Contract Manufacturing Roundtable: Full-Service Future

March 22, 2013

Companies rely on contract manufacturers to be their “one stop” saviors.

These days, it seems, you can’t be a contract manufacturer without offering a little extra somethin’. Today’s contract manufacturers do it all, from ingredient sourcing, formulating, manufacturing, testing, and packaging to providing regulatory expertise, warehousing, and fulfillment. A handful of contract service providers shared their thoughts on what this business model means for the future.

 

Why do today’s dietary supplement and healthy food/beverage companies need more services from contract service providers?

Steve Holtby, president and CEO, Soft Gel Technologies Inc. (Los Angeles): A lot of companies are struggling to comply with heightened FDA GMP requirements, which require a lot of resources-both time and money. A well-rounded contract manufacturer may be able to offer some services and knowledge as part of its customer service package, thereby freeing the marketer from having to outsource or hire internally.

Global economic forces naturally also affect today’s business climate. Many companies have to compete for an increasingly competitive market share, and they have to focus more on the marketing side of their business. Therefore, contract companies that are able to shoulder a lot of the technical load are attractive.

 

Jason Provenzano, president and founder, Nutricap Labs (Farmingdale, NY): It’s cost-effective. Why work with multiple vendors to complete the manufacturing, packaging, labeling, and fulfillment of your product when one company can do it all for you under one roof? This also yields faster product turnaround times, which I’m sure all business owners would consider a benefit.

 

Tim Bray, vice president, Pharmachem Laboratories Inc. (Kearny, NJ): Say that your marketing group has come up with a product that it wants to introduce at the next trade show in nine months. It’s up to you, as the general manager, to come up with a manufacturing plan. What are your options? The first decision: to produce the product in house, or go outside.

You could hunt down an equipment manufacturer. The challenge is that it would take a minimum of six months to get the equipment, and probably another month to set it up. Can you meet your timeline for production? Can you train your staff to run the equipment? Is it better to buy specific equipment to produce your product, or to invest in the promotion of your new product?

 

Eugene Ung, CEO, Best Formulations (City of Industry, CA): More often, customers are relying on their contract manufacturers for regulatory advice, formulation, research and product development, international product registration, ingredient trends, and supply chain solutions. Also, in the past few years, there appears to be more shortages of various raw materials, such as vitamin E, whey protein, and astaxanthin. Even if a company had an order, sometimes a contract manufacturer simply could not get the raw material. Working with an established contract manufacturer that has solid relationships with a number of ingredient vendors can help alleviate supply chain challenges when it comes to ingredient shortages. More companies are realizing this aspect of the contract manufacturer.

 

Shabbir Akand, vice president, sales and marketing, NHK Laboratories Inc. (Santa Fe Springs, CA): One of the main services we provide is vendor management inventory. We stay very much aware of which ingredients are in highest demand, which are in shortest supply, and which  supplies are the most volatile. We stay abreast of any ingredient supply fluctuations that can affect lead time and cost. So if a customer has a standing order, and suddenly we get information that some ingredients are in short supply or that there is going to be a price increase, we can let the customer know early on and perhaps try to manage some inventory for the customer before the market even becomes limited in supply.

 

Provenzano: The role of a contract manufacturer has transitioned from simply creating the product and delivering it to the customer to becoming an extension of a company’s marketing and operations departments. For example, we help our customers develop eye-catching product labels and printed marketing materials such as inserts, pamphlets, and brochures. We also offer customers order fulfillment and drop-shipping services so they don’t have to stress about where to store their inventory, where it needs to be shipped, and if it reached its final destination.

 

Shaheen Majeed, marketing director, Sabinsa Corp. (East Windsor, NJ): For many marketing companies these days, their contract manufacturer has to be the “one stop” shop. Marketing companies once had the resources to shop around for various services, but with the lean economy of today, companies find one contract manufacturer and let that manufacturer deal with all the company’s headaches, including printing labels, supplying bottles and caps, etc.

 

Thomas T. Tierney, CEO, VitaTech Nutritional Sciences Inc. (Tustin, CA): We’ve seen contract manufacturers become undeclared champions of marketers, especially in terms of all things regulatory. [It’s] a smart development, as everyone-contract manufacturer and marketer alike-gets hurt when a mistake is made. Both the contract manufacturer and the marketer are linked to regulatory risk, despite what contracts may state. Smart marketers will only work with responsible manufacturing partners.

 

Demetrius Bledsoe, director of sales, National Enzyme Co. (Forsyth, MO): The role of the contract manufacturer has changed due to the fact that everyone is being held accountable even more for regulatory and GMP practices. The contract manufacturer has to be a good steward for the industry as well as for the consumer who will be receiving the finished goods.

