I have read many articles published over the years on the topic “How to Work with Contract Manufacturers” and similar missives. As a veteran of the industry, I’ve mostly found these to be demonstrative of the contract manufacturer’s responsibilities while often minimizing the role that the client must play in the process of attaining sales success. Though I am a veteran of the supply side, I will put on the demand side hat here and avail my insights into how to make things work well for you, the client, to share with you the skinny on the other side of the table where the contract manufacturer (CM) sits.

Clarify and communicate your products’ concept and purpose. One would expect clients eager to enter a market with products bearing their own label to have a clear idea of how that product should function and what it should look like. In many cases, you would be wrong. I have had to question prospects on many occasions regarding the attributes and applications their product must convey. What will your product look like and will this product provide value for your customers? Without clarity of purpose, the product is likely to fail, as most do, whether HBA or HI&I. You must also plan for the package while planning for the application. This has been noted in previous articles on this topic and it can’t be stated enough. How your product dispenses, maintains storage, and appears in the customer’s eyes and hands can be nearly as important as how it is formulated.

Write a CMA

Craft a Contract Manufacturing Agreement (CMA). Many clients sign Confidential Non-Disclosure Agreements (CNDA) protecting their intellectual property, but never think to have their requirements codified in a written agreement. Many CMs provide boilerplate versions and you should ask about these. Increasingly these days, it is insurers, investors and legal counsel requiring these agreements.

Manage your inventory and issue realistic ship dates. This will always work to client’s advantage. I have literally taken orders over the phone from clients ordering manufactured goods as if they were at a fast food drive-through window. This habit is primed for failure and gives the CM little confidence in the client’s ability to manage or pay for their own inventory. When you place an order with a CM, do not expect that order to be turned around in 5-10 days. We are not like Amazon, with stock just sitting there. Place orders with ship dates six to ten weeks out.

Create an intelligent Bill of Materials (BOM) for your product (see Figure 1). This simple tool, known to all involved in the manufacturing realm, will improve inventory control, production logistics, quality assurance and the quote time for new projects. Create your own finished product SKU numbers and part numbers for all materials you are to supply; cross reference these with those applied by the CM so nothing gets lost or confused. This will act in your favor when inventory reporting is done.

Require reconciliation and reporting of your customer-supplied packaging materials or specialty ingredients provided to the CM. Inventory reporting for these client-supplied articles may be quarterly or semi-annually (please, not monthly!) but get clear on it. For example:

Client: “I had no idea we had two million four-ounce jars there until we received a past due invoice from the supplier. We ordered only 250,000.”

CM: We never questioned what was delivered, we just assumed you knew what you were doing.

Establish clear lines of responsibility and communication. This comprises the preferred contact persons and contact modes; e.g., email, phone call, text and office visit. Ask where and how to send orders and get the name of your account manager. Identify the persons at both the CM and your business to be contacted regarding quality issues, shipping logistics, order status, payment and new product development. The scope of communication is critical. Clients may want to share their supply chain purchase orders with the CM to alert them of inbound raw materials.

Remember to discuss quality. Familiarize yourself with the language of quality control. Read up! Product defects are “nonconforming product” not “defective.” Ask the CM to introduce you to its senior quality professional. Many CM will invite their QA/regulatory director to initial client meetings. That should give you confidence they take quality seriously. Define and discuss quality standards and the actions to be taken if standards aren’t met. This ensures the CM understands you expect standards to be high.

Be clear on payment terms and their consequences. Payment terms and manufacturing accords are usually related, so know the constraints.

Client: I know we are past due by 25 days, but our retail customers aren’t paying us until 90 days, and we can’t back-order these people or we’ll lose our account unless you ship!

CM: Why didn’t you manage your cash flow as carefully as we have ours?

Regarding ingredient ideas, don’t assume the CM has every ingredient in the marketplace. If you are selling personal care products, ask the CM which novel ingredients they already stock, then perhaps contour your concept to include these to save both parties time and money. Clients get excited when they learn about these materials. Most clients are not keenly aware of chemical ingredient technology; they need to be walked through ingredient utility much of the time.

Regulatory Requirements

Get your regulatory act together before committing your product label to print. In the old days, you needed to spend hours at the public library or at state agencies researching the requirements for commercialization of a household care product or personal care product package. With online resources, there is no excuse not to have your research in hand before you start.

Surely you have heard of the Federal Trade Commission (FTC), the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA). Even if clients think that their vegan algae control treatment is the bomb, they cannot add unregistered biocides to swimming pools, which ultimately drain into sewers, treatment plants and aquifers.

