Engage a contract manufacturer for food processing

Outsourcing or contracting means engaging another business to perform a service or task on behalf of your business. It can be a cost-effective way of doing business, especially if you are not in a position to invest in the equipment, resources or staff to complete the task yourself.

You could use contract manufacturing to:

• make your business more competitive
• offer an extended range of products or services
• focus on the core competencies of your business.

Learn more about finding the right suppliers and managing risk in supply chains.

What to outsource

The first step in engaging a food contract manufacturer is deciding what you want to outsource:

• manufacture of products
• manufacture of inputs to a production process
• product design or packaging
• payroll
• information technology or service support
• services such as leasing, purchasing or renting.

Identify what your business does best, and look at contracting others to do what you aren't able to do well or cost-effectively.

Find a contractor

Meeting with multiple contractors and creating a short list will allow you to make an informed decision. A good way to find possible contractors is to ask your business networks or industry associations for recommendations.

It is a good idea to ensure that your business does not depend on just one provider when it comes to essential work. This will make it easier for you to supply products and services even if one provider experiences equipment failure.

Investigate the contractor

Make sure the contractor you choose has the competency to do the job, and the ability to supply the agreed product or service on time. One way to help you find this out is to ask for references, or contact details of current or previous clients so you can ask them for feedback.

It is always best to physically inspect the site to ensure the contract manufacturer complies with regulatory requirements, and has good processes in place. You should request information about the contractor's contingency plans in case of equipment or product failure, to avoid situations that could reflect negatively on your business.

Choose the best fit for your business

Choosing the right contract manufacturer takes time, as they are an essential part of your supply chain.

Building a good relationship with your suppliers is a key part of doing business, so make sure you thoroughly assess potential contractors before you make a decision. Contract manufacturers can be seen as an extension of your business, and, if you work well together, they could help you with innovative ideas and product development.

Assess the costs

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?