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The modern contract manufacturer: recent events dictate new roles, rules and requirements for contract manufacturers in the dietary supplement market.

IT IS A BIG DECISION FOR A dietary supplement company to manufacture its own products or subcontract with an outside vendor. Increasing costs and a lack of manufacturing acumen may be a couple of the variables that drive the decision to utilize a contract manufacturer. Companies usually seek the services of a contract manufacturer because they want the benefits of having a manufacturing operation without the overhead or the headache. 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. While there are numerous benefits associated with using a contract manufacturer, there are also many factors to consider when searching and choosing the right contract manufacturer.


Key Attributes of a Successful Contract Manufacturer

GMP Adherence: When evaluating contract manufacturers, a customer should choose one that complies with the FDA's Good Manufacturing Practices (GMPs) for food, dietary supplements or pharmaceuticals. Think of GMPs as guidelines that provide a system of processes, procedures, and documentation to assure the product produced has the identity, strength, composition, quality, and purity that it is represented to possess. In the case of dietary supplement GMPs, the primary objective is to provide consumers with unadulterated products that meet label claim. They are far more comprehensive than food GMPs, and in fact are more similar to stringent drug GMPs. Since every manufacturer must adhere to the GMPs by the proposed deadlines, based on company size (all need to be certified by June 2010), these new government regulations will positively impact the dietary supplement industry by making it difficult for disreputable companies to stay in business.

Many scrupulous companies have already been preparing for the federal GMP standards by obtaining voluntary third-party GMP certifications. National organizations such as the Natural Products Association (NPA), NSF, and Shuster offer GMP registration through their respective programs in which they audit the prospective facility and ensure adherence to key quality control requirements. These internationally-recognized certifications help assure customers that the products manufactured by the registered companies are up to the standards they demand in ensuring their purity, potency and quality.

Quality-Consciousness: In addition to making sure the contract manufacturer of choice is FDA GMP compliant, customers should partner with a company who is committed to delivering quality products. A contract manufacturer must constantly monitor quality throughout every step of the manufacturing process. Quality Assurance and Quality Control initiatives should follow GMP standards from the raw material to the finished product. Standard Operating Procedures (SOPs) should also be published and constantly maintained so that they are current. These procedures dictate all activity that can impact a product and produce an auditable paper trail.

Testing is also crucial to the manufacturing process to assure quality. The ideal contract manufacturer is able to conduct in-house testing, where it can assay all raw materials to verify their purity and potency upon arrival at the facility. Microbiological analysis ensures the absence of harmful bacteria and contaminants. Room and equipment inspection and testing continues throughout the production run, so that each and every product is manufactured according to set specifications. Finished product sample analysis is conducted from the production line. Disintegration studies and finished dose weights and sizes should be performed by Quality Assurance personnel. Testing should continue even after manufacturing has been completed, as retained samples are kept past the expiration date.

Knowledge and Experience: Partnering with a contract manufacturer with a proven industry track record ensures maximum cost-effectiveness, regulatory compliance and timeliness-to-market. Manufacturing experience benefits customers in a way that places paramount importance on protecting the quality and proprietary aspects of each customer's product. A contract manufacturer should be able to meet the needs of a valuable customer by knowing the business and being an invaluable source of information.

For example, an experienced contract manufacturer may have better connections with raw material suppliers, or be able to supply a finished good for less than the customer could handle themselves. Companies that provide R & D services can often solve problems and offer sound technical advice when finalizing formulations or make suggestions for better formulas. Care should also be taken to find a manufacturer who has invested in precision equipment, which enables the consistent production of finished goods.

Capacity and Capability: A contract manufacturer must be able to take over the manufacturing process from the customer and sustain a strong relationship over time. Further, the contractor should have experience making similar products or operating with similar production processes. Contract manufacturers should also produce consistent lead times, so that it does not create out-of-stock or other inventory issues for the customer. Capacity should be sufficient to handle current volumes and possible future increases, and to expand operations if needed down the line. A proven track record in performing the functions to be outsourced is essential. (Flexibility is another key attribute.)

With so much potential and cost savings that contract manufacturing can offer, why do so many of these relationships fall short of expectations?

Challenges Faced by Contract Manufacturers

Customers sometimes associate contract manufacturers as factories that are solely in business to turn out finished goods. There also tends to be a misconception about the amount of time it takes to manufacture a product from the moment the order is placed. In addition to time, many people also underestimate the costs involved. This is especially true when it comes to the manufacturing of specialty delivery forms--many customers do not possess the knowledge of how a product needs to be formulated. A high-quality contract manufacturer will invest in extensive R & D, provide branding support, develop intellectual property to protect formulas, and constantly improve the manufacturing process and machinery used to make products.

