How to Select and Manage a Co-Packer – According to the North Carolina State University

North Carolina State University

Department of Food Science

Food Processing FSE98(10-99)

__________________________________________________________________

Choosing and Using a Co-packer

John E. Rushing, Ph.D.

__________________________________________________________________

 What is a co-packer?

Co-packers manufacture and package foods for other companies to sell. These

products range from nationally-known brands to private labels.

Entrepreneurs choose to use the services of co-packers for many reasons.

Co-packers can provide entrepreneurs with a variety of services in addition to

manufacturing and packaging products. They can often help in the formulation of the

product.

The co-packer may function only as a packer of other peoples’ products or may be in

business with his/her own product line.

They may be, in fact, manufacturing several competing products. The range of

services available from a co-packer will vary depending on the size and experience

of the co-packer and the type of facilities and the capacity of their plant.

What are the advantages to using a co-packer?

There are many advantages to using a co-packer. The most obvious is to reduce

startup costs for the food entrepreneur.

Capital costs of equipment and facilities can be enormous. Using a co-packer allows

one to more accurately predict overhead costs due to manufacturing. Using a

co-packer can also reduce lead-time in getting a product to market. Choosing a

co-packer who already has processing lines in place almost makes

manufacturing, packaging, and labeling a food product a matter of placing an order.

The co-packer may have experience with similar products that is transferable to

the product you wish to have copacked.

With established business, the co-packer will usually have the proper regulatory

certifications, lines of credit for purchasing supplies and ingredients,

insurance, food industry contacts and sources to get the job done efficiently.

They should be familiar with quality parameters, food safety requirements, and

shipping needs. They will have the proper facilities for receiving and storing

ingredients and can arrange storage of finished product. Some co-packers will

offer other services for entrepreneurs such as product stability testing,

nutritional labeling, formulation assistance, ingredient substitution, and

other product development services. In addition, they can offer suggestions on

packaging and labeling the product, usually based on the types of filling,

capping and labeling equipment in their facilities. They can direct you to

professionals who can assist you in the design and marketing of your product.

They usually offer the advantage of buying supplies and ingredients in bulk. They can

arrange palleting and shipping to meet the needs of the buyer.

What types of obstacles might an entrepreneur face?

In addition to the above advantages for using a co-packer, food entrepreneurs may face a

variety of obstacles to manufacturing their own product. They may not possess the

experience and expertise necessary to manufacture a food product. There may be

zoning laws, which restrict certain business activities on the entrepreneur’s property.

Loss of economies of scale for the entrepreneur may be such that the cost of the

ingredients and packaging may be prohibitive.

What are some disadvantages to using a co-packer?

An obvious disadvantage to using a co-packer is a loss of control over the product and its

manufacture. Many co-packers will request the entrepreneur be available in the plant the

first time the product is run so they can ensure it is made to the customer’s

satisfaction. However, the presence of the customer is usually not requested for

subsequent runs.

An entrepreneur is at the mercy of the co-packer’s production schedule, their fixed

costs and their method of doing business. The product must conform to the co-packer’s

equipment and facility limitations. In some cases, the co-packer may be producing a

competing product.

Confidentiality may be a problem as formulations, ingredients and product

specifications must be shared with the co-packer. Oftentimes it is necessary to share

customer and sales information. The co-packer has access to other information

such as sales, volumes and price. This information can be protected to some degree

with agreements, but confidentiality can never be assured.

Disagreements between customers and co-packers are not easily resolved. Disputes

and litigation may tie up ingredients, supplies and finished product for extended

periods of time. Finding an alternative co-packer who can produce the same product

may prove difficult.

Using a co-packer can be expensive. A co-packer must recover direct and indirect

overhead and costs. Additionally, a co-packer must also make a profit.

Consequently, the costs associated with copacked product may be high.

Before you visit the co-packer

Before choosing a co-packer, do your homework. You should have business and

marketing plans in place which outline your product needs in terms of size and type of

container, number of units per given period, price to the buyer and sales price. Small

Business Technology and Development Center can be of assistance. Get technical

help from a university, a consultant or a testing laboratory to determine needs for

product stability and safety.

Once you have established the product information, write preparation and process

instructions. Write specifications for ingredients, packaging materials, regulatory

compliance, and finished product.

Prepare a checklist of needs you have from the co-packer

Will you require product development assistance such as safety determinations,

coloring, stabilizers and emulsifiers, or preservatives?

What are special product concerns such as; acidity, thermal process, refrigerated

ingredients, refrigerated product storage?

Are there special ingredient concerns?

Will the product require specialized ingredients in terms of variety, function,

or piece size?

Will ingredient preparation such as onsite chopping, peeling, coring, or sugaring be

necessary?

Can ingredients be purchased ready-to-use?

Are there alternative sources for specialized ingredients?

Consult with your attorney and insurance carrier. What do they feel you should

require of your co-packer? Will a site visit be necessary for them?

Remember, scale-up of production from the home kitchen to the first plant trial may

produce unsaleable or unusable product.

Factors such as rate of heating, agitation during incorporation of ingredients, holding

at high temperatures and pumping can affect ingredient functionality and product

appearance. Adequate product development prior to the pilot run will minimize this, but

unforeseen factors may still cause differences in product.

How will the final product be distributed? If it is to be shipped to a central warehouse,

what requirements will you have for the co-packer? Many companies are under

mandatory solid waste reduction. Will the product be shipped in boxes or overwrapped

trays? On which kind of pallet shall they be furnished? Should the boxes be

overwrapped or glued to keep them on the pallet?

