“Contract Manufacturing is a part of outsourcing in food industry as it provides a lot of advantages.”
Like everything else, this business model has its pros and cons. A major advantage is that it allows you to maximize profits by saving time and money. Starbucks, for instance, doesn’t own any coffee farms. Its coffee, cocoa and tea ingredients are sourced from farmers and suppliers worldwide. The company aims to provide 100 percent ethically sourced cocoa and tea by 2020.
Another reason to work with contract manufacturers is that they have a good understanding of your project and industry. They can handle your project from start to finish, identify flaws and spot potential risks throughout the supply chain.
If you hire your own manufacturing team, they may or may not be able to do these things. A trusted producer, on the other hand, has years of experience in your niche and has worked with dozens or hundreds of companies like yours.
Contract manufacturing also makes it easier to manage your budget. With this business model, you can keep the design, fabrication, production, finishing and other processes in one facility. This may reduce your expenses, lead times and overall costs. The producer may even offer discounts to customers who purchase multiple services.
When you hire a contract manufacturer, you don’t have to be an expert in every aspect of your product. Let’s say you’re planning to launch a new protein powder. You have a solid formula, a business and a marketing team. However, you may not know what kind of bottle or container works best for your product and what materials are needed to ensure its safety and lifespan.
Your manufacturer will be able to make recommendations, help you decide on the best materials and handle the entire process on your behalf. Furthermore, he is legally required to produce your goods at an agreed upon level of quality. Not to mention that he already has the tools and equipment required for production, so you don’t need to spend extra on these things.
Advantages of Contract Manufacturing
- Manufacturing Assistance
- Product Development Assistance
- Special Assistance
- Construction Assistance
“We provide valuable services, assistance guidance in various aspects related to contract manufacturing companies who engage in selling products and services.”
The Disadvantages of Outsourcing Manufacturing
The disadvantages of outsourcing manufacturing are mostly related to the producer’s ability to deliver on its promise. Hiring unreliable or inexperienced manufacturers may lead to quality issues, sudden shutdowns, random fluctuation in production and conflicts. That’s why it’s essential that you have a solid contract and non-disclosure agreements with the companies you consider outsourcing to.
Another drawback is that you’ll have less control over the product. Again, a solid contract can help you avoid any issues and conflicts that may arise.
Furthermore, you may risk losing the intellectual property. It’s easy for those who work at a production facility to steal and use your formula or design. Sure, you can sue them, but the costs will add up. You’ll lose time and money, and it can even shut down your business.
Consider the advantages and disadvantages of manufacturing through another company before you make a final decision. Assess the costs involved and determine whether it’s worth the risk.
Here are some advantages of outsourcing
- Financial benefits—Clean up your balance sheet by eliminating assets, and have a more stable cash flow
- Strategic optimization—Think about your company’s core mission and whether it is relevant to continue certain operations
- Better management of the outsourced activity—In theory, you can choose a supplier that is a leader in the field
- Market discipline—You can align your costs with those of suppliers in the field
- Technology—In theory, you gain access to state-of-the-art technologies
- Flexibility—The resources no longer used in one area can be redirected to the company’s core operations
Here are some lessons on Outsourcing
- Look for compatible goals
- Focus on the best solution, not the lowest price
- Use a very detailed contract and up-to-date legal experts
- Share risks
- Involve key players
- Document the transition phase
- Communicate clearly from the beginning
When outsourcing, look for suppliers who are credible in the field and compatible with your needs, remain flexible as needs change, have the skills you need, can save you money and offer the quality of service you need.