Contract manufacturing in USA
/ By Karan Mudliar / Blog • Uncategorized/ • • / 8 Comments

What is Contract Manufacturing and Private Labelling?

There seems to be a lot of people who are not clear about the difference between what is Private Label and what is contract manufacturing. Both styles of manufacturing are prevalent in many industries such as confectioneries, beauty products, health products, food products amongst others. There is a fair bit of confusion not only about the conceptual difference between the two, but also about advantages and disadvantages of these two styles of manufacturing. Both styles of manufacturing offer not only different profit margins and cost structures but also very different kind of access to the market. In a nutshell, the end goal of both private label and contract manufacturing is same, that is to produce great products that consumers will love and buy often.

 

Let us first see what is the meaning of these two ways of manufacturing.

 

What is Private Label manufacturing. These products are typically those that are made by one company but marketed under another (usually well-known and well selling) company’s label. The manufacturing company retains the control over the product (specifications, quality etc). In other terms, the manufacturer is the owner of the product. They are usually positioned as a low-cost alternative to well-known products of same or different brand. For example, many superstores sell their own brands along with other well-known brands. These are generally more profitable to the store, as compared to the well-known brands. This is also a good way to enter a new market with products that are different but can be associated with brand or product. (e.g garment company launching perfumes etc). A lot of small product manufacturers also use this channel to associate with a bigger brand and sell their products. It helps in building their own brand without the expenses associated with the marketing of the brand or cost associated with operating a store.

 

What is contract manufacturing. Contract manufacturing on the other hand is simply outsourcing of the manufacturing process to another company, while the first company retains the product ownership. The owner company gives the specification of the product to be manufactured to the contract manufacture along with specific units of the products to be made. The contract manufacturer has no say in changing the specification of the products (or product formula), even if it is to improve the products. Depending upon the agreement, the product owner will either supply the raw material, or use the manufacturer’s expertise to source the raw material to the exact specification that is supplied by the product owner. In another term, contract manufacturing is simply process execution. Generally, there is no recognition of brand of manufacturing company in marketing of the product and the margins are lower for the manufacturer. However, there are usually large assured volumes along with multiple clients, which increase the overall revenue. This is a well understood, well established practice in almost all industries.

 

Advantages of Private Label Manufacturing. There are several advantages in retaining ownership of the product and being associated with larger brands.

  • Lower Marketing and selling costs. Here since the stores and marketing channels are owned by the larger store or brand, the cost associated with these business heads is virtually nil. You may need to spend on packaging and transportation, but after that the parent brand will take the ownership of selling the product to the customer.
  • Control of product. The manufacturer retains the control of the product. He can change and tweak the specifications, the ingredients, the formula and other things as he sees fit. New varieties can be introduced depending upon the customer response.
  • Better control over marketing. The manufacturer can decide upon the label design, give inputs on Logos and taglines. In many cases, the manufacturer even has a large say in the pricing of the product.
  • Brand recognition. The store or the carrying Brand may be different, but the product still carries your brand. If customers like the product, they will come back to your brand, asking for more. That way one can establish his brand in the market and may possibly venture out on his own. Many good and well-recognized brands had actually started this way.

 

Advantages of Contract manufacturing. Contract manufacturing is an attractive option for those who are looking to reduce marketing risk and maximize on their operational efficiencies.

  • Lower marketing risk. The production run is made to order for specific quantities. Thus, the sale is assured and there is practically zero marketing risk. All the marketing overheads and risks are absorbed by the marketing company.
  • Economies of scale. Contract manufacturer usually takes bulk orders. They also usually work with multiple customers and take bulk orders from each of them too. This means that they can maximize on economies of scales. Their machines run to maximize efficiencies. The resources are stretched for maximum productivity. The raw materials quantities orders are very large and hence procured at much lower costs than what an in-house manufacturer could procure them for.
  • Advanced skills. Since the manufacturer does not have to spend his resources on marketing, logistics and other business activities related to operating a brand, they develop their skills on improving production processes, improving quality and lowering costs. In many cases, they also have well developed relationships with not only the suppliers of their raw material but also with other suppliers such as packaging companies and logistics companies which result in better product at lower costs.
  • Quality of the product. We are talking about adherence to the specifications here. In those terms, one can expect high level of adherence to the specification for each individual unit manufactured or each batch that is made. Six sigma is usually a norm, not just a management talk in contract manufacturing.

