It used to be that most businesses weren’t too keen about using contract manufacturers. After all, such an arrangement would mean entrusting a third-party to control the production of their products. That is something that would have seemed inconceivable decades ago.
Over time, more businesses started to alter their view of contract manufacturers and for a good a reason.
Factors driving demand for contract manufacturing
According to an industry report by the Contract Packaging Association, manufacturing demand has grown more than 11% over the past five years. That demand is up to 4 times larger than what the market can support. Hence, there’s an ample opportunity for contract manufacturers to step in and fill the gap.
Consider that by 2021, the Contract food manufacturing industry will be worth at least $75 billion. It is well worth noting that this is a conservative estimate. Contract manufacturing reached the $50 billion mark in 2017.
So what exactly is driving all this demand, you ask? Well, a few things come to mind — the pressure to price as competitively as possible, private equities for businesses engaged in the food industry, increased competition, etc. These factors created a pivotal role for contract manufacturers in bringing the next generation of products to the market as quickly and cost-effectively as possible.
If you were to look at Fortune 500 businesses, you would find that most of them had strategically aligned themselves with contract manufacturers, and for a good reason.
What exactly are these reasons?
As you might imagine, there are notable advantages that come with working with a contract food manufacturer. For one thing, a contract manufacturer enables businesses to retain more of their capital and avoid the fiscal concern of investing in the production of new products that may or may not pan out.
Also, contract manufacturing allows businesses to repurpose marketing dollars they would otherwise have to spend on production. Instead, this can be spent on more important things such as sales, marketing strategies, and acquiring new leads.
It is no wonder that there has been a rapid increase in new brands that are doing remarkably well in their respective markets. This is mainly due to the flexibility that contract manufacturing allows startup businesses to scale as rapidly as they see fit with minimum risks.
What are there any downsides to contract manufacturing?
We’d be lying if we said that there aren’t any tradeoffs to contract manufacturing. The latter has its’ own unique set of challenges that businesses have to consider.
One of the more critical concerns about contract manufacturing is the issue of quality. If you align yourself with a contract manufacturer, you’d have to collaborate with multiple departments worldwide. Effective collaboration is no simple task, even for businesses that handle production internally.
Fortunately, contract manufacturers aren’t oblivious to their clients’ challenges and have taken steps to mitigate them. For one thing, most reputable contract manufacturers nowadays make good use of innovative software solutions that allow them to collaborate more effectively. Such software serves as a universal point of interaction for contract manufacturers and their clients.
Advancements in cloud technology also mean that it’s easier than ever before to share information as needed. Documents such as compliance certificates, quality assurance records, and product specifications can be stored on the cloud and available to all members (contract manufacturers and their clients) as though they’re in the same office. This ensures that no task is overlooked and that both organizations are well aware of their commitments.
As you may have already realized, contract manufacturing is now a more transparent and efficient affair for businesses looking to outsource production in exchange for savings and flexibility. This has enabled more brands to jump into the contract manufacturing bandwagon with profitable results.