By Jill Rivkin

Elusive is a word once more frequently used to describe the contract manufacturing and packaging industry. Like the private label world, a lot of business transactions involving outsourcing were kept in the shadows as major consumer-packaged-goods companies using outsourcing chose to keep it quiet, concerned about image, consumer perception and/or competitive advantage. But thankfully, today’s business environment is less elusive – still very private, yes, but there are forward-thinking companies out there that realize the value of communication, sharing insight and best practices.

For Rob Swift, associate director of purchases, External Supply Organization (ESO) at Procter & Gamble, Cincinnati, and Carole Rich, vice president of global manufacturing alliances at The Hershey Co., Hershey, Pa., now is the time to open up – at least a little – to bolster the industry and make progress through innovative business approaches and concerted efforts. Both Swift and Rich are intimately involved with the Oakland, N.J.-based Foundation for Strategic Sourcing (F4SS), which is an organization founded on the belief that major organizations coming together can make change and improve the industry through standardization and collaboration.

Recently, Swift and Rich were keynote speakers in a Webinar hosted by CM&P and F4SS. And in the spirit of building our industry and further opening communication, they both offered CM&P further discussion on pressing issues in today’s contract manufacturing and packaging industry, from the CPG perspective.

Swift and Rich addressed issues of quality control, all that’s involved in new product development, including sharing the responsibilities for launch success, and we asked them both to speculate on the future of the industry.

Here’s some of what they shared:

How do you ensure quality throughout the production process at your contract manufacturing sites?

Swift: P&G has a rigorous quality assurance program and auditing process. We assess prospective suppliers and only use those suppliers who achieve and maintain high standards vs. our “19-point Quality Assurance Key Element” program.

We have on-going audits and on-site visits from both quality assurance and operations staff to provide coaching and guidance to improve QA systems and processes. We depend on the suppliers to do training and to continuously improve their operations to ensure the quality of our products.

Rich: Our quality control starts before we contract with anyone. We do checks for any prior quality issues, such as recalls. This is followed by detailed on-site inspections of the physical facilities, review of process controls and record keeping.

Once the contract manufacturer meets these requirements, we provide detailed product specifications. In addition, we require approval of all suppliers that provide materials to be used in our products. Then, once production is underway, we conduct on-site inspections and closely monitor all consumer feedback on products they manufacture for us.

In the end, we must have trust that the contract manufacturer will protect our brand. In a few words, trust but verify.

How do you share the responsibility for new product success? How can contract manufacturers better shoulder the job when it comes to inventory, speed-to-market and sustained quality when new product development is happening at a frenetic pace?

Swift: There are several examples of how we share the responsibility for new product success.

First, suppliers can invest in technology-specific capital and capacity that may be cost prohibitive for a single customer with an unproven product.

Second, contract manufacturers may have a range of smaller or more flexible manufacturing systems that can more efficiently and cost effectively produce start-up quantities.

Third, regardless of size or complexity of the product mix, the supplier can establish strong quality assurance and initiative management systems and processes to accelerate speed to market.

And finally, continuous improvement of both systems, and especially people, can elevate the capability of suppliers in areas like loss analysis and reduction, production planning and inventory management, or optimized capacity utilization.

Rich: New products present challenges in speed and the variability of sales forecasts. When we contract with a manufacturer, we don’t want just their equipment but their knowledge and experience. We want them to offer ideas on how to improve the product or process and how to make the product more efficiently while maintaining the quality of the brand.

Margins are always important but especially for new products. Anything the co-manufacturer can do to help improve these is critical.

Flexibility on new start-ups is also critical. If a product has good sales, be prepared to handle the unpredictable volumes. We have found that longer-term, vendor-managed inventory is one way to be flexible. This allows the contract manufacturer to have more flexibility in their schedules while still meeting the customer’s needs.

When you think about the contract manufacturing and packaging industry, what do you think the future holds?

Swift: In years to come, P&G will likely continue use of contract manufacturers for “tactical” overflow production, reducing internal complexity, testing new markets at low capital, specialty technologies and so forth.

Growth in strategic use of contract manufacturers will be linked to elevated capability in areas such as material sourcing and supplier management, rapid speed to market, and other value-added services that provide advantages that meet or exceed those we could provide internally.

As consumer expectations for product customization and improved value increase, and as technology advances reduce the gap between branded marketers’ internal capabilities vs. those offered by contract manufacturers, success in later years will be determined by those suppliers who offer strong innovation and affordable flexibility in the supply chain.

Rich: I believe there will be growth in outsourcing, especially in the area of new products to help companies reduce their capital investment risk.

However, there will likely be more consolidation by customers to reduce their supply chain complexity. With tighter resources, it is more efficient to have a few large contract manufacturers vs. many small ones. This also allows the customer to leverage their higher volumes with fewer suppliers.

In addition, larger contract manufacturers are usually more sophisticated in using technology and in integrating with their customer’s systems. This is important to large CPGs to make the transaction management as streamlined and integrated as possible.