 

 

Private label manufacturing and Contract manufacturing are two different facets of how you want to run your business. Marketing is a tricky business and has lot of risks associated with it. Contract manufacturing, though with lower margins is a safer bet. One can even create his own brand of contract manufacturing amongst the marketing companies, to which these outsourcing companies come to, again and again. However, if you are ready to take the risks of and venture out with your own brand, the rewards are yours to pick.

C0-packing, 3pl, warehouse ,fulfilment
/ By Karan Mudliar / Blog • Uncategorized/ • • • • • / 14 Comments

Myths and Realities of Co-Packing

Co packing, or contract manufacturing in other terms, is generally looked with an inferior eye. It is generally misunderstood that co packing is just a back-end production grunt work with no interest in the business of that product. However, truth cannot be far from this. Co packing is a highly competitive, engaging business that provides a lot of value to its clients. Here are some of the common myths that surround the co packing business.

 

  1. Co packing increases costs: Co packers are focused on manufacturing process optimization. They employ best and latest technology and developments to optimize their processes and reduce the cost involved in their processes. This subsequently means lower costs for their clients.
  2. Co packers do not have expertise: Co packers focus only on Manufacturing and Production of a subclass of a product. (e.g. in food processing, one co packer would specialize in processing of fruit products and a separate one in meat products) All the resources of the co packer are focused towards optimizing their manufacturing processes, increasing efficiency and quality of output and reducing costs and process times. Co Packers usually have the best talent focused on the process.
  3. Co packers do not invest in business: On the contrary, co-packers always strive to have the latest and the best machinery. One of the key differentiator for the co-packers is their technical infrastructure. The more modern and efficient machinery they have, the higher product quality and throughput they can achieve. It is in their own interest to invest in improving their manufacturing processes and they regularly do so.
  4. Co packers do not provide additional services: There is a general impression that contract manufacturers simply manufacture in bulk and deliver the whole bulk. However, reality is that Contract manufacturers provide many value-added services and final packaging is one of them. They provide retail size packing, labelling and collaborate with shippers to transport directly from their premises to distributor and other intermediaries.
  5. Co packing requires management overhead: The management overhead requirement really depends upon the requirement of the client. A good packer would have processes set and optimized, not just for manufacturing, but also for receiving order, raw material procurement, production, packaging, dispatch amongst others (i.e. the management processes). They would have efficient reporting already in place for their management, which is also shared with the clients. Clients gain high visibility into processes related to their products, with these reports. There really is no requirement for any overhead unless you are not confident about copackers processes.
  6. Certifications are irrelevant: Authorities issue the certificates only if the co packers adheres to the stick rules and regulations set by the authority. Certifications such as HACCP, OSHA, ISO 22000 (in case of foods) etc. ensure that there is no hazardous element in the food when it is manufactured. Certifications such as Six Sigma, GMP, TQM etc. ensure that the manufacturing practices followed by the co packer adhere to the best in industry standards. The benefits of all these certifications, which result in safer food, higher product quality and higher consistency, reduced wastage are passed on to the client of the co-packer.
  7. Co packers do not focus on quality control: Co packers are in business of manufacturing. They operate in B2B environment, where the focus on product quality and value gained from the engagement is higher relative to the B2C engagement. This means that the cost and the quality become two key parameters to differentiate on. Needless to say, co packers actually pay extra attention to the quality, simply to stay competitive.
  8. Co packing is slow and time consuming: Co packers or contract manufacturing business is a capital-intensive business. They install expensive machinery which has high fixed cost and limited operating life. It is in the interest of the manufacturer to make the most of their infrastructure to earn profits. Thus, it is in their own interest to be fast and agile churning the products quickly.
  9. Co packing means giving up control of operations: This is probably a myth from days when IT was still evolving. Today with advanced systems and deep integration into systems, the clients can have as much visibility as they desire into their outsourced operations. The limit here is client’s own bandwidth required for the oversight.
  10. Vertical integration may be a problem: Vertical integration, which means seamless transfer of material from one process to another, used to be an issue when the raw material used to go from client’s premise to co packer and the finished product used to come back to client’s premises for further packing and onward delivery. Today, the raw material can be directly shipped and stored at co packer’s premises, processed, packed and shipped to the downstream supply chain point of the client. Co packers, suppliers and logistics providers can be quickly integrated to give a seamless view of the process flow of the client.
  11. Co packers cannot scale up: Co packers are into business of manufacturing. For them growth in scale is growth in business. They keep abreast of latest developments in the field of production. Provided there is a justification for investment, co packer can scale up faster than an in-house manufacturing unit.
