Contract Manufacturing Comes of Age

Contract Manufacturing Comes of Age

April 9, 2020 by James Gormley

The Participants Are:

Annie Eng, CEO, HP Ingredients, Bradenton, FL, https://hpingredients.com

Mark LeDoux, Founder and CEO, Natural Alternatives International (NAI), Carlsbad, CA, www.nai-online.com

Vincent Tricarico, Vice President of Contract Manufacturing, NutraScience Labs, Farmingdale, NY, www.nutrasciencelabs.com

Eugene Ung, CEO, Best Formulations, City of Industry, CA, www.bestformulations.com

Years ago, companies would almost whisper when admitting that they were using contract or private-label manufacturers.

Today, for many finished-product brands it is making less and less sense to carry the massive overhead of manufacturing facilities and expensive equipment, and more and more sense to enlist the aid of a reputable contract manufacturer.

In today’s turbulent times—with supply-chain interruptions caused by global pandemics, such as COVID-19, and pressures caused by tariffs—it may make even more sense than ever before to rely on trusted manufacturing partners to help steer the production ship with a true hand.
Our select panel of industry experts sheds light on the ins and outs of contract manufacturing today, with some insights to boot.

NIE: What are the main advantages to using a contract manufacturer (CM)?

Ung: The main advantages for brand owners to use CMs typically revolve around not having to allocate financial and human resources to manufacturing so that the efforts can be focused on building the brand, sales and distribution.

Additionally, brands can leverage CMs for things like product innovation, supply-chain efficiencies, and getting into new dosage formats or products more easily. CMs also bring technical knowledge and experience to product development, and launching new products oftentimes will happen much faster when working with an experienced CM.

LeDoux: Companies with brand equity and consumer awareness should deploy their resources to merchandising and advertising and instead partner with experts who have a history of professional and ethical business practices in order to have their products manufactured according to local and federal regulatory standards.

To invest in the development of brick-and-mortar manufacturing is not only expensive, it is time consuming, and staffing such an organization with competent personnel is also very challenging in a time where unemployment is so low statistically.

Competency in research, development, pilot production, stability evaluation and product certifications should be, at the very minimum, key components of any successful and viable contract manufacturer.

Combining the intellectual capacity of both marketer and contract manufacturer can shorten the lead time to market and assure all parties of the excellence of the product offering without incurring exorbitant costs.

Tricarico: Aside from leveraging a CM’s expertise when it comes to product manufacturing/development and supply-chain management, the biggest advantage to using a CM from the standpoint of a brand owner is that it allows you to focus more time and energy on sales, marketing and other initiatives to help you get your brand off the ground.

Eng: The reasons why working with contract manufacturers is highly encouraged include superior knowledge of sourcing, formulating, processing, manufacturing and packaging. Also, with regulations, facilities must follow cGMPs (current good manufacturing practices), and this is a very expensive investment. The brand marketer, however, is responsible for due diligence in labeling, to conduct its own audit. It is the contract manufacturer’s responsibility to produce safe products for human consumption, adhering to the strictest quality standards.

NIE: What are the top one or two questions finished product brands should ask a potential contract manufacturer? And what should acceptable answers be?

Tricarico: One question would be: “Are you cGMP?” This will give you a sense of the company’s level of quality standards. If a contract manufacturer is not certified by a respected third party, they should automatically be crossed off the list. A follow-up question would be “What other certifications do you hold?”

Another question would be, “Can we visit your facility?” Seeing is believing, and getting to meet with the team that’s going to be responsible for taking your idea and turning it into a reality is very important. The same can be said as it relates to actually seeing the facility in which your product is going to be made.

Ung: Aside from the typical questions of minimum-order quantities and capabilities, brand owners should understand what differentiates that CM from others and should also conduct a facility audit.

CMs are typically good at certain things, so it’s important to understand their core strengths and areas of focus. Though they might be able to provide a wide range of products and services, it’s important to know if they outsource some of those things. A good CM will be very transparent with that type of information.

Along the lines of transparency, conducting a facility audit of the CM is critically important. A good CM will be organized, have in-house expertise to answer your questions, and you should come away with having a good sense of the type of business they are.

LeDoux: The first question should be to ask for evidence of financial stability. Ask for a balance sheet or a profit and loss statement. The second thing to ask for is evidence of inspections and reports of findings by federal and state authorities. The third thing should be a copy of the index for the Standard Operating Procedures and a copy of the product liability insurance policy. Eng: We believe that asking for references from satisfied repeat customers that have similar products is key in building trust. Make sure your contract manufacturer has the following: GMP certification, proof of passing FDA (U.S. Food and Drug Administration) inspections, liability insurance and SOPs (standard operating procedures).

But never start with price. There are cut-rate operations out there, but that will be reflected in your final product.

NIE: In terms of quality control, what role does the contract manufacturer play, and how does this relate to responsibility for ensuring quality up and down the supply chain?

Ung: The CM plays a critical role in quality control to ensure the product is manufactured to the product specifications. Our quality systems, size and scale allow us to support brands large and small in assuring the highest quality standards.

With that being said, it’s important for brand owners and CMs to have a good quality agreement which clearly indicates who is responsible for what so that there’s no misunderstanding where the responsibility lies.

Tricarico: The contract manufacturer sits at the center of the quality control puzzle. An experienced contract manufacturer is going to have a robust quality system in place that’s been audited for several years by outside agencies.

