For boosting business, supplement brands are increasingly looking for turnkey contract manufacturers.
With health consciousness and the economy surging, supplement contract manufacturers are seeing dynamic growth. While that’s good news, there’s still stiff competition, which means these outsourced providers have to stay on top of their games.
Justin Bath, president of Biovation Labs in Salt Lake City, UT, explained, “From an economic standpoint, the economy is booming. Companies are looking to develop new products, and grow their businesses. With all the positive news in the economy, there are some negatives that come with it,” he said.
“For instance,” Bath added, “unemployment has been at record lows and this has made it difficult to hire good production and factory workers. Because there are a lot of job opportunities in the job market, filling manufacturing jobs is becoming a challenge, particularly when companies have to pay significantly higher salaries for employees with less experience. This is coupled with the idea that U.S. consumers value brands and products, but the value of the underlying manufacturers do not have the same value in a marketplace that over the past decades has sought for the cheapest option when it comes to choosing a manufacturer, often pushing these types of jobs offshore to bring the costs as low as they can.”
Rainer Schindler, business development, with SternMaid America in Aurora, IL, noted that the company is seeing changes in what brands want from their contract manufacturers.
“Increasingly, they are looking for a broader range of expertise,” he said. “Therefore, we offer an all-round service, from purchasing of raw materials to blending, filling, warehousing and dispatch of finished items. This is backed by interdisciplinary R&D expertise gained from our position in the Stern-Wywiol Gruppe, one of the leading enterprises in the world of food ingredients with more than 35 years of experience. The state-of-the-art Stern-Technology Center, with 3,000 square meters of lab space, houses the group’s research and product development activities under one roof. Likewise, flexibility is gaining in importance. So, for example, if a manufacturer gets a last-minute request from a distributor to supply an unusually large quantity, but doesn’t have the capacity to pack an order of that size, we can step in.”
“The market is booming with significant demand for contract manufacturers,” agreed Adam Cabot, CEO of American Custom Drying (ACD) in Burlington, NJ. “Today, companies are growing as quickly as the economy, they are seeing an increase in demand and cannot scale up internally. So, they immediately go to contract manufacturers to get the help. Another aspect of today’s markets is fulfillment of overflow or quick launch of a new product. It takes time to build a plant or to set up a piece of equipment. That’s where contract manufacturers come into play.”
Who is Turning to Contract Manufacturers?
Contract manufacturers see a wide range of customers, according to Schindler. “First of all, outsourcing is an interesting option for small firms that intend to expand but do not want to make additional investments,” he explained. “After all, a plant of one’s own binds capital, space and personnel. Large companies, on the other hand, often want to restructure their production and outsource just part of it. Some of our customers only make temporary use of our production capacities, for example if they have to bridge machine downtime. But most of them outsource production in the long term because some products, or even the production process as a whole, do not fit into their real core business.”
In addition, Cabot pointed out, customers who turn to contract manufactures are usually those looking to enter a new market, an unproven market with a new product, or those that have a life cycle of a product that is at the tail end. “Once the volumes reduce, they look to outsource their manufacturing to get a higher asset return,” he said.
For some contract manufacturers, a good challenge is welcome. “The best customers,” according to Bath, “are ones who have innovative and unique products and formulations and who are looking to push the envelope by creating something special. These types of projects are challenging and fulfilling to work on, and allow good contract manufacturers the ability to fully utilize their knowledge and skill. We also find that it is important for customers to have done their homework, so they are completely prepared to discuss the full vision they have for their product or brand.”
Along with the challenge an innovative product brings, manufacturing as a whole is an expensive and complicated business, said Stephen Finnegan, senior vice president with Makers Nutrition in Hauppauge, NY. “A client has to be doing incredible volume before doing its own manufacturing makes financial sense,” he said. “Even then, it makes much more sense for the entrepreneur to remain focused on marketing the product and expanding the product line than to jump into the very complicated world of manufacturing.
“Many clients are physicians and health care provider groups looking to provide their own patients with what they believe to be the best supplement options in their particular specialty—veterinarians do the same for their clients. Others are pharmacies and drug stores looking to provide a better priced store brand to compete with the name brand supplements on their shelves. Trainers, fitness experts and bodybuilders looking to launch their own formula and brand based on their own experience are best served by a contract manufacturer. Nutritionists, dieticians and holistic health practitioners often introduce their own formulas, as well. There are also entrepreneurs of all kinds, including celebrities, looking to grab a piece of the ever-growing market. Whatever the case, for almost anyone interested, working with a qualified contract manufacturer is the quickest, easiest and safest way to launch a supplement line.”