  1. You need to manage multiple relationships (vendor, shipper) with co packers: Co packers are not just contract manufacturers. A good co packer will have existing relationships with various other service providers in the value chain, right from raw material supplier to end shipper. If you so choose, the co-packer can work with the suppliers of your choice, or provide you with the option of working with their suppliers so that you have single point of contact for all your end to end needs. The downstream relationships are managed by the co packer himself.
  2. Co packers are only interested in transaction business: Co packers invest heavily into machinery. They like to maintain focus on improving their manufacturing capability, spending less resources on business development. They value long term strategic relationships more than transaction oriented business. Strategic long term partnership is where they can provide best value.
  3. Co packers do not do any research and development: Anyone who needs to stay competitive in any business needs to improvise. R&D is one of the key areas where co packers invest not only to improve their processes, but also to improvise on the products, should their client choose to.
  4. Lowest cost co packer is best co packer: Cost in an important factor, but as any businessman knows, it is only one of the factors of a successful business. Efficiency, quality and consistency are equally and sometimes more important than cost. Low cost product does not necessarily mean the best the best value product.
  5. I and my competition cannot use same co packer: Most co packers work with multiple clients. This helps them increase their utilization, keep the costs low and absorb and evolve best practices in the industry. Co packers are professionals who maintain segregation of not only your product but also maintain the secrecy of your formula from your competitions. In fact, since same machine is used for both, you and our competition the cost actually goes down, if you and your competition use the same co packer.
  6. Large co packers are the cheapest co packers: The general perception that bigger is cheaper is hardly true. Large units need large piece of lands and are located at remote locations. The transportation cost alone can eat up any gains made due to large facility. Further, a large setup needs to have a large number of units made in a single production run, otherwise it is not economical. If your production runs are smaller, the large unit will actually turn out to be more expensive.
  7. Co packers don’t understand the Market: Co packers are heavily dependent on the market environment. They understand that if the market of their client goes down, their business goes down too. So, they keep a constant watch on the markets of their client and also recommend changes and future direction to their clients. It is in their own best interest to understand where the market is heading, to manufacture relevant products.
  8. There’s no need to consider the Co packer in your strategic growth plan: A good co packer, will work with you to define and refine the production process, best suited for your product. He will make investment in his plant to accommodate your growth needs. Sharing and including him in your growth plans, not only helps him to plan his growth, it also provides you the benefits of reliable partner and ongoing reduction in costs.
  9. They are just a co packer: They can be much more than just an outsourced manufacturer. They can take up both upstream and downstream activities in value chain. They can make investment to scale up, as your business grows. They can also provide research and development facilities right next to manufacturing facilities. This makes a lot of sense as R&D can have direct input from manufacturing and vice-verse. You can leave all of these to your co packer, while you focus your energies into your core skills. They can be your true business partner.

 

Co packers add value when a business wants to focus its energies in its core competitive skills and delegate the product manufacturing operations to the experts. In fact, that is how many of the successful businesses operate today. Can you imagine, how Nike would operate if there was no co packing?

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/ By Karan Mudliar / Blog • Uncategorized/ • / 1 Comment

Sungistix: why we love E-commerce Fulfilment

There are many steps involved between receipt of an order and the final delivery of the product to the customer. Tracking inventory, repackaging, labelling, choosing a shipping service and tracking shipment are just few of key steps which need to be planned. These operations consume time and energy which are sparse in today’s business environment. Consider for example, choosing a shipping service. You have multiple shipping services providers with each one specializing in different aspect such as size of shipment, speed of delivery, location of delivery etc. You need to have tie ups with multiple shippers to be able to pick up the right one for each delivery. However, after having this tie up, someone in your organization needs to sit and choose the individual shipping provider for each individual delivery. You can imagine the kind of resources this activity can take. Now extrapolate to other fulfilment activities and you can perhaps visualize the scale and number of decisions that you need to take to ensure that your fulfilment operations are optimized. There is no need to elaborate that leakages in your fulfilment stream impact not only your bottom line, but also your brand perception. Imagine a holiday present reaching the customer after holidays because there was an error in choosing the right shipping provider. On top this, you need to do all this, while you continue to retain focus on marketing and managing your product/s.

