Last Updated 1/8/18
Introduction
Contract Manufacturing: A Partnership. Contract manufacturing is a partnership between the company
needing the product (contractor) and the company manufacturing it (processor). The contractor knows the
details of the product, how it is made, potential problems and some idea of its costs and potential selling price.
The processor knows the intricacies of the equipment and plant, and production and overhead costs. For this
partnership to be a success, both parties must make money.
The initial burden of selecting and working with a processor falls on the contractor. This should be an engineer
familiar with the equipment and production requirements, a quality control person and a project coordinator.
Product Quality: A Concern. The greatest concern when production is entrusted to an outside company is
product quality. To minimize problems, you should have detailed production instructions and quality control
guidelines incorporated into the contract. During initial production, the engineer, quality control people and
production supervisor should work continuously with the contractor.
Once you are confident that any problems have been eliminated and production is satisfactory, you can reduce
the amount of supervision to normal levels as specified in the manufacturing contract. At this stage, you should
set up regular inspection visits and receive regular quality control reports. You should also be running product
test panels on a regular basis, just as you would on products made in your own plants.
At some point as production increases, you should consider a second source of production. There are two
reasons for this: yours and the processor's. From your standpoint, you don't want the availability of a
successful product to be totally dependent on a company beyond your own control. If the processor decides he
doesn't want to make your product, raises the price or just goes out of business, you no longer have a product
to market.
The processor, on the other hand, doesn't want to be totally dependent on only your business. If you ever
decide to terminate the contract, you would probably put him out of business. This can be a major concern
when your product comprises more than half of his total production.
Many other factors enter into the selection of a processor. The accompanying checklist provides a handy
reference.
- Courtesy of: Prepared Foods New Product Annual 1988
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Last Updated 1/8/18
Co-Packing Checklist
Location
1. What is the proximity of plant
to ingredients and/or raw materials?
to packaging suppliers?
to interstate highways and/or railroads?
to a reliable labor pool?
2. Will the location allow low-cost and efficient distribution of your product?
3. Will the location allow you to expand your traditional market areas?
4. Does the local government take an adversarial role to this kind of business?
Plant Capacity
1. What is the capacity of the plant?
2. What percent of the plant's and processor's total production will your business represent?
3. Will you be consulted if the processor increases or decreases your percent of his capacity?
4. How will increases in production capacity be accommodated?
additional work shifts?
plant and equipment additions and expansions?
other (explain)
Processing and Packaging
1. Is the general arrangement of the equipment in the plant conducive to good quality control and
sanitation?
2. Could modifications be made to the general arrangements that would correct any deficiencies?
3. Who owns the equipment in the plant?
4. Is there space available for additional equipment that may be required for future product line
extensions?
5. Who will purchase packaging supplies?
6. Will the processor make packaging on-site?
7. Can the processor quickly and efficiently accommodate changes:
to your process?
to your ingredients?
to your formulations?
to your packaging?
to your shipping practices?
8. What will the processor charge to change your product, package for formulation?
Quality Control
1. How many QC people are on staff at the plant?
2. How well trained are they?
3. Are they using or familiar with statistical process control (SPC)?
4. Are control procedures in place to ensure that finished product weights and volumes will meet your
product specifications?
Warehousing and Distribution
1. Is there sufficient storage area for raw materials to take advantage of large quantity or bulk purchase of
ingredients?
2. Are there warehouse procedures to maintain the integrity of your product before it is shipped?
3. Will the processor handle product distribution?
4. Does the processor meet your standards in the way it handles products from the warehouse into the
shipping vehicle?
5. Is competitive commercial trucking available?
6. Does the processor operate a truck fleet?