 

Peter Holocher, director of business development, IFP Inc. (Faribault, MN): For new product launches, intense competition has driven a tremendous shift in thinking about how to efficiently and successfully collaborate with contract manufacturers. IFP is looked upon to assist clients with launching products more quickly, to test commercial viability of new concepts, and to identify tangible technological solutions to real business problems.

 

Majeed: In many cases, creating a successful product requires dialogue and working more closely together. Once we learn more of what the customer is looking for-their intended target market, their form of selling (multilevel marketing, online, retail)-our formulators can provide suggestions.

 

Ung: It’s worth pointing out, though, that some customers are concerned about sharing proprietary information with a contract manufacturer, even with confidentiality agreements in place. But as the customer works with one contract manufacturer and feels more comfortable with that manufacturer, there can be a more open exchange of ideas that usually results in success for both parties.

 

What services does your company specialize in?

Holtby: We specialize in a soft gelatin capsule delivery system. We produce and market both branded products and turnkey custom formulations.

 

Provenzano: We primarily manufacture capsules, tablets, and powders for the sports nutrition industry. In addition to those products, we also have the ability to provide our customers with high-quality softgels, liquids, and lotions. Over the past year, we’ve seen a large amount of requests for effervescent tablets as well as 2-oz energy shots.

 

Ung: We are very well known for our softgel manufacturing capabilities, but we’re gaining momentum in powder, tablet, and capsule manufacturing and packaging as well. We also manufacture teas, which is quite niche and very specialized.

 

Bray: In addition to our own product line, we have 13 contract manufacturing facilities, each with its own expertise in either spray drying, fluid-bed granulation, chilsonation, compaction, fermentation, micronization, and herbal extraction. Plus, we have extensive analytical help in our Totowa, NJ, quality facility.

 

Akand: We focus strictly on solid dosage forms: capsules; two-piece, hard-shell capsules; tablets (whether sustained released, chewable, or color coated); and powders.

 

Tierney: Our core competencies are in powder-denominated, oral dosage forms: tablets, two-piece hard capsules, and drink mixes. We are also acquiring more gelatin and liquid capabilities through acquisitions.

 

Bledsoe: We specialize in the contract manufacturing of dietary supplements, with an emphasis on enzymes. We provide product development, precision blending, bottling, tableting, encapsulation, convenience packaging, in-house labeling and graphics, and fulfillment center and regulatory assistance.

 

Majeed: Our services run the gamut of simple mixing, milling, and blending to large-scale granulation, tableting (single layer and bi-layer), encapsulation, and coating of tablets. We began offering the mixing and blending operations to customers early on specifically because if they bought two or more ingredients from us, we could send them a blend of the items, saving them time and money for finished-goods manufacturing.

These days, as herbal ingredients-the large portion of Sabinsa’s business-grows, so does the need for granulating some of these extracts to help them compress better. We have two large-scale 500 kg–capacity granulators that tackle some tough projects for customers. Our largest category we deal with in terms of finished-form products is joint health, primarily due to our proprietary Curcumin C3 Complex. Due to curcumin’s pungent yellow/orange color, not many contract manufacturers want to entertain this ingredient in their facilities. We’ve handled tons of curcumin, both at our raw material facilities in India and at our contract manufacturing facility in Utah. Companies and individuals who have walked through these sites commend us on the cleanliness of the sites after handling such an ingredient. We’re able to mix curcumin, mill it, granulate it, and compress and/or encapsulate it with ease.

 

Sam Kwon, president, Vesta Pharmaceuticals Inc. (Indianapolis): We focus on projects ranging from R&D and pilot batches to big commercial batches. Vesta specializes in blending, tableting, encapsulation, and packaging of dry dietary supplements. In particular, we specialize in formulations including nattokinase, vitamin K2 MK-7, and SAM-e.

 

Holocher: We [specialize] in the design, development, contract manufacturing, and packaging of powder products. We...allow our customers to develop products in the pilot plant, and we answer important questions around feasibility, cost, and timing. IFP is also very unique in that it has an innovation team solely focused on generating prototypes in various commercial stages.

 

Describe the type of formulating assistance today’s marketers seek.

Holtby: Our company offers two types of products: stock formulations of popular ingredients and dosages, and custom formulations based on a customer’s label claim. Although we require the basic formulation details from the customer for custom formulations, there is countless potential for variation within those formulas. That is where we can offer suggestions and advice, based on such things as market trends or ease of manufacture.

We feel it is our responsibility to inform the customer if we see possible issues with a formula. We often give suggestions or advice on improving a formulation, should the customer request our opinion. For instance, there are situations in which softgels are not an optimal format. In some cases, with softgels, there may be space limitations for the formula (the ability to include ample quantities of protein, for example) or interactions between raw materials (such as the effect of very low pH on a gelatin shell). Thus, it is important to consider both the physical and chemical properties of a formula. Since we have extensive experience developing formulations, we always try to work with our customers to help them understand the importance of choosing the appropriate delivery system.

