Large consumer packaged goods (CPG) companies continually look for ways to innovate faster and offer a more diverse range of products. This provides new challenges for their supply chain organizations, which are traditionally designed to produce staple products in large quantities most efficiently. Their supply chains are not well equipped to produce an increasingly more complex portfolio of products, or to quickly master new processing and production technologies for new product concepts.
What is Co-Manufacturing?
Various terms are used in the consumer goods industry for co-manufacturing, such as third party manufacturing (3PM), co-packing, outsourcing, external manufacturing, manufacturing partners. All these terms refer to the manufacturing of branded finished goods (and increasingly services) by an independent company, using the brands of the customer that commissioned the production. For retailers, these co-manufacturing companies are often referred to as private label manufacturers, producing products under the retailers’ owned brands.
Co-manufacturing Offers Manufacturing Flexibility Across CPG Players
In answer to these challenges, supply chain functions in CPG are creating networks of co-manufacturing partners. Traditionally, co-manufacturing has been used to gain access to additional manufacturing capacity. More recently co-manufacturing is used as well to gain access to new production technologies and capabilities to meet the need for increased and diversified product innovation. Finally, a third trend in co-manufacturing is to outsource manufacturing capabilities of older product formats (e.g. laundry powders vs laundry liquids or pods).
Beyond large CPG manufacturers, retailers and CPG startups are also increasingly turning to co-manufacturing to address internal and market challenges. Retailers are traditionally using co-manufacturing, often referred to as “private label manufacturing”, for the production of their growing portfolio of retailer-branded products.
For CPG start-ups, explosive increase in capital investments in certain CPG sectors, such as plant-based foods, have spurred them to try to bring novel concepts to market as fast as possible. Often, establishing manufacturing capabilities represents a major hurdle for these startups. Co-manufacturing, once again, can offer a solution to bring products to market faster. Some startups, after they have established initial market success, choose to source their full product portfolio via co-manufacturing, allowing them to remain focused on new innovation and rapid expansion.
Trust but Verify: Co-manufacturing and Ensuring Brand Reputation
While valuable for flexibility and speed to market, the increased use of co-manufacturing also poses challenges.
For Quality departments, as an example, moving the production of the goods the company sells to its consumers to a “third party”
represents a major risk to brand trust. The consumer trust in its brands is the most valuable asset of CPG companies, and can be more difficult to assure for co-manufactured products.
So what steps are companies taking to protect brand trust in these co-manufacturing arrangements? The process typically entails three major stages: screening, onboarding, and collaboration.
- In the screening stage, or sometimes referred to as “vetting”, a potential co-manufacturer is assessed on its capabilities to produce products according to its customer’s Quality requirements. The goal of the screening stage is to come to a decision on whether the co-manufacturers' capabilities are good enough to proceed and initiate a collaboration. This stage will often include a request for the co-manufacturer to share documents defining its Quality procedures, and could include sharing third-party audit certificates or reports. A screening-type audit might be performed to assess major areas of risk or concerns in the manufacturing process, identifying compliance gaps.
- The second stage, onboarding, aims to prepare the co-manufacturer for first production. This will include sharing and seeking agreement on all relevant Quality requirements, and product specifications. A second, in-depth audit can be performed at this stage, and an improvement plan agreed to close gaps found during the audits.
- The third stage, “collaboration”, is reached with the first production of the contracted products. During this state, the customer will share orders with the co-manufacturer, and in return the co-manufacturer will share Quality data on the batches produced. During the initial product runs, additional data might be required for verification and confidence building. Often the customer will, based on the data shared, confirm back to the co-manufacturer that the batch produced is accepted and can be released to the market.
In some CPG companies, other functions such as procurement, R&D, and/or a dedicated co-manufacturing function, will participate in these steps. These functions will often require additional information from co-manufacturers concerning financials, regulatory compliance or social responsibility & sustainability.
Collaboration Beyond Organizational Four Walls Remains Difficult
Many CPG companies manage the communication with their co-manufacturers using basic tools like email and attachments, or sometimes using a co-manufacturing portal. Their internal systems, like PLM or ERP, are not well suited to host collaboration with external partners. Often, these systems are still on-premise systems, raising data security concerns around providing external users access to these systems.
Relying on these basic means of communication and collaboration, most CPG companies are finding it difficult to manage their increasing number of co-manufacturers and are in search of better solutions.
Many of these searches are resulting in adoption of cloud-based platforms and applications. Cloud-based solutions are intrinsically well-suited for collaboration between companies, especially when they provide dedicated security and data access for each user. Secondly, cloud solutions can fulfill an intermediary role between the external partner and the customer’s core corporate systems, facilitating data exchange with the co-manufacturer. Thirdly, these solutions can help structure the conversations between the customer and the co-manufacturer by including the co-manufacturer in workflows and send particular tasks to the co-manufacturer to provide data or review and agree to documents shared.
Veeva QualityOne is well equipped to manage collaborations with co-manufacturers. It is a cloud-native software application designed for collaboration with external partners, like co-manufacturers and suppliers.
QualityOne provides extensive content and data management capabilities, offers workflows that can be configured to customers’ requirements, and comes with wide a comprehensive range of Quality capabilities like auditing, non-conformance reporting, CAPA, root cause, analysis, inspections & CoA, that can all be deployed when managing co-manufacturers.
Interested to understand how Veeva’s QualityOne software solution can help manage co-manufacturing for your organization? Contact me to set up a brief discussion.