The primary issues in working with a contract manufacturer involve quality of the finished product. Since the customer is not at the actual manufacturing site when an order is placed, he has to be able to rely on the manufacturer to provide the high-quality products that will be marketed as part of that customer's product line. Trust is a critical aspect of the relationship between manufacturer and customer. In other words, the customer must trust the manufacturer will provide products that exceed his/her standards, and the manufacturer must trust that the customer will sell and market the finished products responsibly.

Effective communication is another big factor in developing a successful working relationship with customers. More specifically, clearly articulated requests are important to a successful partnership. It is imperative for a customer shopping for a contract manufacturer to establish clear priorities that meet the company's needs. While many customers discuss product integrity (effective quantities of safe, clinically proven, and ethically obtained ingredients), other factors, such as product price, delivery timelines, and batch sizes, are sometimes more critical.

The information requested by the customer at the beginning of discussions should be answered clearly by the manufacturer. A great deal of time is spent advising customers what is and is not realistic. The contract manufacturer should strive to understand what issues are most important to a prospective customer from which the business proposal is built to encompass these key motivating factors. One advantage of having a skilled and experienced sales team is that it promotes clarity and understanding of a customer's expectations.

Contract manufacturers face the challenge of growing the business and keeping up with regulatory issues. In order to anticipate the future needs of customers, contractors need to be proactive. New technologies are always evolving, which provide new opportunities to diversify product offerings. However, they also require staff education and training and possible investment in new equipment. With the advent of the new FDA GMPs for dietary supplements, contract manufacturers must advise customers of the implications of the new regulations.

In addition to being savvy about regulatory compliance and about safety and quality control, contract manufacturers are now facing environmental issues. Depletion of natural resources has become a common concern, which is why lean manufacturing processes have replaced methods of the past. Lean manufacturing and green thinking, otherwise known as "supply chain environmental management," are mutually beneficial. Lean manufacturing is about zero waste. Lean efforts to eliminate defects and errors, overproduction and inventory can also reduce energy and water use, and solid and hazardous waste. In the future, as the cost of material and energy continues to increase and becomes a larger component of the cost of manufacturing, organizations will need to adopt sustainability strategies.

Customers are also becoming increasingly concerned about organic certification for raw materials. This poses a challenge of qualifying a supplier that meets all of the specifications for a particular ingredient. Managing the various suppliers and making sure the proper materials are being procured and analyzed could potentially add to the lead time for manufacturing a product.

Another trend facing domestic contract manufacturers is the fact that emerging countries like India and China are starting to provide low cost products that meet cGMPs. As these countries rapidly improve the GMP compliance of their facilities, several companies will continue to relocate their operations to these regions. For the future, it will become more difficult to compete on unit cost with contract manufacturers based in countries where operating costs are a fraction of those faced by contract manufacturers based in North America. This new business model will hinder the generation of acceptable profits for those contractors located in developed countries; therefore these companies will undergo a paradigm shift to remain competitive in the marketplace.

A Foundation for Long-Term Growth

Careful consideration of the evaluation and selection criteria described here does not necessarily guarantee the success of a contract manufacturing initiative. However, following this practical set of guidelines may lead a company to the right outsourcing decision. The appropriate partnership between a supplement marketer/brander and a contract manufacturer can lower costs through various efficiencies, including investment in equipment, physical plant, personnel, inventory costs, and overall expertise. Contract manufacturers allow companies to conceptualize innovative products and utilize the skill and expertise of outside vendors to manufacture their products. They can also take a customer's concept and deliver a product ready for sale. Put simply, having the manufacturer do the work will enable the customer to focus on branding and marketing the new product.

Contract manufacturing companies understand that they provide a service; learning to work with them properly is an advantage to both sides. Selection of the right contract manufacturing partner is only an intermediary step in building longer-term success. Without a detailed, comprehensive transition plan and effective ongoing management of the partnership, even the best contract manufacturing relationship will fail to achieve its full potential. Effective management means fully documenting all processes in order to avoid ambiguity about who is responsible for what. It means putting in place a clear set of performance metrics to keep both parties focused on continuous improvement. It involves establishing open communications across all levels within the two organizations. Finally, it calls for both companies to treat the contractual relationship as a partnership, which requires trust and a willingness to share both the risks and the rewards.

The appropriate partnership can be a mutually beneficial one, and careful attention to the points outlined in this article can mitigate many of the issues these types of arrangements commonly face. With clearly defined requirements and proper oversight, there is no reason that using a contract manufacturer cannot be an excellent strategic decision.

By Ron Udell

Soft Gel Technologies, Inc.

Ron Udell is the president of Soft Gel Technologies, Inc., a Los Angeles-based contract manufacturer for the Natural Products industry.
COPYRIGHT 2008 Rodman Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Author:Udell, Ron
Publication:Nutraceuticals World
Date:Mar 1, 2008
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