With more than 100 co-packers specializing in food and beverage products in California alone, how do you find the right partner?
When companies are outgrowing their garage or the space they rent in a commercial kitchen, they look to outsource the packing of their products to a professional co-packer.
Before you start searching for a co-packer, you need to ask yourself what the drivers are to outsource and whether your business is ready for a co-packer.
Do you like selling or making your products? If you are in the business to sell your products and grow your brand, focus on the selling and branding part. If you enjoy making the products, focus on production. Especially for startup companies it is very challenging and time consuming to do both. Outsourcing the packing of your products helps you to focus on your core business, reduces the need for capital investments in equipment and facilities, and lets you better deal with volume peaks and uneven demand.
Outsourcing to a co-packer doesn’t always mean that you will save money. In reality, a co-packer is often more expensive, especially if you don’t properly allocate your own time and efforts while packing the products at home or in a commercial kitchen. Professional co-packers are offering a service and must recover direct and indirect costs and want to make a profit. You also must factor in shipping the products to / from the co-packer.
Working with a co-packer means you will lose control to a certain degree over your products and how they are manufactured. A co-packer might have some limitations when it comes to equipment, facility and labor, and you may have to pay extra for additional services and production shifts. You are also dependent on the co-packer’s schedule, processes and capacity.
Outsourcing the packing of your products is a very critical and strategic business decision. And as such, it shouldn’t be rushed or concluded easily. The process of defining the required services and service levels, evaluating potential co-packers, selecting the right partner, negotiating the terms and conditions, and planning the transition and start-up of the operations can easily take 6-12 months. Having a thorough understanding of your product and your production processes is crucial. This foundation makes it easier to evaluate and select a co-packer that will help take your business to the next level.
Outsourcing is not for everyone and the pros and cons must be evaluated very carefully. Many of the potential cons can be avoided by taking a structured approach and proper preparation while choosing a co-packer. If you decide to outsource, here are some considerations in finding the right partner:
Values and cultural fit
The right co-packer is not just a service provider, but a strategic partner for your business. The goal should be to grow together and form a long-term relationship.
Look for a co-packer that is passionate, engaged, committed and transparent. A good match of personalities between your and the co-packer’s key staff helps ensure a successful relationship.
Trust is essential to a successful outsourcing relationship. Ideally, trust-building should begin before the agreement is signed. During the evaluation process, meet with the key members of the co-packer and visit their facility. Invite them to your current operation (if feasible) and show them your products. You and the co-packer need to be confident that both parties are ready to work collaboratively on solving problems when they arise. In general, a more transparent co-packer will make a more trustworthy partner.
Always research a co-packer’s reputation and history. Ask for references and talk to your industry contacts. Inquire if the co-packer was ever involved in a recall and if so, how the situation was handled. Check what other products the co-packer is producing, how the products present on a shelf, and whether the products meet your own standard.
Competence and offered services
Make sure that the co-packer meets your requirements in terms of expertise, facility, equipment, resources, flexibility, and services. Look for a co-packer that has serviced other clients with similar product lines and packaging needs as yours. Ask the co-packer about the seasonality and peak season of their other clients and how far in advance you need to lock in the production schedule. This will give you an indication about possible capacity constraints and flexibility of the co-packer. Verify if the co-packer wants a guaranteed volume and what the required minimum runs are.
The co-packer should be of comparable size to your company, ideally a little bit bigger. If the co-packer is too big, you will be a small fish for them and not be given priority during peak season and capacity constraints. If the co-packer is too small, you will make up a substantial portion of their business and you might not be able to benefit from synergies and learning from other clients. You want to find a partner that wants to grow with you and that allows you to scale your business.
Does the co-packer offer any additional services? Some co-packers support their clients in R&D, buying of packaging material and ingredients, inventory management, warehousing, and fulfillment. Very often a co-packer offers more than just packing services and they can complement your in-house capabilities.
Safety and quality programs
Ensure that quality and safety is the number one priority of the co-packer. Only work with a co-packer that has a quality program in place, undertakes quality inspections, and gets their facility audited on a regular basis. Check what employee safety procedures and policies they have implemented.
Ask about their certifications; depending on your products and your customers, a co-packer needs to be certified in GFSI, HACCP, BRC, AIB etc. It is important to verify that the co-packer can provide the certificates you need; for example, organic, gluten-free, non-GMO, vegan, halal, or kosher. Inquire about what allergens are handled in the facility and if they have segregated nut and nut-free zones.
Do your products need to be temperature controlled? How does the co-packer apply and manage best before dates, lot codes, and traceability? Talk to the co-packer about their recall management program and who would be responsible for conducting a potential recall.
Location
Ideally, a co-packer should be relatively close. Having the co-packer far away can create logistical challenges and additional costs with transportation and warehousing. Having the co-packer close by makes it easier for you (or someone from your team) to visit the facility for inspections and other meetings. It can help build trust and improve transparency. However, working with the right co-packer in a farther away location can easily outweigh potential transportation cost savings.
The co-packer should be located near big transit hubs and ideally in the region of your main customers. If you import / export products by air or sea freight, consider a co-packer close to an airport or sea port. This will help to reduce your transportation costs.
Managing expectations
Managing expectations (on both sides) is often the most challenging aspect of working with a co-packer. Always remember that the co-packer is likely managing multiple clients, and quite often clients with the same cycles and seasonality. The main goal of a co-packer is to maximize the utilization of their lines in the most profitable way possible.
Go prepared into the first meetings with the co-packer and know your products (volume, lead time, packaging requirements, production process, special product requirements, and other critical needs.). It helps if you are as transparent and realistic as possible with your demand forecasts and share production volume expectations, seasonality, your current stage of business, and future growth plans.
It is always recommended to have a comprehensive co-packer agreement in place that defines the specific terms and conditions, obligations, and requirements for both parties. The agreement should also specify the agreed services and service levels. In addition, you might want to consider having the co-packer sign a non-disclosure agreement and a non-compete agreement. Discuss your expectations for a service agreement, non-disclosure agreement, and non-compete agreement on a high level during the evaluation phase with the co-packer.
About the Author
Rene Jacquat is the principal of LogiChain Solutions, LLC, based in San Francisco, United States. His experience includes operations, supply chain management and logistics in the consumer goods industry. Rene supports food & beverage companies in supply chain strategy, supply chain & distribution network design, supply chain diagnostics & risk management, sustainability and outsourcing logistics services.