Outsourcing: What to Know about Food Contract Manufacturing

What is Food Contract Manufacturing?

The term food contract manufacturing, also known as outsourced food manufacturing, refers to the practice of using a third-party company to produce food or beverage products, or essentially outsourcing a manufacturing process on behalf of the contracting business. This can include everything from product development to food formulation and ingredient sourcing to food processing, labeling, and packaging.

Why are food companies using contract manufacturing now more than ever?

According to Inecta, “The demand for outsourced food & beverage production has grown significantly in recent years as businesses look for ways to optimize costs, increase production capacity, and focus on their core competencies.” Other factors have also had an impact. Evolving consumer food preferences and a globalized economy have moved many brands to turn to more specialized, expert partners who can help meet changing market demands.

Aptean says, over the past few years, “contract manufacturing in the food & beverage industry has skyrocketed in prevalence, reaching a global valuation of $120.96 billion in 2021 and is projected to continue expanding at a compound annual growth rate of 9.5% through 2030.” Reasons they cite for the surge include increased demand for retail products resulting from the COVID-19 pandemic, as well as brands’ increased focus on key differentiators and product innovation.

A Question of Quality

One of the main reasons to use a contract manufacturer is quality assurance or quality control. A reliable, trusted contract manufacturer will provide the best facilities to produce high-quality products. Those same products also depend on high-quality raw materials. Contract manufacturing firms are able to help clients add or change suppliers for optimal growth or meet market and supply fluctuations.

Maintaining those high-quality and food safety standards can be critical when choosing a food contract manufacturing partner. This is essential to protecting brand reputation and help mitigate the risks involved in safety incidents or product recalls. Be sure to assess potential partners’ commitment to regulatory compliance and third-party certifications, such as a Hazard Analysis and Critical Control Points (HACCP) plan, Good Manufacturing Practices (GMP), and relevant ISO standards.

A Matter of Cost

Another primary benefit of food contract manufacturing is cost effectiveness. Contract manufacturers often work for multiple customers, so the allocation of their machinery and workforce, and even their square footage/land space, is set up to work for multiple processes. Thus, they can offer food brands competitive costs for manufacturing. Since the expenses for land, machinery, labor, and maintenance are large investments, outsourcing makes it possible for food & beverage brands to reduce costs and advance their bottom lines.

This can be especially true for companies that have a product or products that experience seasonal demand. The cost of having an entire system set up just to manage seasonal demands could be prohibitive.

Considerations Before Outsourcing

Once the decision has been made to look at food contract manufacturing, there are several things to consider.

Intellectual Property Protection: Intellectual property safeguarding is a crucial aspect of outsourcing food manufacturing. Confidentiality agreements with your contract manufacturing partner help protect proprietary information, such as product formulations and production processes. This is also important for maintaining brand integrity.

Transportation & Logistics: Good, efficient transportation and logistics are paramount to customer satisfaction and a company’s bottom line. Be sure to consider a partner’s understanding of import or export regulations and trade requirements, if applicable, as well as any transportation-related cost-saving strategies. Good logistics means having the ability to navigate more than just roads or railways.

Production Capacity & Capabilities: A contractor’s adaptability to market changes or challenges, seasonal fluctuations, and possible new product introductions are important considerations. An outsourced contract manufacturer should be able to assure that they are able to meet production demands. They also should possess the flexibility needed to scale operations, if necessary. This adaptability is invaluable for businesses encountering seasonal fluctuations, launching new products, or responding to unforeseen market changes.

Outsourcing for Growth

A food contract manufacturing company can be instrumental in helping brands’ goals to grow and flourish. Choosing the right partner can help a food & beverage brand reach its efficiency and profitability goals. Knowing ahead of time why to outsource and what benefits can be gained are the keys to making those goals a reality.