Sometimes “thought leaders” just don’t want to bother with these messy technical details, hoping the CM takes care of it all for them like a helicopter parent. That is not a successful strategy. If you blithely walk the regulatory path or fail to consider safety issues in your formulation and product packaging, you may soon find yourself bankrupt. It is not the regulatory agencies that will rain down on your business, it is the litigators, my friend, who are out there waiting for you to misstep, and, when you do, it is 90% likely that you will settle not defend.

Ask your CM to review and critique your formatted label copy artwork for errors, regulatory approval and marketing miscues. As a value-added service, most CMs can guide and help you with label details and content integrity. The client may spend much energy including a certain ingredient but fails to mention this in the label marketing copy. A considerate CM will note this and raise the issue. There may also be artwork attributes that can interfere with packaging operations; e.g., red UPC barcodes are not machine readable. Clean it up before printing and you’ll be happy with the outcome.

Control What You Can

Like any personal relationship, functional or otherwise, there are actions and issues you can control and those you cannot. The serenity prayer, abridged for the contract packaging experience, applies here:

God help me control the things I can, forgive those who did not control the things they could, and accept the things I cannot control.

Manufacturing schedules can vary week to week. Some CMs get suddenly busy with big volume production with other accounts. This factor plays into your own orders’ lifecycle. CMs will try and placate you as best they can (being a squeaky wheel helps!), but your order delivery date may well be pushed down the road because their schedule—and their capacity—are overwhelmed at that time. Understand this condition is not usually permanent and try to go with the flow.

A corollary to this is a nefarious one: beware the CM that markets its own products under a private label. These companies may be competing with you. During the vetting process you should come straight out and ask: are you manufacturing products under you own label and will you describe these to us if you are?

CMs may deflect or deride this inquiry, or they may answer vaguely. There may be a weasel in the room, and it isn’t hard to find. A weasel CM may think “this is such a great idea, I can’t wait to share it with our own brand’s group!” Don’t do business with weasels. It’s bad for your brand and bad for your disposition. There are many CMs who value their integrity and these companies will flat out tell you about their house brands if they have any. I know because I’ve worked for some.

Inquire about the experience of the CM, not only their skill set, but what they have seen succeed or fail in the past. You would be surprised how many times I’ve sat in a meeting with a prospect, heard their enthusiasm and thought, “I’ve seen this before and these folks are selling the same thing the same way and will fail just the same.”

Ask your contract manufacturers about their experiences with similar products and packaging. Consider this free marketing consulting! Unless asked, the contract manufacturer will always try to share your enthusiasm because we too want to “feel the love” on your project.

Send Money!

Brian Corcoran, president of Solo Laboratories, relates “I cannot recall how many times I needed to remind clients initiating projects with us that we were not a venture capital firm. No, sir. No, ma’am. We are only manufacturers and you need to finance your own business growth.” 

Cash sets the manufacturing wheels in motion, not good intentions nor dreams of success. Until the CM receives a down payment, little or nothing will get done on your project, you can count on it.

Here, then, is the ideal customer from the prospective of the CM, the one who gets the fastest quote, the best price, the most deference. This client that provides a clear idea of their product idea’s physical attributes, application, and intended results, preferably with a benchmark to be surpassed. They supply an intelligent BOM, actual samples of the prescribed packaging, label content artwork already underway, realistic order quantities, clearly defined distribution logistics, ship-to location posted, a contact list, and a request for bank transfer information for their cash deposit. That client gets widely discussed at the CM’s next planning meeting. The CM wants to please this client because it is likely to produce repeat sales.

Then there is the client who offers no clear description of a product’s attributes, no firm order quantity, no formula, no BOM, no clear packaging idea, no label art (only a trade name,) unrealistic time to market, no cash available for a deposit; and offering little marketing or distribution logic, only dreams of success with a breakthrough product idea. That client walks away into the wilderness thinking they contacted the outside world, not knowing the tribe has packed up and moved on already. The CM knows this project will evaporate along with this client’s dreams.

The client who begins the contract manufacturing process with just a goal while offering none of what they truly need for their success, gives the contract manufacturer little confidence in that brand’s ability to produce repeat sales. Trust us, we’ve seen ‘em all.  

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Matt Zoeller is director of business development for Solo Laboratories, Inc. of Broadview, IL, a full-service contract manufacturer of personal care and home-care products. A veteran chemist and instigator of new product ideas for industry, he has made a career helping others with vision see their concepts become reality. He may be reached at 708-544-2200 or matt@sololabsinc.com.