increases, a contracted network can be used as a capacity builder and supply chain optimizer – by having several contracted sites in high-demand regions of the country.
- Product Development and Improvement: Some co-mans provide research and development services to help brands formulate products, adjust products for better performance, or help control raw material costs.
No business model is without risks, and using a contracted network is no different.
- Brand Reputation: It’s important to remember that you’re putting a portion of your brand’s reputation in the hands of a third party. Understanding the co-man’s performance from regulatory and market standpoints are critical data points when determining the right fit for your organization.
- More Work: Additionally, contracted facilities are not a “set it and forget it” scenario. They take time and resources to manage properly. Collaboration and communication are fundamental tenets of building a trusting relationship to help you facilitate the desired outcome. You must ensure the external site is appropriately managing critical areas.
- Size Matters: The size of your organization and the capacity you garner at a site can affect how well you’re treated. Smaller organizations risk being pushed out of a manufacturer if larger customers need more capacity. Therefore, it’s always a good idea to have backup contract facilities in the pipeline to help reduce the impact of this risk.
It’s All About Trust
Trust is crucial for a successful co-man relationship – building it and keeping it.
Kenny Strine, Corporate Quality Manager – External Manufacturing at Lassonde Pappas, has managed small and large external networks in his career. Strine sayss that “Driving consistent positive outcomes from an external network hinges on a relationship that’s rooted in trust and fostered by communication and collaboration.”
His keys to nurturing a healthy co-man relationship are based on Steven Covey’s “The Speed of Trust” and include:
- Create transparency and listen first.
- Confront reality.
- Clarify expectations.
- Extend trust.
- Deliver results.
Ultimately, the biggest challenge in setting up a contract manufacturer for success is fostering strong communication and collaboration centered around core business needs.
To hear more of Strine’s presentation, check out NEXT on-demand here.