However, we do have to keep in mind that a custom formulation is the customer’s own and that the customer has often performed its own research when deciding how to create the formulation.

 

Ung: We have a mix of customers. Some have their formula all worked out and just need a contract manufacturer to produce it. Others have semiformulated products and they know which active ingredients they want, while some have us help them formulate from the ground up. After seeing a slowing of new product launches between 2008 to 2010, we have more recently seen an increase in new product development from our customers.

 

Bray: A qualified contract manufacturer will sit down with your staff to review your product specifications and to suggest the best equipment for running it. Its formulators will be available to review the specifications to ensure optimal product run. These are well-trained people who have worked under similar specifications, and they know their equipment, which will ensure a consistent product.

 

What packaging/labeling services do you offer?

Holtby: We offer to handle third-party packaging for our customers. Labels need to be supplied by the customer.

 

Provenzano: We offer a variety of packaging solutions, including bottles, jars, blister packs, stick packs, and sachets. We’ve also increased the size of our in-house graphic design team.

 

Holocher: [Our packaging] formats include stick packs, HDPE and PET jugs, fiber-form cans, and sachets. 

 

Bray: If you need finished-product packaging, we can supply turnkey packaging of dry powders in fiber canisters or jars, processed in our Teterboro, NJ, facility. If liquid-fill products are needed, we can supply finished products through our facility in Salt Lake City, UT.

 

Kwon: We see increased demand for cold-form-foil blister packaging. This is an area we are actively expanding in.

 

Tierney: Demand for custom packaging services and prototyping is on the rise.

 

Ung: We expanded our bottling capacity last year in response to increased demand for bottling. We believe part of this increased demand is due to FDA regulations. Before, many companies simply purchased bulk pills from us and would do their own packaging. With the GMP regulations in place, however, some companies feel it is most cost-effective to have us package the product rather than invest in the cost of compliance for their own packaging operation.

 

Bledsoe: Our in-house labeling and graphics department allows customers to feel at ease when it comes to making sure their labels are compliant with regulatory changes and that products are delivered in a timely manner. We have also expanded our packaging capabilities to offer convenience packaging to our partners. This allows our partners to package some of their top-selling products in “to go” packaging.

 

Majeed: Manufacturers should spend a great deal of time on labeling because this is what regulatory bodies will see, assess, and take action on. Even if the marketing company has had its legal team make sure everything looks okay, it’s worth sitting down with your contract manufacturer at the manufacturing site to review the labeling again. In some cases, the contract manufacturer can be held liable for labeling infractions, too, and therefore it’s smart for a contract manufacturer to take precautions and check the labels it is putting on a bottle.

 

What do you offer for product testing?

Holtby: We not only perform standard analysis on finished softgels, such as micro- and active-ingredient testing, but we also do extensive testing on raw materials for identity, potency, and contaminants where applicable to assure ourselves and our customers that the ingredients we use are viable.

 

Bledsoe: Our partners are asking for more after-product testing due to FDA audits and increased regulatory requirements. We have partnered with Sora Laboratories LLC-a third-party ISO 9001:2008 certified, ISO 17025:2005 accredited testing facility-to assist our partners with the additional testing.

 

Majeed: Testing is one of the major in-house services Sabinsa offers, both pre- and post-product testing. What makes this nice is that the customer does not lose any production time, which they would if we had to ship outside for chemical, analytical, and biological tests.

Microbial testing can take several days just in terms of transit alone, but we’re able to cut that time nearly in half by testing in house. Performing testing in house also helps us confirm and ensure our own production accuracy.

 

Are you involved with logistics?

Provenzano: We recently doubled the size of our on-site warehouse facility. We worked with NSF International to ensure it is GMP certified so our customers can rest assured their products are being stored in a safe and contaminant-free environment.

 

Bledsoe: We have created and spun off a separate entity that allows our partners to have their various products fulfilled and shipped to their customers based on individual ordering patterns.

 

Do you help source ingredients?

Provenzano: In the past, we kept roughly $6 million worth of raw materials in our inventory. Now that our business has exponentially increased, we keep around $8 million of ingredients on hand.

 

Ung: With the new GMPs, the contract manufacturer has to work with established raw material suppliers with good quality systems. Requirements for certificates of analysis and product testing have certainly changed for the better, and we work with reputable suppliers that can provide the documentation, traceability, and testing that we need. Suppliers must have open communications with their contract manufacturers.

 

What other services is your company focusing on?

