True costs of food contract manufacturing

If a contract manufacturer charges you a flat unit or hourly rate for products or services, you can easily assess whether the cost compares favourably to what you can do yourself, or the cost of other suppliers.

However, if the cost is based on an hourly rate for labour, materials and ingredient costs, you will need to understand how the contractor is assessing both time and materials.

Discuss the following questions with the contractor - before any agreement is finalised - to ensure you understand what you are paying for and what you will receive.

Labour

• Will the contractor charge labour only for the time involved in undertaking the contract? If so, at what rate?
• Do you have a clear understanding or expectations about how long the job will take and how many employees will be needed?
• Will labour be charged on a minimum time frame such as a 4-hour shift, even if only a small task is completed?
• Will the labour include indirect costs such as for incidental activities that arise from your job (e.g. clean-up and machinery maintenance)?

Materials and ingredients

• Will the cost of ingredients or other resources mean the cost of the exact amount of product required for your specific contract, or do you need to factor in wastage of bulk-produced product, or cost averaging over long shelf life of inventory?
• When it comes to inventory, is the contractor able to work to lean practice and keep inventory to a minimum while not paying and passing on a premium by only purchasing required quantities?

Transportation

• Who will pay for the delivery costs?
• Will you have the full product load delivered to one destination for distribution or are you expecting the contract manufacturer to deliver to multiple sites, which then adds to the cost?

Also consider...

• See the results of our food contract manufacturing survey to find out how it is used in Queensland's food processing industry.
• Learn more about finding the right suppliers and managing risk in supply chains.