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The New Era of Contract Manufacturing Partnerships

The benefits of effective partnerships between brands and contract manufacturers help each obtain business objectives, such as having insight on new product development, ensuring quality and regulatory compliance, supply chain transparency and competitive advantage.

“Friendship is essentially a partnership"– Aristotle

As the dietary supplement industry has evolved, the relationships between brand owners and the contract manufacturers they use to make their products has grown to a point where the term “partnership," which was overused for marketing purposes, is now an accurate reflection of what happens between brands and contract manufacturers.

Many companies today struggle to keep up with continually changing customer expectations and ever-shifting marketing-sales environments. One strategic way to handle these types of issues is to develop effective and strong internal and external business relationships.

A partnership is a cooperative endeavor undertaken by two or more parties, who work together to accomplish a common goal. The result of working together builds trust and a mutually beneficial relationship. It is these types of relationships that can enable companies to grow quickly, efficiently and successfully, and brings positive results on the bottom line of all parties.

Before the dietary supplement cGMPs (current good manufacturing practices) were passed into law, the term “partner" was used rather loosely and superfluously from both sides. Brands would “partner" with contract manufacturers to show that there was a very strong bond between their products and the company that makes then. Contract manufacturers would tout their “partnerships" with their customers in helping the customer grow their brand and product line. However, the reality of the relationship could be described more accurately as transactional, where the brand could (and would) switch contract manufacturers if someone else could manufacture the product for a lower price.

Today, the mature brands and contract manufacturers take a true partnership approach in conducting business. Because of the regulatory environment, a large (and often misunderstood) indirect cost of switching manufacturers is price.

Many brands are defined by FDA as “own label distributors," meaning that they do not manufacture their products, but sell and distribute products under their own name. FDA’s position on these types of products is that this distributor is still responsible for:

·         Establishing product specifications;

·         Ensuring compliance of cGMPs by all in their supply chain producing their products (manufacturing, testing, packaging, labeling, etc.);

·         Producing, in a relatively short time, all records needed to ensure adulterated products are entering interstate commerce;

·         Tracking where their products were sold (in the event of a recall); and,

·         Managing quality and complaint systems.

Gone are the days when brands responded to FDA audits by saying, “I don’t know, ask the manufacturer. They’re are responsible for…." It’s important to put good manufacturing and quality agreements into place to ensure both parties clearly understand their responsibilities. It’s important that there be trust and transparency between the entities.

Contract Manufacturing Partner Benefits

Business partnering can be cheaper and more flexible than a merger or acquisition. Outside of basic product manufacturing and packaging, contract manufacturers often offer many services that the brand owner does not need to handle nor staff for, including:

1. R&D and New Product Development—Established contract manufacturers have their own experienced research and development (R&D) and product development personnel that will take concepts and develop them into tangible products that can be scaled for mass production. It’s this collaboration that often leads to creative innovation, which makes for new products or improving current products. It’s advantageous for both brands and contract manufacturers to work closely during the product development process to avoid potentially costly mistakes and to streamline the supply chain process. Additionally, in partnering with contract manufacturers, brands can be exposed to various dosage forms and packaging formats that can help improve their existing products. No company or in-house staff knows everything, so partnering with the right companies can greatly expand a company’s knowledge base. In a true brand/contract manufacturer partnership, the contract manufacturer may even help with small runs, pilot runs, mock-ups and stability studies, which are invaluable in developing new products.

2. Quality and Regulatory—Quality and regulatory compliance represents a significant budget for a good contract manufacturer. Depending on the type of products a brand is selling, that type of infrastructure may not make sense to maintain in-house. It’s not to say that brands don’t need to have in-house quality team (in fact, they absolutely do), but in partnering with the right contract manufacturer, a brand can have a cost-effective resource at their fingertips.

The cornerstone of a good brand and contract manufacturer partnership is the quality agreement. FDA is looking for these agreements to clearly stipulate who is responsible for what. Understanding the rules is important in this FDA-regulated GMP manufacturing and selling environment. Although the brand owner should still have a quality system of their own in place, the contract manufacturer quality group can add value and expertise. Contract manufacturer quality groups can help with:

·         Reviewing and drafting quality agreements;

·         Establishing finished product specifications;

·         Label review;

·         Stability studies for expiration dating;

·         Document (paperwork) accessibility, such as batch records, quality documents, ingredient information, etc., which is often required for export product registration;

·         Organic, kosher, halal, non-GMO (genetically modified organism) certifications; and,

·         Raw material and finished good testing requirements.

3. Supply Chain—More transparency with raw material suppliers and pricing is needed between brand owners and contract manufacturers. In fact, many brand owners specify the exact raw material and sometimes even the costs of that raw material. In other cases, contract manufacturers can get more competitive pricing on certain raw materials, which can be shared with their customers because of the volumes they do on certain ingredients.

4. Logistics/Warehouse—Some contract manufacturers may offer logistic support and warehouse services. These arrangements need to be discussed up front to see if it’s workable and sensible for both parties.

Competitive Advantage

Business partnering is the development of successful, long-term, strategic relationships between customers and suppliers, based on achieving best practice and sustainable competitive advantage. These relationships can also create or increase business competitive advantage. The direct benefits of business partnering come from a greater competitive advantage of achieving a shared objective. The cooperation can lead to better opportunities for revenue, and improved or new products, while reducing the brand owner’s financial investment.

“If we are together, nothing is impossible. If we are divided all will fail."– Winston Churchill

 

Robin Koon is executive vice president at Best Formulations(bestformulations.com), and has more than 35 years of pharmaceutical experience in clinical pharmacy, as a retail drug chain executive, in managed-care and in manufacturing.

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