The Rise of Contract Manufacturers: Why Brands are Shifting from Skeptics to Advocates

By Matt Lenzen

The Rise of Contract Manufacturers: Why Brands are Shifting from Skeptics to Advocates

The Rise of Contract Manufacturers: Why Brands are Shifting from Skeptics to Advocates

1024 683 Specification Data Management Software

Matt Lenzen, VP Sales at Specright

It wasn’t long ago that brands were reluctant to use contract manufacturers (also known as co-manufacturers or co-mans). After all, the reasoning typically went, they would never “trust someone else to run their product!”

But brands are starting to change their views of co-manufacturers as a result of changing market dynamics.

 

Market Trends Driving Contract Manufacturing

In fact, according to the Contract Packaging Association’s 2018 State of the Industry report, “the market has been growing at an 11.9% CAGR for the past five years, an astonishing two- to four-times faster than the industries it supports. By 2020, the CPCM [Co-Packing, Co-Manufacturing] market is forecast to break the $75 billion mark—a conservative number, notes the report—rising from $53.6 billion at year-end 2017.”

Global cost pressures, the rise of private equity in the food and beverage industry, hyper growth direct-to-consumer brands, and retailers demanding product faster than ever has opened the door for co-manufacturers to play a pivotal role in bringing the next wave of products to market.

Fortune 500 companies and challenger brands alike are strategically aligning themselves with co-manufacturers for a variety of reasons.

The Benefits of Contract Manufacturing

Leveraging a co-manufacturer allows brands to hold onto precious capital and not have the fiscal burden of production and all the incremental costs that come along with it on their P&L.

Instead, brands can repurpose dollars that would typically be tied up in production and apply them to marketing, sales, and customer acquisition. It’s not a coincidence that we’ve seen a rise in challenger brands coming to the market in a blaze of glory: co-manufacturers give them the needed flexibility and capacity to scale to market quickly.

The rise of co-manufacturers certainly comes with challenges and tradeoffs. Historically, some of the main challenges stemmed from quality control. After all, companies that leverage co-manufacturers had to coordinate with departments across multiple companies and geographies, along with the FDA and the USDA. Not an easy task, especially if you’re a younger brand.

Enabling Brand Collaboration with Contract Manufacturers

The good news is, quality risks are being mitigated by software solutions that enable brands, suppliers, and co-manufacturers to better collaborate.

At Specright, we’re enabling this collaboration through our Specification Data Management platform, which serves as the single-point-of-truth for customers and their co-manufacturers.

Documents like certificates of compliance, quality control records, formulas, and packaging specs can be stored and shared on Specright’s globally accessible, cloud-based platform. Workflows are then layered on top of specifications to ensure that critical tasks and approvals aren’t missed in the process. Brand users can also see what changes have been made and proactively audit specifications.

Not only is this beneficial for brands, but also for co-manufacturers – after all, it allows them to do what they do best: focus on production instead of managing specs.

Creating traceability, visibility, and accountability between brands and co-manufacturers will help bridge the trust gap and ultimately make it easier for brands to explore the world of co-manufacturing.

This will lead to better partnerships between brands and co-manufacturers, and also better, more innovative products for customers.

 

Matt Lenzen is a VP of Sales at Specright. He has spent over 20 years in the packaging space, working with global food & beverage companies including Nestlé, Kraft, and Pepsi to deliver innovative packaging solutions.