co-packing of food products2 (1)

8/13/2019 Co-packing of Food Products2 (1)

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CO-PACKING OF FOODPRODUCTS

3113Steven C Seideman

Extension Food Processing SpecialistCooperative Extension Service

University of Arkansas


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Introduction

Co-packing, contract manufacturing or private-label packing all refer to having someone elsemanufacture your product for you.

This allows the entrepreneur the ability to marketa food item without having to own a productionfacility.

There are food companies in operation that eitherhave excess capacity or are specifically in the business of manufacturing other peoples products.


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Introduction

The complexities of moving a product fromconception to market can be overwhelming evento experienced entrepreneurs. Developingnetworking relationships with reliable co-packerswill permit the small business person to achievemaximum utilization of physical and financialresources and save time.

About 70% of businesses fail in the first year ortwo of operation because they do not have theoperating capital to keep the business going beforethey start seeing the cash coming in. Dont wasteyour limited capital on manufacturing the product.


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Advantages of Using a Co-packer

1) Reduced startup costs- capital costs of equipmentand facilities can be enormous.

2) Reduced lead-time in getting to market.3) A co-packer may have experience with similar products that is transferable to your product.

4) Federal and state regulations on manufacturing,

labeling and food safety are difficult and lengthy.A co-packer already knows them and can be agreat help in getting your product to market.


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5) Experienced co-packers have lines of credit for purchasing supplies and ingredients, insurance,food industry contacts and sources to get the jobdone efficiently.

6) Co-packers have the proper facilities for receivingand storing ingredients and can arrange storage offinished products.

7) Co-packers usually offer the advantage of buyingsupplies and ingredients in bulk, thereby reducingformulation costs.


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8) Some co-packers will offer other services toentrepreneurs such as product stability testing,nutritional labeling, formulation assistance,ingredient substitution and other productdevelopment issues.

9) Co-packers can also offer suggestions on packaging and labeling which is usually based onthe types of fillers, cappers and labelingequipment in their facility

10) Co-packers can direct you to professionals whocan help in the design and marketing of your

product.


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Disadvantages to Using a Co-

packer1) The obvious disadvantage is the loss of control

over the product.

2) An entrepreneur is at the mercy of the co- packers production schedule, fixed costs and methods ofdoing business. The product must conform to theco- packers equipment and facilities limitations.

3) Using a co-packer can be expensive. A co-packermust recover direct and indirect overhead costs. Inaddition, the co-packer must make some profit.


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Disadvantages to Using a Co-

packer4) Confidentiality may be a problem as formulations,

ingredients and product specifications must be

shared with the co-packer. In addition, it is oftennecessary to share customer and sales information.Co-packers also have access to other informationsuch as sales volume and price. This information

can be protected to some degree with agreements, but confidentiality can never be assured.


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Before Meeting with a Co-packer

1) Before you choose and meet with a co-packer,you must do your homework.

2) You should have your business and marketing plans in place which outline your product needs interms of size and type of container, number ofunits per given period, buyers price and sales

price.3)Once you have established the product

information, write preparation and processinstructions. Write specifications for ingredients,

packaging materials, regulatory compliance andfinished product.


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When Meeting with a Co-packer

1) First determine if a co-packer has the capacity tomake the product you are wanting made. This can

be done by telephone.2) Go visit the co-packer and look over the

production facility.3) Go over all your preparation and process

instructions and specifications. Does the co-packerhave the right equipment to make your product.Consider what you are you willing to change toaccommodate the co-packer (e.g. 12 oz jarsinstead of 16 oz) .


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When Meeting with a Co-packer4) There are many details to work out with the co-

packer. Listed below are some that may apply.a) Ask the co-packer if he has a standardizedConfidentiality Agreement for your attorney

to look over.

b) Go over your preparation and processinstructions and specifications with the co-

packer. Work out every detail. Understand the

cost associated with the manufacture of your product.c) How much product can the co-packer make-

weekly, monthly, etc., and how much inventorywill need to be on hand ?


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When Meeting with a Co-packer

5) Arrange for a small test batch to be run, ifapplicable. This will insure that your

kitchen batch preparation and processinggive the same quality that the co-packer willmake on large scale production equipment.

It is also the source of your initial sellinginventory which you will need as you goout and start making sales presentations.


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When Meeting with the Co-

packer6) Discuss who will carry the needed liability

insurance.

7) Tell the co-packer if your potential buyersrequire that the food be manufactured under

particular quality, safety or certification

systems such as HACCP, ISO 9000, Kosheror Halal? Is a third party audit required?


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Items in a Contract

It is suggested that you use a contract with a co- packer and have your attorney view it . Listed below are some items that you may wish to coverin a contract;1)Exactly what services are you contracting for?2)What ingredients and supplies are you

responsible for and what is the co-packerresponsible for? Who will provide productliability insurance?


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Items in a Contract

3)What are the critical factors that must bemet during production as stated in the

specifications?4)Will the co-packer sign a non compete

clause in the contract? Usually not, because it

would limit his production to only you.5) What are the production run limitations (size,

amount of lead-time required, etc.)?


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Items in a Contract

6)What are the payment terms? The usualterms are 10% down and the remainderon delivery.

7) What finished product testing will be

provided?


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Items in a Contract

While there may be other points to becovered in a contract, the above represent

some points that should be covered. While it is recommended that an attorney

advice you on contracts, the small

entrepreneur may find the cost prohibitive.


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Make the Co-packer Relationship

Work A good working relationship with a co-packer and

an agreement which covers what the co-packer is

expected to provide will make your venture more pleasant and hopefully profitable. Get the co-packer on your team. Give the co-

packer a chance to be properly reimbursed for hisservices, so you can concentrate on selling your

product.


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Where to Find Co-packers

It is not easy finding co-packers, but since theadvantages for using one are so great, anentrepreneur may have to alter some details oftheir specifications to accommodate the need.

For entrepreneurs, the best source of informationabout co-packers, their abilities and how theywork with entrepreneurs is often from otherentrepreneurs. Meet with other entrepreneurs andsmall food processors at state associationmeetings, food shows and trade shows.


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Where to Find Co-packers

Specialized co-packers often advertised infood industry trade periodicals and

directories. State directories of manufacturers,

University Extension Service and

Federal/State Food Inspection agencies are places one can look for co-packers.


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Where to Find Co-Packers

Check out the Internet. Go to www.tfir.com and look under manufacturers and list

your product category type (e.g. breadcrumbs, canned soups, etc.). This will giveyou a national list of who makes similar

products and if they do co-packing.
http://www.tfir.com/http://www.tfir.com/


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Co-Packer Assistance

I am always available to assist you infinding a co-packer and answer any

questions you may have on the subject. I also keep a list of Arkansas co-packers. Steve Seideman

Extension Food Processing Specialist479/575-4221; [email protected]


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Additional Information

Additional information on co-packing can be found in the publication entitled

Choosing and Using a CoPacker by DrLuke Howard available through theArkansas Cooperative Extension Service.

www.uaex.edu . Go to publications and find publication MP423.
http://www.uaex.edu/http://www.uaex.edu/


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CONCLUSIONS

This summary should have provided you withsome insight into choosing a co-packer instead of

building your own processing facility. It is imperative that you select a co-packer that has

the ability to do what you need to have done andthat you develop and maintain a good workingrelationship with that co-packer.


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co-packing of food products2 (1)

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