Contract and Expand

 

As the dietary supplement industry matures and companies become more successful, many businesses find themselves at a crossroads. Should they invest in new equipment and personnel to meet growing demand, or should they hire a contract manufacturer?

Photo courtesy of Vita-Tech International.

In truth, the answer depends on the needs of the company. However, contract manufacturing usually has several advantages. First, contract manufacturers can save companies the expense of building and staffing their own facilities. Second, contract manufacturers can help with product development and provide advice about what works and what doesn’t. Third, and perhaps most importantly, contract manufacturers can offer expertise with good manufacturing practices (GMPs).

What can’t contract manufacturers do? While they may offer some obvious benefits, they aren’t a substitute for good judgment. Companies are still responsible for what they sell, and they should thoroughly research prospective contract manufacturers by visiting facilities, meeting personnel, and verifying that appropriate quality control procedures are being followed. Showing up in person and inspecting the operation is one of the best ways to ensure that outsourcing will help expand your business.

CUTTING COSTS

One of the most obvious strengths of contract manufacturing is its ability to cut costs. By using a contract manufacturer, companies can avoid the cost of investing millions of dollars in real estate and equipment. Contract manufacturers can also save money by producing in bulk, which lowers overhead costs.

“Marketing companies should avoid manufacturing unless the production runs are long and predictable,” says Thomas Tierney, president of Vita-Tech International Inc. (Tustin, CA). “Contract manufacturers can be easily set aside when demand shifts. Contract manufacturers get paid for this risk.”

According to Ned Becker, vice president of sales, marketing, and business development at Nutritional Laboratories International (Missoula, MT), the small amount of cost savings a company might achieve by making its own products usually isn’t worth the significant long-term investment that is needed. The increasingly complex regulatory environment for supplements and foods is also likely to require more investment in costly lab equipment later on.

“In today’s world of specialization, a company that has been successful marketing products using contract manufacturers should probably never invest in their own equipment,” Becker says. “It takes a great amount of resources, both capital and personnel, to effectively run a manufacturing operation.”

PRODUCT DEVELOPMENT

Contract manufacturers also have something else to offer—good advice. Contract operations that have worked for years or decades in the field know what kinds of products are destined for success or failure and are often willing to pass that knowledge on to their customers.

“The contract manufacturer can play a significant role from start to finish in the life cycle of a new product,” Becker says. “We offer our clients new product and ingredient ideas based on the latest scientific evidence. From there, we develop prototypes of the new product to ensure that it can be manufactured according to the customer’s specifications. The next stage is the commercial production phase for a timely launch of the product. Every step of the way, the contract manufacturer should be there providing information and guidance on how to effectively design the finished product,” Becker says.

While a client sometimes may need to share important details about its intellectual property with its contract manufacturer, the benefits of collaborating with a trusted partner usually outweigh the risks.

“Having intimate knowledge of competing products in different distribution channels, contract manufacturers can gently steer clients into successful marketing differentiation without compromising trade secrets,” Tierney explains.

Contract manufacturers may also be willing to sign confidentiality agreements that prevent the misuse of information about a company’s products. “Contract manufacturers with a long-term relationship vision will do everything they can to protect that information to ensure that their business grows with that customer,” Becker says, noting that the relationship represents the future of the business.

“Nondisclosure agreements abound but ones with teeth are not taken for granted,” Tierney adds. “Ultimately, personal trust is the litmus test. If the relationship doesn’t feel right, don’t get into it.”

GOOD MANUFACTURING PRACTICES

Perhaps the best reason to seek out a contract manufacturer is GMP compliance. None of the other benefits of outsourcing will amount to much if they result in products of low quality or questionable value. Unfortunately, not every company that manufactures supplements follows the GMPs, and some companies that claim they follow the GMPs don’t always follow them to the letter.

“There are a select few contract manufacturers that really understand the systems and controls required to consistently manufacture a quality product,” Becker says. “At Nutritional Laboratories International, quality manufacturing systems and processes have been a part of our operational strategy since the beginning of the company.”

The best course of action for a company that is looking for a contract manufacturer that follows GMPs is to vet the contract manufacturer ahead of time. Some third-party organizations, like NSF International (Ann Arbor, MI) also inspect contract manufacturers to verify compliance with the GMPs.

“Responsible and risk-averse contract manufacturers have already adopted the sense of the proposed GMPs,” Tierney says. “Informed clients do plant and standard operating procedure inspections so they are satisfied that manufacturers walk their talk. In other words, if it says GMP on the ads, it better be cooking in the kitchen.”

DUE DILIGENCE

Working with a contract manufacturer may make things easier, but it won’t absolve a company from responsibility if something goes wrong. Businesses that decide to outsource should thoroughly research their decision ahead of time to make sure it’s the right choice.

“My advice to a company looking for a contract manufacturing partner is to take the time to visit several different manufacturers to gain an understanding of the different procedures or lack of procedures used by different companies,” Becker says. “Base the decision on more than just a low price quote.”

Becker adds that it’s essential for a client to understand the contract manufacturer’s quality control procedures, specification development process, internal laboratory testing capabilities, and ingredient sourcing and qualification systems.

“There’s nothing like kicking the tires to see if the wheels stay on,” Tierney says. “Since it’s your future with consumers at risk, we recommend a trip to the manufacturer with at least two people, with one being a quality assurance professional, to physically see the plant’s nooks and crannies.” Other prudent steps include observing the facility’s standard operating procedures, meeting key manufacturing and laboratory personnel, and reviewing references from satisfied customers. “Trust but verify,” Tierney adds. “Lunch can come later.”