Dedicated E-mail - JPG Co-Manufacturer Contract Best Practices

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Hey ,

Are you currently working with a co-manufacturer or looking to? The biggest reason these partnerships fail is a lack of communication and misaligned expectations. The key to success is an agreement and contract that works for both parties. I've asked our partners at JPG Resources to share how to build an effective co-manufacturer contract and what it should cover.

Many startups and founders reach the point where demand outgrows the capacity of their commercial kitchen. Though something to celebrate, it takes time and financial investments to keep growing. Options include investing millions in creating an owned dedicated production facility or finding the right contract manufacturer (co-man) to help grow and scale the business.

For those interested in partnering with a co-man, one of the keys to success is alignment on an agreement or contract that works best for both parties.

This guide provides a detailed look into how to build an effective co-man contract and what it should include.

  Identify whether it’s a good fit. 

Manufacturers are key partners for your business, so make sure that you find one you're aligned with. This means finding a partner you have good communication with, has the right equipment capabilities, and fits your minimum order quantities. While some partners may go under their MOQ for the first run, they won't keep doing so into the future. 

It takes 3-5 manufacturing runs for a co-man to actually make a profit, so they need to find growing brands that are a good fit to invest in.

  Transparency.  

Brands need to sell themselves to the co-man about their business model and products. They need to prove the capability to execute those plans and have proof of financial backing. Provide details about what channels are going into, and make sure you have retail connections.

It's easy to inflate your sales forecasts to meet their minimums, but most brands will overestimate, produce less, and ultimately disappoint the manufacturing partner. 

  Key components of a contract to look for.  

This is a fundamental and key relationship for any brand. It needs to be an open, collaborative, transparent ‘partnering’ of the parties. The business relationship must be good for both parties or it will be good for neither. Some key attributes of a good contract:

• Transparent pricing model – when the Co-man is ‘turnkey’ procuring some or all of the raw materials and/or packaging the brand needs to have visibility to those itemized costs. The finished product costs need to be a build of material costs, tolling or conversion costs, and budgeted scrap rates.

• Promote collaboration to optimize – Opportunities to find mutually beneficial ways to optimize require communication and joint efforts. The contract should build the mechanism to promote and incentivize that.

• Protect intellectual property - The brand must protect ownership of finished products including formulas, processes, trademarks, trade secrets, and proprietary information.  This includes any changes or tweaks made at/by the Co-man to produce the products in their facility.

• Appropriate access to facilities and records – The brand needs to have adequate access to the Co-man facilities that are relevant to the brand’s products and base materials.  Also, the brand must have access to any quality or food safety and production records related to the brand’s products and production

• Regular cadence of communication – Regular communication between the brand and Co-man on all issues is key to success. In addition to covering day-to-day matters, a schedule of business review updates promotes ‘buy-in’ and the sense of ‘partnership’ and helps both to understand business goals, objectives, and needs.

• Clear product specs and requirements regarding certifications and claims – This is critical to identify and assure adherence to product standards against which performance can be graded.

• Require robust food safety/quality programs – Require adherence to industry standard programs such as the Global Foods Safety Initiative (GFSI) and receipt of any 3rd party audits as well as deficiency reports and corrective action reports.

• Clearly defined responsibilities to investigate consumer complaints – The Co-man should commit to prompt investigation of any manufacturing or packaging issue related to consumer complaints and to providing a written Corrective Action/Preventative Action (CAPA) report.

• Articulate responsibilities in the event of a product recall – Clearly defined roles and responsibilities in the event of a mandatory or voluntary recall.

• Define termination for cause & notice requirements for termination without cause – Articulate the breaches and any timelines and remedies to correct them.  In the event of a termination without cause by the Co-man, provide an adequate timeline for the brand to identify, validate and onboard a new Co-man.

JPG is a boutique consulting firm specializing in innovation strategy and execution with a dedicated focus on the packaged food and beverage space. If you need help finding a co-man and crafting the ideal contract, visit us at

https://bit.ly/Find_A_Coman

.

JPG also offers coaching, where industry experts help you work through specific challenges you may be facing – including co-man support. Visit us at

https://bit.ly/JPG_Coaching

to learn more.

Author: Rick Williams, Operations & Supply Chain Lead

Over the course of his 30+ years of experience, Rick has founded and grown businesses in the food sector ranging from manufacturing food ingredients to finished packaged consumer products. His expertise includes strategic planning, executive management, financial & capital management, operations and business development.

This post is sponsored by JPG. Foodbevy only partners with companies that are committed to providing value to emerging food and beverage brands. 

Jordan Buckner

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