Many startups and founders reach the point where demand outgrows the capacity of their commercial kitchen. Though something to celebrate, it takes time and financial investments to keep growing. Options include investing millions in creating an owned dedicated production facility or finding the right contract manufacturer (co-man) to help grow and scale the business.
For those interested in partnering with a co-man, one of the keys to success is alignment on an agreement or contract that works best for both parties.
This guide provides a detailed look into how to build an effective co-man contract and what it should include.
Manufacturers are key strategic partners for your business, so it's important to find one you're aligned with. This means finding a partner you have good communication with, has the right equipment capabilities, and fits your minimum order quantities. While some manufacturing partners may be flexible on the quantity of product they produce for their customers, the long-term goal is to optimize the run size.
For some co-manufacturers, it can take up to 3-5 manufacturing runs to make a profit, so they need to find growing brands that are a good fit to invest in.
Up & coming brands need to sell themselves to the co-man about their business model and products. They need to prove the capability to execute those plans and have proof of financial backing. As a strategic partner, a co-man will be interested in your distribution and sales strategy. And many will require a demand forecast, which will provide details regarding a brand's viability.
It's easy to inflate your sales forecasts to meet your co-man minimums, but brands who do so risk overestimating, producing less, and ultimately disappointing their manufacturing partner.
This is a fundamental and key relationship for any brand. It needs to be an open, collaborative, transparent ‘partnering’ of the parties. The business relationship must be good for both parties or it will be good for neither. Some key attributes of a good contract:
JPG is a boutique consulting firm specializing in innovation strategy and execution with a dedicated focus on the packaged food and beverage space. If you need help finding a co-man and crafting the ideal contract, visit us here.
JPG also offers coaching, where industry experts help you work through specific challenges you may be facing – including co-man support. Visit our coaching page to learn more.
About the Author:
Rick Williams, Operations & Supply Chain Lead
Over the course of his 30+ years of experience, Rick has founded and grown businesses in the food sector ranging from manufacturing food ingredients to finished packaged consumer products. His expertise includes strategic planning, executive management, financial & capital management, operations and business development.