What Does Contract Manufacturing Dietary Supplements Cost?

Contract manufacturers (CMs) are well-nigh indispensable in today’s supplement industry. But as regulations and expectations change, cost equations change with them. That puts CMs in the tricky position of mitigating what costs they can while passing on those they can’t to brand-owner customers who don’t always appreciate the underlying arithmetic.
Yet CMs, says Eugene Ung, executive vice president, Best Formulations (City of Industry, CA), “work on very thin margins.” Without sharing some of the cost burden, he says, “we could be in the red on certain products we manufacture.” Marketer partners who see the longer term understand and accept that all nodes on the production chain must grow to survive. “Otherwise,” Ung says, “they’re killing their own goose.”
But still, the case for cost sharing can be hard to make.
No wonder, then, that CMs first try to cap costs all around. Says Ephi Eyal, president and CEO, Innovative Food Processors Inc. (IFP; Faribault, MN), “We work closely with our customers to mitigate inflationary pressure, whether as a result of material input cost hikes or increased regulatory requirements. Yet when systems are in place and rigorous processes are documented and implemented well, the outcome is worth the increased effort on both sides.”
And that’s why CMs are in no danger of cost-sharing their way into obsolescence. “Contract manufacturers have so much information about the supply chain,” contends Michael Schaeffer, president, Pacific Nutritional Inc. (Vancouver, WA). “They’re useful in managing costs by spreading the burden over all of the products being manufactured in a single facility.” In so doing, they ultimately save their customers money and more than earn their keep.
We asked contract manufacturers where their costs are shifting up or down. Read on for a full accounting.
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