Majeed: Stability studies. Sabinsa has in-house capabilities to run stability studies on final products at our Utah facility. In fact, we do this free of charge as part of our manufacturing cost when we quote customers. The U.S. marketplace especially prefers labels that state an expiration date, and thus stability data is a must for final products. By contrast, some other countries list only the “manufactured on” date and not a particular expiration date.

Stability testing can be daunting, though, and FDA details on stability dating are vague. Not all manufacturers handle stability dating, but other contract manufacturers, like Sabinsa, can do it in house. Others would have to send the work out, and depending on the complexity of the formula, this can be a costly part of the business project.

 

Akand: We have a lot of experience with international product registration. We maintain a large database of documents required to register products internationally.

 

Which third-party certifications do you have?

Holtby: We have GMP registration through NSF International and the Natural Products Association and have held these certifications for many years prior to the emergence of the FDA GMPs. We have also gone an extra step and are registered under the NSF GMP for Sport program, which verifies that our manufacturing facility has additional sourcing and tracing capabilities to prevent cross-contamination of products. The majority of our customers demand compliance with the current GMPs. In fact, some of our customers require us to undergo periodic internal and third-party audits to confirm GMP compliance. We’ve always been a proponent of GMP compliance, even before 21 CFR 111 went into effect for our company.

 

Provenzano: The first thing potential customers ask when they speak to our sales representatives is whether our laboratory is GMP certified by NSF International, which it is.

Over the past year, we’ve had many customers inquire about TGA certification as well. Although there is a lot of paperwork involved with TGA certification, having the ability to sell products in Australia can give a company a distinct advantage. Additionally, our on-site warehouse undergoes a thorough, two-day NSF audit to ensure it complies with GMP regulations.

 

Ung: We hold the following certifications: federal and California Drug License; NSF International GMP and GMP for Sport registrations; Natural Products Association GMP; organic certification through Oregon Tilth; halal certification through IFANCA; and kosher certification.

Companies do expect their contract manufacturers to have certain certifications-mostly GMP certifications through NPA or NSF. It will be interesting to see how dietary supplement companies look at NPA/NSF certifications as FDA continues its own audits and the industry as a whole becomes more compliant and better regulated.

 

Bledsoe: The demand for TGA certification and requirements for Australia has increased. We have been one of the pioneering companies in the whole process and have been of great assistance to our partners in this area.

NSF Certified for Sport has been another area of increased demand. Not only does our facility have the NSF GMP for Sport registration, we have also earned NSF Certified for Sport certification for our recovery product.

 

Majeed: Kosher and halal certification are requested most. Our primary customers go overseas for business and they are keen on these two certifications. Along with these, a state license for business operations and of course a GMP certificate are crucial.

 

Kwon: There does seem to be increased interest in halal and kosher certification. Vesta is GMP certified by the Natural Products Association. We use this as a marketing tool.

 

Bray:  Our facility in Kearny, NJ has GMP registration monitored through NSF. We have organic certification through Oregon Tilth, OU kosher certification, as well as halal on product-by-product basis.

 

Akand: We have the following certifications: NPA GMP, NSF GMP, NSF ISO 9001:2008, QAI organic, kosher, and halal.

Our customers know that FDA’s limited resources-time, money, and manpower-may prevent auditors from being able to visit manufacturing sites as often as they’d like to. Third-party certifications ensure customers that we are audited throughout the year. Sometimes, we are audited five or six times per year.

 

As a contract services provider, what are some of your biggest challenges these days?

Kwon: Turnaround time has dramatically increased as a result of the raw material and finished product lab testing the contract manufacturer must now perform. Many of our customers, however, have not adjusted to the longer required lead time when ordering products.

We are challenged to both educate our customers on the need to order sooner and to make our own processes more efficient.

 

Ung: Raw materials are the biggest challenge. From a quality and testing standpoint, some ingredient suppliers still have a learning curve regarding the testing requirements based on the new GMPs.

We should point out that many of the more established and reputable ingredient suppliers have certainly stepped up in communicating with contract manufacturers, getting their materials tested and providing the information we need.

The other challenge from a raw materials perspective is that supply of certain materials and pricing can change on what seems like a daily basis. Our industry goes through shortages of various materials every year, whether it be CoQ10, gelatin, cocoa, whey protein, vitamin E, astaxanthin, or certain fish oil concentrates. These shortages, coupled with price spikes with little to no notification, are significant issues for our industry.

 

Majeed: Also, we don’t see enough customer inspections. Quite frankly, this alarms us because it’s part of the GMPs to conduct these types of vendor/facility audits. Maybe it’s due to a lack of knowledge in terms of auditing.

Marketers need to understand that the days of only auditing contract manufacturers through self-questionnaires are gone. While questionnaires are still around, they should be merely a formality prior to a physical audit.