Outsourcing Benefits Expertise is one of the greatest advantages for partnering with a contract manufacturer, Bath said. “No matter the industry, contract manufacturers have been doing the same thing for multiple customers, which provides them greater perspective on what is happening in the marketplace. That naturally lends them, if they are smart, to experience and expertise that someone who is just getting started or is working to get a product to market simply doesn’t have,” he noted. “Let’s face it, operations is hard. It takes a special type of person to run the complex of operational facility that is required for manufacturing—and it is only getting harder and more complex. It takes a strong, savvy team to manage and scale operations to full production efficiently.”
Bath explained that development issues may arise when a customer has a vision for a product, and bringing it to life is often more complex than they could have imagined.
“One example of this type of challenge is that consumers are increasingly not in favor of fillers or additives in products they purchase—they want something that is considered ‘pure,’” he said. “Accomplishing this can be difficult at times, as some raw materials have constraints that make it difficult to manufacture. Some raw materials are hydroscopic and soak up water in production, making them clump together and not flow right. Some may be too light and fluffy, and it is difficult to get them to compress the way they need to. These challenges are easily solved if it is possible to mix them with a flow agent or binder or something that is going to help the product function well in the capsule or tablet. The challenge is the need for these agents offsets the customer’s vision they have for their product, so development cycles constantly involve solving problems that were not anticipated until the product is put into a production environment. Communication between manufacturer and customer is extremely important to ensure the customer’s goals are met, while still having a product that is viable to produce.”
Finnegan added that while a contract manufacturer is happy to make a client’s formula exactly to the client’s specifications, experienced, qualified contract manufacturers can also point out flaws in a client’s formula, as well as offer suggestions for improving the appearance, flavor or shelf life of a product. “A good, experienced contract manufacturer like Makers Nutrition has seen it all,” he said. “Though new and unique formulas are produced daily, the basics are often the same, and often ignored by a client eager to get a product to market as quickly as possible. A supplement entrepreneur has to understand that creating a new supplement will take time. A good contract manufacturer does whatever is necessary to ensure that the proper sourcing and testing is performed to allow the client’s supplement to come out right the first time and stay consistent over time. A good contract manufacturer does not cut corners to save time, knowing that doing so can lead to disappointment with the product down the road.”
Turnaround, is also important. “Entrepreneurs will often come to a contract manufacturer with an idea for a product, but no idea how to produce the product,” Bath said. “They may at first turn to a manufacturer in China or Mexico, but with different cultures, business practices and other obstacles, it can hold up turnaround times, which is frustrating for everyone. A good contract manufacturer will hear your idea, work to find any weaknesses in the concept, and then turn it around quickly.
Outsourcing is a growing market that requires continuous investments in order to stay on top of the competition. “We make constant efforts to raise our high safety standards even further,” Schindler said. “When new requirements come into force we invest in technology that conforms to these standards. Last year, for instance, we have installed a modern double-head system to increase filling capacities and to fulfill growing demand from the food and nutraceuticals industries.
“Moreover, label and shipping regulations are highly complex. We can help customers with our detailed knowledge of labeling and shipping regulations. We offer best practice recommendations based on our international trade expertise, advice on regulatory requirement details, assistance in getting products registered in the U.S. and abroad, as well as support for procuring export permits, certificates of free sale and international trade certificates.”
ACD has also seen an expansion of services, according to Cabot. “Our product capability has increased, which allows more time with equipment and understanding certain processes to produce the highest quality products. To maintain and assure the best product available, ACD implemented a full process R&D team. This team assures consistent products by means of testing and monitoring thoughout the entire product campaign.”
At Biovation Labs, in the wake of more complex product formulations, and the desire customers have to develop cutting edge products, the company has added piloting programs. “We take customers through product formulation and the product piloting process to get the product on the machinery and verify it all works the way it should to meet their vision,” Bath said. “Every product that comes in needs to have some kind of fine-tuning to get it right for production, and a good manufacturer will work to make the product run as efficiently as possible. Following the pilot phase, we work with the product to increase efficiencies, and ensure it can run well on our high speed machinery so it can be produced at the quality and quantity required.”
The company is always looking at how to bring on new packaging and product form factors. “In the past, we have predominantly been a capsule/tablet company, but we are adding different areas to expand into new, interesting and unique form factors—as well as working to create additional packaging options for our customers,” Bath noted.
Expanding Capabilities, or Not
In the past, a contract manufacturer’s role was to procure ingredients and manufacture products. Nowadays, companies look for experts who can supply an all-in-one service, said Schindler. “However, today, they have become trusted partners and solution providers. In the evolution of the dietary supplement industry, modern contract manufacturers have become full-time partners for brand marketers, offering not just an assembly line, but also an analytical laboratory, a research facility and regulatory assistance. Our partners place their trust in us to manufacture and pack their products with the same care that they would themselves. They also expect us to solve problems and meet challenges. We take that trust very seriously.”
“To remain competitive,” Cabot added, “you have to read the markets. You will see demand of new products and new processes and you have to adapt with the customers needs. You may have to install new equipment or use your existing equipment in new ways. The best way to remain competitive is to provide a consistent quality product. By expanding our laboratory capabilities, we have seen the best product and greatest yield possible. We look forward to expanding and implementing new installation to ACD to remain a top contract manufacturer.”