 

This is where a Third-Party Logistics (and fulfilment) service provider such as Sungistix adds value to your e-commerce business. Fulfilment service providers, specialize in optimizing fulfilment processes. As this is their core area of operations, 3PL providers such as Sungistix derive the level of efficiencies that are seldom possible with in-house fulfilment services. Their extended relations with third parties (such as vendors and shippers) and in house capabilities provide e-commerce companies with Value added services which are at best costly to reproduce in house. Let’s quickly look at a few top benefits of partnering with 3PL’s like Sungistix.

 

Direct to customer, Drop – Ship fulfilment. Today retail customers are very demanding. They want a wide range of products to choose from, at lower costs and with faster delivery. One way to address these requirements is to make heavy investments in inventory and logistics. Another way is to opt for Direct to customer fulfilment, Here the vendor ships directly to your customer. This eliminates the retailers need to maintain inventory at the retailer’s end. It also reduces the transit time of the product and thus also reduces overall cost of the product. However, to work in this model, the retailer’s order must pass quickly to the right vendor, along with all the required packing and shipping details (including any promotional material that should be inserted in the packing) and then get the right shipper to pick up the product and deliver to the customer. This requires a high level of coordination and integration with multiple vendors, transporters and other suppliers in the chain. Managing these networks and integrations and keeping them updated can be a challenge in themselves. A 3PL provider such as Sungistix, provides Electronic data interface as a standard service and can integrate quickly with multiple vendors. Sungistix has existing relationships with multiple shipping providers which can be leveraged by the retailers to minimize their investments and maximize their reach. Sungistix operates on advanced and mature industry standard systems that not only integrate quickly with the systems of other suppliers, but also provide detailed tracking and reporting to the retailers about the status of their shipments and orders.

 

Multiple shipping service Providers. A good 3PL service provider should have network with multiple shipping service providers. The client should be able to choose the one which suits his needs best and the 3PL provider should then carry out transaction with the chosen shipper for that customer. An efficient 3PL provider would already be integrated with shippers and lets the client choose the shipper on the fly, as per his convenience. Sungistix has existing integrations with popular and well known shipping providers such as FedEx, USPS, UPS etc. It also has existing integration with foreign shippers such as Canadian Post. Retailers can leverage these existing relationships and integrations to choose the shipper that’s most effective for their needs.

 

Shopping Cart Integration. A 3PL provider should be able to pick up your order, right from where it originates, i.e. the shipping cart. Sungistix provides direct integration with most of the industry standard e-commerce shopping cart solutions. For other custom shopping cart solutions, Sungistix platform can be easily and quickly integrated with them for seamless flow of order details. From there the order is sent to the warehouse, which can also be the one operated by Sungistix, providing a seamless fulfilment experience. The order can also be broken down and sent directly to the vendors for fulfilment. Sungistix systems provide aggregated and detailed reporting for the status of every order received and processed. The systems are also integrated with the systems of shipping service providers to keep the track of the shipment.

 

Detailed Reporting. One of the issues that many retailers face with outsourcing fulfilment is the reduced visibility of the fulfilment operations. Since the operations are managed by third party, the information available is usually, at best, at the aggregate level. Sungistix provides detailed reporting that can be integrated with retailer’s systems. Information such as top selling SKUs, history of orders sorted by shipping method, shipping costs and other information is available to the clients. The granular data for each order is maintained in our systems and retailers have an interface to customize and aggregate the information as they prefer and that will be presented as a report at set periodic intervals. The retailer gets the maximum visibility into his fulfilment process, even though it is being managed by Sungistix. They can perform their own analytics, if they choose to, and derive the strategic information that’s most important to them.