Will you need storage of ingredients, supplies, or finished products? Will you

need the co-packer to order or ship these materials? How much inventory will you

need to have on hand?

Will the potential buyers of your product require that the food be manufactured under

particular quality, safety, or certification systems such as HACCP, ISO 9000, Kosher

or Halal? Do regulations require USDA compliance, or certification for low-acid

canned foods or acidified foods? Is there mandatory HACCP compliance required? Is

a third party audit required?

How do I find the right co-packer?

For the entrepreneur, the best source of information about co-packers, their abilities

and how they work with entrepreneurs is often other entrepreneurs. Meet other

entrepreneurs at state association meetings, food shows, and trade shows. More

specialized co-packers will often advertise in food industry trade periodicals and

directories. State directories of manufacturers will provide information about manufacturing companies. Those who list private-label products are usually co-packers. University extension services and state food and drug or agricultural marketing agencies can also be of help.

Bring your specifications and checklist to your first meeting with the co-packer. You

may wish to consult your attorney for instructions on protecting the confidentiality

of your documents and conversation. Some co-packers will restrict confidentiality

agreements only to written specifications, formulations, pricing and customer

information. Most will not agree to noncompete arrangements, as that would restrict

their livelihood and their business interests.

You may be able to use a model confidentiality contract furnished by the

co-packer.

The costs of all services at a co-packer must be recovered. Be sure to have an agreedupon

price for each of these. Once an agreement is reached, be sure you will need a

contract for services. Be sure to get a guaranteed price for at least a year.

Some co-packers have an in-house R&D department. This can produce a considerable

savings in time and development costs.

Ask to tour the co-packer’s facilities. Note the state of cleanliness and order. Look at

the most recent inspection report. Is the co-packer operating under a quality control or

food safety system such as HACCP? Do they have the equipment needed to process,

label, and package your product correctly?

Request from the co-packer the names of others he has copacked for. It is a good idea

to speak with them about what it’s like to work with the co-packer; ask about his

commitment to schedules and to quality.

Ask about concerns they might have.

Share both your present and future needs with the co-packer. Early in the relationship,

you may need small production runs, later you may wish to have more volume. Can

the co-packer deliver on production? What about peak seasons? In the specialty foods

business, there are often seasonal needs, such as, the Christmas holidays, when turn-around time for resupply of stores may be short.

Can the co-packer accommodate this?

Usually, early in the process, it will be necessary to produce product for

storage/stability testing. You may wish to produce samples in alternate sizes or

different containers. Check to make sure these can be processed.

The contract with the co-packer

Obviously, written orders should be placed with the co-packer. Specifications should be

furnished for supplies, ingredients, processing and finished products. A written

contract can help you avoid a lot of problems later on. Be sure you understand what you’re

contracting for. Check with your attorney.

Below are items which should, at a minimum, be addressed in the contract:

What are the services you are contracting for? Who will handle raw product

testing? Where are records to be kept? How will final product quality be checked?

What ingredients and supplies are you responsible for purchasing or providing?

What is the disposal for excess ingredients or supplies which you purchase or furnish? Where will they be stored between processing runs?

What processing manipulations will be required for ingredients such as slicing,

dicing, or blanching? Are piece sizes specified?

Will there be samples furnished for your approval prior to the first production run?

Will there be storage/stability or finished product tests?

Are you to be present and consulted during processing plant runs? If so, are

you covered under insurance or Workmen’s Compensation?

Will you have any coverage under the manufacturer’s product liability

insurance? If so, what will it be? Note that it will be necessary for you to

furnish your own liability insurance to sell your product to stores.

What are the critical factors which must be met in processing, such as pH,

packing temperatures, or heat processing? Require documentation that

these have been measured and met.

Are ingredient substitutions accepted? What are the limits? Are these covered

in your ingredient specifications? Note  that manipulation of ingredients may

render your ingredient statement or nutritional information on your label

The contract should note scheduled processes which must be filed and

certifications which must be obtained. If the product is listed under a marketing

program such as “Goodness Grows in North Carolina” there must be

certification of use of required ingredients.

What is the delivery date of the finished product? Must it be immediately

removed from the premises?

What are the payment terms? Usually these are 10% down and the remainder

on delivery.

What will render the product unacceptable? What are the appearance

factors such as color, separation, piece size, and texture? Who will judge

adequacy of flavor and taste?

What are the appearance factors for the container, such as label placement,

closure gasket materials and closure color, or neckband placement, size and

color? How tight is the closure to be?

Who is responsible for disposal and disposal costs or rework of unacceptable

product?

The entrepreneur should furnish labels, what size are they to be, what style and

orientation, and how are they to be wound? (It is recommended you have

the co-packer specify the labels in writing to be sure they will run on the co-packer’s

equipment).

How much lead-time is necessary for the next and subsequent production runs to

be delivered?

Will the co-packer be required to furnish grade certifications, third party audits or

other certifications of lots and batches? The co-packer should certify that the label

statements are accurate.

What lot or batch coding is to be used? Where will it be placed on the container

and how will ingredient processing and testing records be filed to correlate with

the code?

What is the manufacturer’s recall plan? Be sure you have a copy. How are you

to be notified?

Is there a noncompete agreement with the co-packer? Are confidentiality and

privacy issues covered?

What finished product testing will be provided?

While there may be many other points to be covered in the contract, the above represents

those points for which many disagreements occur. While we recommend an attorney’s

advice on contracts, the small entrepreneur may find the cost prohibitive.

Make the Relationship Good

A good working relationship with your co-packer and an agreement which covers

what he is expected to provide will make your venture more pleasant, and hopefully,

more profitable.