How to Evaluate and Select the Perfect Third-Party Manufacturer for Your Product
The significance of third-party manufacturers in product development and supply chain
Third party manufacturers are every brand owner’s delight. A contract manufacturing provider or a third party manufacturer helps to keep the production worries of the brand owners at bay.
Importance of making the right choice for your business success
One has to be firm about making a decision between the production woes and managing the brand. The decision is to be able to manage the production, which will involve R&D, Quality control, optimizing production cost as well as maintaining the Raw Material for the products. This is a full time job and adding the burden of managing the marketing, sales and distribution of the brands. The cost implication of the marketing activities is already high, and add to it the responsibility of managing the raw material and the production equipments.
Understanding Your Product Requirements
One has to be firm about making a decision between the production woes and managing the brand. The decision is to be able to manage the production, which will involve R&D, Quality control, optimizing production cost as well as maintaining the Raw Material for the products. This is a full time job and adding the burden of managing the marketing, sales and distribution of the brands. The cost implication of the marketing activities is already high, and add to it the responsibility of managing the raw material and the production equipments.
- Defining your product specifications and manufacturing needs
Product specifications are the details around the product. To sell a product effectively in the market, one has to understand the market and its needs in multiple terms. The major aspects of efficient product selection are – USP of the product, hero ingredient, problem solved by the product.
- Identifying critical factors for production success
- Quality standards
- GMP-ISO certified production unit
- FSSAI Certification in case of edible products
- FDI Certification for formulations involving chemicals
- Ayush Certification for Ayurvedic formulations
- Volume requirements
The production capacity is a major identifier while deciding the kind of production unit to suit the urgency for your brand. The lack of facilities in your production unit can adversely affect your inventory management as well as yield of the marketing activities.
- Manufacturing capabilities and technologies
Manufacturing capabilities have more to do with the standards being set by the brand. The quality levels of the brands can only be met by the efficiency in the technology at the production level. For Instance, for pouch filling, if the filling is manual – then the quality may not come out to be as desired.
Researching Potential Third-Party Manufacturers
- Online platforms and directories for manufacturer sourcing
There are multiple platforms for finding the right supplier for producing the SKUs. There are B2B vendors such as Indiamart.com, tradeindia.com and Justdial etc which are resourceful in finding the right supplier.
- Industry referrals and networking
Networking is the key to running any business successfully. The business referrals help a lot in meeting the trustworthy vendor to fulfil all your production needs. The referrals are usually to obtain mutual benefit, in some cases the benefits of referrals can also be obtained via networking platforms such as BNI.
- Evaluating the manufacturer’s reputation and credibility
- Past client reviews and testimonials
Google is by far the best way to assess the manufacturer’s capability. The quality of reviews matched with the ratings of the manufacturer, will help to find the right supplier for fulfilling the production needs.
- Certifications and industry accreditations
Identify the brand needs depending on the kind and quality of the products to be manufactured. Different manufacturing units have different kind of certifications – choose from the one that suits and meets all your needs.
Quality Control and Assurance
Understanding the manufacturer’s quality control processes
Quality is by far the most important aspect of developing and starting a brand. Quality control should be well understood from the developer while starting the manufacturing process. The important questions to address are –
- What are the quality control measures adopted?
- Are there any control samples kept?
- What is the duration for which the control samples are kept?
Communication and Collaboration
- Establishing clear lines of communication with the manufacturer
- Assessing their responsiveness and willingness to address concerns
- Ensuring alignment of goals and vision for the product
Cost Analysis and Pricing Structure
- Requesting detailed cost breakdowns for manufacturing services
Detailed breakdowns of the cost are essential before engaging in any manufacturing partnerships. The manufacturing cost is a mix of packaging cost, production cost (which includes labor cost and cost of raw materials). An important point to note here is the conversion cost – an umbrella cost to account for all the steps involved in the job work during manufacturing and packing the final product. The cost varies from company to company and every step in the job work is accounted for while calculating the conversion cost.
- Evaluating the overall pricing structure and payment terms
While many may consider only the pricing structure while finalizing on the MRP of their products – we suggest that if a manufacturer is giving you good credit terms, take a relook at the quality provided by the multiple vendors.
- Comparing quotes from multiple manufacturers for cost optimization
Take multiple samples from different vendors and ask them to match the sample up to your expectations. The quality desired from your products is a result of the extensive market research to find the right product that fits your requirements.
Supply Chain and Logistics Considerations
Evaluating the manufacturer’s location and proximity to your market
The geographical presence helps to save the logistics cost. The cost of logistics is quite a bit while manufacturing products in bulk. The close proximity also helps to keep a close eye on the manufacturing best practices all the while keeping a close check on the quality aspects as well.
Contract Negotiation and Legalities
- Drafting a comprehensive manufacturing agreement comes in handy in the adverse scenarios such as non-compliance to the quality standards or unable to meet the delivery timelines.
- A detailed clarification on the terms and conditions, including intellectual property rights is extremely important to protect the interests of both – vendor and purchaser. In the absence of the ability to fulfil the commitments by either one of these – the legal agreement is binding.
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