Contract manufacturers are valuable partners in a fast-moving natural products market

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With the dietary supplement and natural products marketplace growing more global, complex, and competitive each year, one could argue that the need for contract manufacturers has never been greater. Contract manufacturers are hired to alleviate the headaches of product manufacturing-and more. “Brand owners, private-label owners, and marketing companies do not want to get involved in the complexity of manufacturing,” says Sultana Haque, technical director for contract manufacturer Nutra Solutions USA (Deer Park, NY).

“Contract companies that are able to take on a lot of the technical load are attractive because it allows brand owners to completely focus on making sales, advertising, and marketing the product,” says Steve Holtby, president and CEO, Soft Gel Technologies Inc. (Los Angeles, CA).

The manufacturers interviewed in this article describe what’s driving the continued reliance on contract manufacturers-and how manufacturers and their clients can optimize their relationship.

Increased Competition

As supplement brands face greater pressure to deliver more innovative products and expand their product portfolios quickly, contract manufacturers can help them get products to market faster.

“With the ever-increasing complexity and speed with which the market moves, the need for contract manufacturers is more critical than ever because consumers’ appetite for new and improved offerings is more acute than ever,” says Terry Keller, vice president of sales for CAPTEK Softgel International (Cerritos, CA).

Novel delivery systems help brands stand out in the market. Here, it obviously helps to find a contract manufacturer who excels in producing the specific delivery form you’re seeking. Sometimes, it takes years of training and manufacturing expertise to perfect the optimal manufacturing of a specific type of delivery system, such as softgels, points out Soft Gel Technologies’ Holtby. An experienced contract manufacturer specializing in that format will be able to deliver the best results.

Manufacturers who can handle a diverse range of delivery forms are also seeing a return on their investment that way. “Growth opportunities continue to be in novel dosage-type formats-i.e., gummies, softgels, liquids-and custom packaging services,” says Eugene Ung, CEO, Best Formulations (City of Industry, CA). “Brands need to differentiate by formula, dosage type, and/or packaging, and the more manufacturers can offer in these areas, the greater the opportunities.”

The ability for contract manufacturers to handle it all is why contract manufacturing has become the answer for so many companies. While many small- and mid-size companies may lack the internal expertise and capital resources to manufacture in house, larger companies also still often rely on contract manufacturing.

“The contract manufacturing model is continuing to thrive due to the array of benefits it provides to companies, regardless of their size,” says Doug Brown, sales and marketing director, Americas, Sirio Pharma (U.S. and China). “In the case of big nutraceutical companies, partnering with a contract manufacturer allows them to focus their efforts on both product development and marketing…They want partners that can help them launch products in multiple markets across a range of ingredients and delivery formats.”

What Makes a Good Manufacturer?

The best contract manufacturers are ones who look at their client relationships as true partnerships, say the companies interviewed for this story. That starts with shared goals. “If there’s a true ‘partnership,’ the forecasting and supply chain management become more critical for both contract manufacturer and brand,” adds Ung.

He says: “From a long-term and strategic perspective, fit and communication are the most important. Do the companies share similar values as it relates to how they do business, vision of the supplement industry, etc.? Is there alignment with the respective quality/regulatory, R&D, and customer service/supply chain teams? Is there open and proactive communication to address issues before they arise? Although manufacturing products can be seen as transactional, the more established companies have built relationships allowing both brand and manufacturer to grow and prosper.”

Being a contract manufacturer means, of course, being an excellent service provider. “A contract manufacturer should strive to be a ‘one-stop-shop’ for customers, where it can help, from concept to completion (formulation, manufacturing, bottling, etc.),” says Soft Gel Technologies’ Holtby. Qualifying and purchasing raw materials is also a big part of the job, he says.

Increasingly today, contract manufacturers are being asked for much more than just manufacturing. This could include regulatory and market guidance. Sirio’s Brown notes that “there is also a noticeable demand for custom testing requirements. We typically run everything from analytical testing for active ingredients, stability testing during the R&D process, through to microbiology and heavy metal testing.”

It can’t be stressed how much effective communication, on both the manufacturer side and the client side, determines successful results. Says Holtby: “Effective communication is a big factor in developing a successful working relationship with our customers. More specifically, clearly articulated requests are important to a successful partnership. It is imperative for a customer 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.”

Transparency is also important, says CAPTEK’s Keller. “I still get the sense that there’s a reluctance to be as transparent as would be optimal for a mutually successful partnership. And this cuts both ways-customer and manufacturer. Transparency builds trust, but if either party is unwilling to be truly transparent, neither party will maximize their potential.”

It’s also necessary to set clear expectations-and to manage those expectations, says Best Formulations’ Ung, including turnaround time and capacity. And, says Holtby, a transparent manufacturer will readily share information such as test results and batch records, as well as the procedures it follows when unexpected problems arise, such as testing issues and raw material shortages, and encourage visits to their facility. A good manufacturer will also share copies of its own certifications and FDA inspection reports, adds Nutra Solutions’ Haque, along with certificates of analysis for raw materials.

And, at the end of the day, pure customer service is key. Says Keller: “It sounds simple, but manufacturers ensure they are satisfying customer requests/service via constant and consistent communication and transparency.”

And reliability. “A brand partner must be able to count on their contract manufacturer to deliver the product, within spec, on time, and at consistent value,” he says. “‘Value’ is not simply price; it’s the relationship between that price and what you receive for that price. These include technical expertise, sourcing, customer service, quality support, etc.”

The Changing Contractor Landscape

A lot is changing in the contract manufacturing market. For one, mergers and acquisitions among contract manufacturers have led to a new contract manufacturing landscape.

“Of the larger, more established contract manufacturers, there has been a wave of consolidation and acquisitions in the past decade,” says Best Formulations’ Ung. “Several are owned by financial institutions, strategic brands, or are publicly traded. While these companies may have some financial resources, they may not be as nimble or flexible as privately owned manufacturers.” And, he says, “There are still entrepreneurs who are starting contract manufacturing operations, typically because of a certain technical expertise or customer relationship. These smaller contract manufacturers offer lower minimum order quantities and greater flexibility, but may not be able to scale up as sufficiently as volumes increase, or may be limited in their services and offerings. The dietary supplement industry as a whole continues to be quite fragmented, which offers opportunities for manufacturers of different sizes and capabilities.”

CAPTEK’s Keller adds: “True contract manufacturers-i.e., pure-play contract manufacturers-don’t ‘own’ the brands they manufacture; they produce a product that meets a particular specification. While that sounds relatively straightforward, I’ve seen a continued ‘creep’ in that mentality.”

Things are also changing on the client side, points out Nutra Solutions’ Haque, who notes “the continuation of the trend for large companies to consolidate and divest their internal manufacturing capacity, and move towards an outsourcing model for non-core activities.”

Despite shifts in the landscape, one thing hasn’t changed, and that is that this industry continues to rely on its contract manufacturers. “I do believe that customers are expecting more from contract manufacturers,” says Keller. “While it does vary some, from customer to customer, in general, the expectations are more versus less.”