Today’s product manufacturing environment is extremely competitive. Consumer tastes change rapidly; competitors quickly encroach on your customer base; and manufacturing technologies are constantly changing. How does a manufacturing operation deal with all these challenges while still remaining productive and profitable?
The answer: By using contract packagers and fulfillment service providers!
The Building Blocks
Like any critical contractual relationship however, taking advantage of such partnership requires certain building blocks to be in place – BEFORE you leverage the benefits:
- Identify which specific packaging operations are worthwhile to contract out, and which ones (if any) you should strategically maintain in-house
- Assess the capabilities that you need from your contract packager to fulfil those operational needs, including their technology, their physical facilities, manpower, certifications, and their track record
- Select a full-service packaging contractor that you can work with
- Agree upon specific and measurable outcomes that your contract packaging service provider must deliver
- Work out a Joint Service Agreement (JSA) that makes a successful outcome the joint responsibility
- Don’t just “relegate and forget”. Instead, most successful contractual relationships come out of a “delegate and support” model
The goal is to capture the benefits from a contract packager relationship by making it a collaborative initiative. To that objective, you must acknowledge that contract packagers can be strategic PARTNERS, and not just useful SUPPLIERS. By approaching the relationship as a partnership, you’ll ensure that your contractor also contributes to the profitability and longevity of the association.
Leveraging Contract Packager Synergies
So, how exactly can you capture the benefits from working with a contract packager, and what synergies would you expect to unlock from such a relationship? There are multiple benefits that contract packaging relationships offer to manufacturers and distributors alike, including:
- Cost predictability: Contract packagers specialize in delivering a unique set of services to their clients. As a result of their specialization, they are able to guarantee their services at specified fixed rates. This certainty of packaging expenses can help you (the manufacturer) plan your own budgets and margins with a greater degree of certainty than if you internalized those packaging services
- Operational flexibility: When your business is faced with an unexpected order or unusually higher than normal production volumes, leveraging contract packagers to outsource some of that spill-over capacity gives you more operational flexibility. Now, because of your contractual relationship, you won’t have to decline a clients’ order – which they (your client) might otherwise move to a competitor
- Labor planning and management: For most manufacturers and distributors, salaries and wages are one of the major manufacturing costs within the production chain. By outsourcing packaging operations to a contract packager, you not only divest the associated costs but also the operational stress and hassle of managing a larger than necessary workforce
These three benefits alone will make it worthwhile to explore using the services of a contract packager. However, other synergies like specialization, distribution networks, innovation and diversification add to the business case for using outsourced packaging services.