Business is booming.
You’re selling out store shelves and online, and closing new accounts regularly. You can hardly find time to get to the kitchen to make enough product to fulfill orders and manage your staff. You’re starting to think your time might be better spent focusing on other parts of the business besides production.
Sound familiar? If this is you, it might be time to think about partnering with a contract-manufacturer (aka co-man or co-manufacturing) to make your product. We sat down with our friends at Catapult Commercialization and put together some key insights into the world of co-manufacturing.
DON’T BE SCARED
Finding and engaging a co-man can be difficult because you often don’t know what equipment they have, whether it applies to your product, or if it is the right scale. Those points, combined with the myths that co-mans are only interested in long-term large-scale business and that they are hard to work with commonly leads a startup to believe that co-mans are not worth their time. Additionally, there are true horror stories out there about unethical co-mans stealing a client’s product and making it for themselves.
However, don’t let these reputations scare you away! Not all co-mans are created equal, and there are some that make great and necessary partners as you scale your food business.
WHERE DO I START?
1. Figure out how to make your product with industrial manufacturing equipment
First, you need to figure out how your product can be made with industrial manufacturing equipment. Depending on how complicated your process and product are, you may need a food engineer to help you. Some food scientists may have this knowledge, but food engineers specialize in the cost-efficient production and commercialization of food products.
2. Find a co-man that has the equipment to make your product
Second, you need to find a co-man that has the equipment to make your product. If you make chips, it is likely that someone who makes chips is going to have your equipment. Additionally, a co-man with experience making a product like yours will be less likely to run into any major quality, safety, or operational concerns when they take on your product.
FINDING THE RIGHT FIT: WHAT QUESTIONS TO ASK
Once you’ve identified a co-man who fits your technical requirements, you need to determine if they will be a good business partner. Here are a few things you can ask to help gauge if it will be a good fit:
DO THEY OFFER TURNKEY OR TOLLING SERVICES?
A turnkey service will cover more than just the manufacture of your product. A turnkey partner will help optimize the process, source ingredients and packaging, cover shipping & receiving logistics, quality assurance testing, and sometimes even introduce you to potential partners in sales.
A tolling agreement means that the co-man will manufacture ingredients into products and put them into the packaging you supply, but it is a very hands-off relationship. They require you to deliver, pick up, and ensure that your product is made to the correct specifications. If you are looking for a lower cost partner, a tolling operation may be appropriate for your business, but you’ll have a lot more operational issues that you will have to manage day to day.
Turnkey:
manufacturing plus ingredient sourcing, shipping, testing, etc.
Tolling:
just manufacturing, hands off relationship
WHAT ARE THEIR UTILIZATIONS RATES?
Utilization rates indicate the amount of time that the systems are engaged in production, including clean up. A co-man that has a 40% utilization rate is generally hurting for business. This means you may be able to negotiate better terms.
Folks that have 80% utilization are pretty busy already and are looking for profit. It means they can be picky. It’s going to be a hard sell to get your product made if it is sufficiently complicated or outside their normal product set.
The right contract manufacturer can be one of the most important strategic business partners to help you grow your business.
The wrong co-manufacturer can land you in debt and tank your business; there are plenty of examples out there to back this up. Finding the right fit is an involved process that can take months, but KitchenTown is here to help! We’ve assembled a team of industry experts to help find and manage the right co-man for your product.
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