Overall findings of the food contract manufacturing survey
The findings from a 2010 contract manufacturing survey by the Queensland Government give an overall picture of how food processing businesses use contract manufacturing in Queensland. The survey found that, of 500 surveyed Queensland food processing businesses:
- 19% of respondents reported that their business contracts out
- 28% contract in
- 15% do both to some degree
- 37% of participating businesses reported that they don't provide or receive contract products or services.
Of the businesses that engage in contract manufacturing:
- 67% reported that they contracted in functions and activities, tasks, and human resources including maintenance and specialised services
- 33% provide services to other businesses
- products and components were almost equally divided, with just over half contracting in and 47% out.
Reasons for contracting
Business growth was the main reason for engaging in contract manufacturing (83%), with 69% of businesses rating product expansion as the reason. Half said that lack of technical expertise, skills, availability of appropriate equipment, achieving economy of scale and the need to spread risk also contributed.
Half of the businesses provide contract services as part of their core business, with 12% stating that contract manufacturing was the core business. 24% provided contract manufacturing on an ad hoc basis.
Process efficiency was a key driver for just over half of businesses when it came to contracting:
- 38% attributed cost reduction
- 17% stated that lack of capital was a key factor
- 17% gave other reasons, which included lack of expertise and capabilities, and not wishing to go to a 24-hour shift (which they would have had to do if not for the ability to spread the work to other businesses).
While business and product expansion were reported as being the drivers for contract manufacturing, lack of technical skills and appropriate equipment to undertake the task were also reported as being strong drivers for business to contract work and services in by other providers.
While 37% of businesses who engaged in the survey stated they did not currently provide or use contract services, almost twice that (64%) reported that they believed there was potential for the business to gain greater efficiencies if it contracted work. This indicates considerable potential for businesses to outsource to other companies, including those that reported currently contracting only in (28%) or out (19%).
With 66% of food processing businesses reporting that they engage in contract manufacturing to some extent, and a high number of businesses underusing their staff and other resources, it's clear that contracting is an important factor in business growth and product expansion.
By using another business's capabilities and resources a business can grow without having to inject significant capital to buy machinery or expertise that may only be required for a small amount of business activities.
The survey revealed that many businesses have not taken adequate steps to ensure they protect themselves in case of legal disputes over quality of products and services, or IP issues. Businesses should seek professional legal assistance in drawing up contracts to ensure they are protected in the event of product failure and other disputes.