This can result in contract manufacturers walking a fine line between expanding and over-expanding their service offerings. “Our company considers every type of product very seriously before deciding whether to go forward,” Finnegan noted. “Our philosophy is that we will not do it if we are not sure we can do it well. If it is not a great fit for our business or our culture, we may choose to let some segments of the market go.”
A good example of a logical and successful expansion Makers Nutrition has recently undertaken is the addition of cosmetics to its offerings. “The company studied the idea of offering some cosmetic liquids, creams and powders, as we have a great level of expertise with such substances in supplements,” Finnegan explained. “On the other side, we considered manufacturing protein bars, which have become so popular. Makers Nutrition is a major contract manufacturer of protein powders, capsules and shakes, so it seemed like something we should consider. Though the protein bar market is large and growing, we decided not to move forward. The more we studied the product, the clearer it became that it was a different business entirely and not a great fit for us. Though we had some hopeful clients disappointed that we decided not to proceed with protein bars, we decided that was better than disappointing them by producing a substandard product. If we cannot do it well, we just won’t do it.”
Transparent, Yet Confidential
While “transparency” is a buzz word in the natural products industry, confidentiality is also required of contract manufacturers.
“Makers Nutrition primarily offers custom supplement manufacturing services,” Finnegan noted. “Our clients’ formulas belong to our clients. We start our relationship with each client by offering a full non-disclosure/non-compete agreement. We want to start our clients off knowing that we will never use or publish their formulas, never sell their formulas and never make their formulas for any other client. We are not a brand, we are not a competitor, we are a facilitator. Our clients’ formulas often represent their life’s work or life savings.”
Makers Nutrition has similar agreements in place with its cGMP (current good manufacturing practice) qualified suppliers and service providers. “While we do not necessarily volunteer our sourcing partners to our clients, with proper documentation, we do offer clients the opportunity to provide us with any raw materials they choose, we will source according to whatever advantages the client wishes to feature in their product (all-natural, vegan, gluten-free, non-GMO [genetically modified organism], halal, kosher, etc.) and we will, of course, provide certificates of analysis for raw materials used, when requested.”
Schindler explained that transparency in contract manufacturing should work in such a way that customers or partners can see what actions are performed in order to meet and exceed their expectations. “In the interests of full disclosure and transparency, finished product marketers and contract manufacturers should share with each other all information related to product quality and required to provide and sell a safe product. Activities should be regularly coordinated, even at the planning stage. When there is a lack of communication and transparency between both parties during the planning process, the customer’s expectations and the actual outcome may not coincide. Therefore, transparency is crucial. In fact, it’s the key to a successful, long-term business partnership. Plus, in some cases, referencing a reputable manufacturer can also add further value to a product. With premium analytical equipment and professional quality management, we control every step of the way. Our customers benefit from unbroken documentation and complete traceability of ingredients.”
Bath noted, “Biovation Labs is in the business of producing ingestible products that people take into their bodies. As such, we are extremely transparent with our clients. Our policy is to be completely transparent with everyone we work with. There are a few processes that we consider trade secrets giving us some competitive advantages that we do not keep in the open, but we allow our customers access to our sources and the ability to track and audit any time. We want our customers to feel comfortable and confident in every aspect of our working relationship.”
The future of contract manufacturing lies with automation, according to Bath. “The only way that manufacturers will grow profitably is with capital investments and reducing costs. Automation will bring clout back to the U.S. manufacturing market like never before and will help U.S. manufacturers produce higher quality products at globally competitive prices.
“We live in a world where efficiency is highly valued and manufacturers are taking complex processes and automating in ways never thought possible. There is a renaissance happening in manufacturing in the U.S. Manufacturers can do things at lower prices with new equipment and machinery. In the next decade this will only continue.”
Cabot added that specialty ingredient products are increasing in demand for contract manufacturers. “They have to be knowledgeable and competitive and stay in that market,” he said. “Specialty products are harder to process. You need people who understand what’s going on with the equipment from an engineering perspective or what’s going on with the product from a chemical engineering perspective. The down side is you may not get paid for it. It just helps to remain competitive.”
The challenges of the industry prove to be a positive, according to Finnegan. “The dietary supplement industry remains an exciting and growing sector of the overall health care industry. Now more than ever, people are turning to natural and basic supplementation to protect and enhance their good health. The industry continues to grow rapidly throughout the world. Providing dietary supplements to address vitamin and mineral deficiencies and address the many challenges of everyday life is important work. It is a great time for companies to get into the business as the industry’s growth shows no sign of stopping and, according to Grand View Research, Inc., is expected to hit over $578 billion by 2025.” NIE
For More Information:
American Custom Drying, www.acdprocessing.com
Biovation Labs, www.biovationlabs.com