The premise is pretty simple: manufacturing companies take a small business' recipe, formulation or production process, and make it en masse using their facilities, allowing smaller brands to ramp up production without heavy investment. Some co-manufacturers even store the products and ship them out to retailers.
Of course, getting a product made without investing in machinery sounds like a dream scenario. But, for small businesses in particular, there's a lot to iron out before jumping headfirst into a co-manufacturing partnership. We spoke to two business owners on how they navigated that process – and whether it was right for them at all.
Co-packing is collaboration
According to JD Furlong, founder of CBD snack-bar brand Nooro, small businesses need to start by being realistic: ‘Co-packers are approached by hundreds of startups with ideas. You're a small player trying to get time on their production line in between businesses bringing in millions.’ So, it's important to show what you can bring to the table, JD says. ‘If you've got a professional prototype, which is as close to a final packaged product as you can get, that would elicit a much better response.’
Your co-packer has the potential to become your entire supply chain, JD adds, especially if it's also taking on packaging, storage and distribution responsibilities. So, be sure to visit the factory to see where and how the product is being made. Get your team involved as well, so the responsibility doesn't just fall on you as the business owner.
There are a lot of options out there, so here are some questions to ask.
• Is the co-manufacturer able to meet your product specifications?
• Does its minimum-order quantities match up to what you'll be able to sell?
• Where is it based and does that correspond to your distribution network?
This webinar by New York-based non-profit bakery Hot Bread Kitchen explores the legal and operational ins and outs of co-manufacturing.
It's not for everybody
Micaela Nisbet runs skincare brand Neighbourhood Botanicals. ‘There's a point at which you have to go from making 50 products to making 500, and you can't do that from your kitchen,’ she says. That was when she explored the option of partnering with a co-manufacturer. It signed a non-disclosure agreement for her formulas and she told it which suppliers she used for her oils and sent over the packaging and label specifications.
This allowed Micaela a degree of flexibility, especially as she was often working away as a sound engineer. But it wasn't particularly effective: ‘Because you go into a production queue with other brands, there's a long lead time from manufacturers,’ she says. ‘It could take six weeks for them to produce a batch, which would have taken me just a week in my kitchen.’
And, when she did the calculations, she found that the fees she was paying to co-manufacturers and fulfillment centers were only marginally different from the costs of staffing her own production line. By taking everything back in-house, Micaela maintains a closer relationship with her customers, and she has a more consistent ebb and flow of money because her team can make and sell items fairly quickly. ‘Have all the calculations,’ she says. ‘Know how much everything is costing you. Nothing should be a mystery.’
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