Why and when to contact a contract manufacturer

Why and when to contact a contract manufacturer

In the dietary supplements industry, outsourcing is in. But we're not talking the kind that takes jobs away from our economy – we're talking right in our own backyards, or maybe a few time zones away. Here's how to outsource to a contract manufacturer.

Contract manufacturers big and small are producing dietary supplements by the hundreds of thousands, at almost any price point and in every form imaginable. If you have the seed of a new product idea, maybe a formulation, and your team's main expertise lies solely in marketing, it may be time to give outsourcing a shot.

Nutritional Laboratories scientists at work"By outsourcing manufacturing to a company that has the knowledge and expertise to produce a quality finished product, a customer can focus on other aspects of business, including branding, marketing and selling their finished goods," said Steve Holtby, president and CEO of Soft Gel Technologies. Founded in 1994, the Los Angeles-based business offers sourcing, formulation and soft gelatin encapsulation services.

Holtby said many customers who want the softgel delivery form are not aware of its formulation challenges, which are different from that of a capsule or tablet. This is one instance where a contract manufacturer's (CM's) expertise can come into play, making CMs a valuable partner for knowing what can – and can't – be done to your new formulation during the manufacturing process.

In other words, if you don't want "the overhead or the headache," to quote Holtby, pitch your formulation or new product idea to a CM.

Is a contract manufacturer right for you?

Consider working with one if you answer yes to any of the following questions:

  • You're a small company and can't pump out a million units.
  • You have no facility to make the product or don't want to invest capital in the equipment.
  • Your company is overwhelmed and needs manufacturing help.
  • You aren't equipped to meet the FDA's GMPs (Good Manufacturing Practices).
  • You want to launch a private label (like Safeway's O brand or Whole Foods' 365 brand).

Finding your match

Deciding that you need a contract manufacturer is often simpler than deciding which contract manufacturer is a right fit for your new product. Just as you're sizing up a CM, know that they're also interviewing you. Remember: It's their reputation on the line, as well as your own.

Some products a reputable CM will steer clear of include raw materials the FDA watches for adulteration or those whose marketers intend to make health claims not allowed by FDA guidelines, said Terry Benishek, president and CEO of Nutritional Laboratories. The Missoula, Mont., company works mainly with larger brands to manufacture, test, research and design dietary supplements.

Following FDA guidelines are important because if a CM puts a label (their own or the customer's) on a bottle, it too is liable for the health claims on that label, said Benishek, noting the company turns down more product requests than it pursues.

CEO Jay Kaufman of Paragon Labs in Torrance, Calif., echoes the sentiment: "We're on the conservative side," he said. "We're concerned about not only the customer's welfare, but our own welfare. Some of the edgy products we'll just pass on. I'd say that happens actually once or twice a week." Paragon Labs, founded in 1971, launches hundreds of new products a year in tablets, capsules or powdered formulas, in the U.S. and abroad.

Another thing to remember is that CMs look for customers who want to stick around for a while. "From benchtop to finished product, it's a partnership we try to form – not just a one-shot deal," said Paul Halada, plant manager of Pharmachem Laboratories. "To grow our business, we really want to be able to have good relationships with people. It's a long-term relationship that's a mutual benefit – both sides." The N.J.-based business comprises seven divisions across the United States.

Ready, set, launch!

Ready to launch your product? Here are four ways to make the most of your new partnership.

1. Seek GMP certification

All the CMs that talked to Functional Ingredients mentioned GMP certification as the number one most important criteria. "It's different than it was, let's say, a year or two ago," said Kaufman. "And that's going to be something we're going to see a lot of in the year 2011." (Visit www.fda.gov to read more about the specifics of these new regulations.)

"We've definitely seen the majority of our customers become more aware of and demand compliance with the current GMPs," said Soft Gel's Holtby. "In fact, some of our customers require us to undergo periodic internal and third-party audits to confirm GMP compliance." In addition, both customers and manufacturers need to be prepared for FDA audits.

Other prominent certifications to look for include the NSF Good Manufacturing Practices (GMP) Registration and the Natural Products Association GMP Certification Program, both third-party certifications for manufacturers of dietary supplements.

2. Negotiate realistic price points

CMs know their clients shop around  to other CMs with their price points to get the best deal. "Some customers will give us a range. Others will say give us a price," said Halada of Pharmachem. "There's a lot of back and forth with the price point." Because of the competitive environment, many CMs strive to return an initial quote for a new product within one to two weeks.

Also, be aware of the fixed costs of manufacturing. It doesn't matter if it's 5,000 or 50,000 bottles, said Benishek of Nutritional Laboratories, you'll still have the same amount of costs for documentation, raw materials testing, quality control, GMPs, setup of the equipment, etc. The lower the volume, typically the higher the unit price because of these fixed costs. And if your product is destined for mass market, low volume may not work for the price point.

While many CMs remain more "bare boned," specifically competing on price rather than with additional services or qualifications, Benishek said that will soon change. "The manufacturers that have competed primarily on price in the past now are going to be required to manufacture at similar standards to those [manufacturers] that focus more on quality and testing," he said.

3. Know formulations will change

While your brand may be formulated based on your marketing strategy, the CM may find the physical characteristics of the raw materials difficult to work with or compress into, say, a capsule. This may mean making a one capsule dose into two or pursuing another method of encapsulation. Benishek said 95 percent of client-created formulas that Nutritional Laboratories receives have to be changed to make manufacturing practical.

4. Ensure confidentiality

Know that CMs have many different clients, and don't like to disclose who those are so as to level the playing field for all their customers – whether those customers might be competitors or not. To assess a CM's confidentiality, look at the number of years it's been in business, the amount of certifications it carries and, through word of mouth, ask other businesses their opinions of their CMs.

Kaufman of Paragon Labs also recommends a site visit to learn who the staff are, in terms of their qualifications and degrees, and to view your product's documents or production line once you're well into the manufacturing process. A good CM won't let you visit another client's product in production, but will welcome you in for yours.

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