 

For such and many other Value added services that Sungistix provides for e-commerce business, please Click here.

Co-packing
/ By Karan Mudliar / Blog • Uncategorized/ • • • / 10 Comments

Essentials of Packaging Design

You have created a superb product. No doubt it will serve the needs of the customer well but it still needs to reach the customer and it must reach him/her in top condition until it is time to use it. This is the primary function of packaging: To keep the product safe and intact until it is time for the customer to use it. However, it is just one of the functions that packaging serves. An effective packing should do a lot more than just keep the product safe. It plays the following roles to name a few.

 

Function – Packaging should be able to protect your product and keep it safe right from the point of manufacturing, throughout the transit, to your customer’s premises until he is ready to use the product.

Attraction – Packaging should be able to attract your potential customers into purchasing your product. The customer should be enticed to pick your product amongst the available options.

Promotion – The packaging should tell what is being offered and exactly what’s inside. Any information that will help the customer to make his purchase decision should be displayed clearly on the packaging.

Differentiation – The packaging should be unique amongst the comparable or similar products. It should be easily differentiable from the other competitive products.

 

Let’s look at some key points to bear in mind while designing the packaging.

 

Keep it Simple: The packaging should make the decision-making process of the customer easier and simple. The customer should be able to identify your product quickly and easily. If you are launching a new product, then the name, brand, description and other vital information should be easy to read and help in attracting customers.

 

Stand out from competition: You need to attract customers. For that your packaging should be different from your competitors. Scour the market and see how your competitor is packing its products. Figure out what innovation can you use in your packaging. The shape, colour, texture, anything can be used to differentiate your packaging from your competitor’s packaging.

 

Use good quality material: Show that you mean business when it comes to caring for your product. Good quality material conveys a premium image. It says that the product is so good that it deserves high quality packing. Besides this, a high quality material ensures that your product is not spoilt during transit or storage.

 

Enhance user convenience: Will it be better in a bottle or a plastic pouch? Hardcover or soft cover? Think from customer’s perspective. What would be easy for him. For example, if it’s ketchup that you are selling, should it be in glass bottle or plastic squeeze bottle? Remember Harpic? The nozzle design helps in reaching under the bowl’s rim. That’s a great design.

 

Describe the product use and abilities: But do not exaggerate. Never overstate the abilities of your product. If the product does not meet it stated capabilities, it will not only turn away existing customers, but will also turn away future customers. Just state the facts and promise the attainable results. If your product is good the word of mouth publicity will do its work and increase your sales.

 

The text should be legible: The text on the packaging should be large enough to be read clearly. It should be printed in contrast so that it’s easy on the eye. Choose the font, size, colour wisely. These not only help pass the information, but can be used to build a brand image. For food and medical products, the ingredients and expiry dates should be very easily locatable and clearly readable. If your product is packaged in a transparent packing and the product itself is carrying this information, the make sure the product is oriented properly so that the information in clearly visible.

 

Be target specific: Identify who is your customer. Who are you selling to? If your answer is everybody, then you need to do more research. Identify the segment of the market that is your target audience. Design the packaging keep that audience in mind. Just as one product does not work for every segment, same packaging will not work for every segment. It could be the material of packaging, the design, or even as simple as colour combination. So, identify your core audience and design your packaging for them.

 

Provide different packaging sizes: Some like to buy in bulk, others like to buy smaller quantities, because they won’t use it regularly, or like to shop frequently. Perhaps they are travelling and prefer carrying smaller packaging. Others don’t like to shop frequently or are cost conscious and like to buy large quantities. Provide various options of packing sizes to your customers. For example, in shampoos it’s always good idea to provide small 10-20 ml bottles up to 200 ml bottles, so that new customers can try your product and the regulars buy larger bottles.

 

Freshen up your packaging: There is no product that will continue to sell forever with same packaging. Customers are finicky. They get bored quickly. They like to see new things. Keep freshening up your product presentation. Use contemporary shapes, designs and colours. Try to freshen up your brand.

 

Packaging is the first touchpoint your customer has with your product or your brand. While its primary purpose is to protect the main product, it is also a great medium of marketing. There is no reason why you can’t be creative and entice the customer with your packaging. You just need to be creative and know what your customers like to see.