They are going to have supplier verification processes, raw material and component testing processes, storage and distribution processes, manufacturing and backpacking processes and documentation to back it all up.

If they say they do something and they don’t have documents to prove it, that should be an immediate red flag.

NIE: Country-of-origin labeling (or COOL) is mandated by U.S. Code for meat, fish and other agricultural commodities, but it is not required for any other products, such as dietary supplement ingredients. Should contract manufacturers voluntarily provide COOL info? Would finished product manufacturers be willing to use this info on bottle at retail, or does that solely depend on perception of value, such as “Madagascar vanilla”?

LeDoux: With the spread of the coronavirus, which initiated in a region in China, there is a greater sensitivity to country of origin. Frankly, I believe that materials should be disclosed to the brand in terms of their country of origin.

While it is true that many items are singularly produced in China today, including many active pharmaceutical ingredients, I think in the next several years there will be other companies in other countries, including the USA, that will commence production of basic raw materials for a variety of reasons.

Our policy is to fully disclose to our client partners the country of origin on all components that we utilize in our finished products. This is a matter of sound business policy and of transparency.

Tricarico: We feel that if a customer would like to know country of origin for the materials that are going into their product, they can certainly ask us for it and we will provide it. The use in marketing materials, or on the label we feel is really based on the availability of that material as well as the perceived value.

However, a brand owner should be careful to make country of origin claims on a label as it would limit supply and could impact lead times on production if a CM is limited to certain regions to source materials.

Ung: This really depends on the brand owner as to how they want to label their products. Generally speaking, product labels should be accurate and not misleading. There is dual responsibility between the brand owner and CM regarding labeling.

Typically, a good CM will support the brand with the information they need. For example, if a brand wants to list the country of origin for the various ingredients, the CM should be able to provide that information to the brand owner.

When it comes to product provenance or origin, our unique focus on consumer research inform the extent to which these characteristics signal value to the consumer. This helps make better labeling recommendations for customers that are seeking the added insight.

NIE: What does “traceability” mean to you? What should it mean for both brands and their products on shelf?

Tricarico: Traceability means superior lot tracking and overall documentation practices with organized record keeping of that documentation. The master manufacturing record, as well as the Batch Production record for every lot of product produced, should document every step in the process of creating the desired finished good.

A brand owner should choose a manufacturer that is able to provide documentation on every step of the process, from sourcing to shipping and everything in between. This is why on-site audits and visits are so critical. At the brand level, there should also be SOPs in place for site audits, as well as recall procedures etc.

LeDoux: In the event there is a problem with a product found post-market release, it is critical to a risk-based health system to have full traceability by lot number, batch records and raw materials procurement records in order to identify root causes of defects in the finished products, and to be able to effectively and efficiently initiate voluntary recalls or withdrawals from the marketplace in the abundance of caution principle.

Lot numbers of finished products that do not tie back to individual batch records, packaging records and raw material procurement and testing records are of little or no value. The requirement to retain samples of all raw materials received is also mission critical to be able to test said samples to identify the potential problem, should one exist.

Ung: Traceability from a product-safety perspective refers to the ability to trace a particular lot of a raw material to the lots of finished products and vice versa. A good CM will have proper controls and documentation in place related to product recall procedure, which will require this type of traceability.

Traceability can also refer to the source of the ingredients used in the products (i.e. the material comes from a certain geographic region, part of a plant/animal, etc.). CMs can typically get this information from raw material vendors, if that information is available.

NIE: Regarding the trend for “clean labels” and “simple ingredients,” how has this trend impacted dietary supplement products in the U.S.?

LeDoux: Various forms of market differentiation have been on display in our industry for the past five decades. When I originally started in this industry in 1975, it was not uncommon to see sugar coated vitamin and mineral tablets, colored with white titanium dioxide. Products made with starch as disintegrants, or lactose (milk sugar) as binding excipients, in the tableting process were common, as was the use of metallic stearates for lubrication.

Today, there is a desire to avoid sugars, starches or their derivatives and any metallic stearates, largely targeted to people with concerns regarding potential allergic reactions to these compounds. This is further evidenced with gluten-free preparations and other novel uses of extracts from rice and other natural products which have replaced many of the earlier forms of processing aids.

Ung: There’s no doubt that clean-label, simple ingredients are the consumer trends. We believe that this trend is positive for the industry as clean and simple imparts a feeling of safety and trust, which helps to grow the category.

From a technical, formulation and manufacturing perspective, clean label and simple ingredients can present some challenges. However, this trend isn’t going away, so raw material suppliers and CMs have been working on product innovation to address these trends.

NIE: In the interests of transparency, what specific data and documentation should finished-product brands and CMs share with each other?

Tricarico: There should be a quality agreement as well as a supply agreement put in place that clearly outlines the commitments and expectations the brand owner and manufacturer are making to each other. But, at minimum, the brand owner should supply complete product specifications, including desired finished product testing.

The CM should supply, at minimum, a formula sheet, a supplement fact panel and a fully inclusive finished product COA. The contract manufacturer should also welcome site visits and audits on an annualized basis. There shouldn’t be any surprise when it comes to how a CM is going to make the product to the specifications provided.

NIE: Should finished product companies ask potential CMs about how they deal with testing problems, raw material supply issues, FDA inspections and auditor inspections? If so, please expand.

LeDoux: Our company has a philosophy that there are no secrets when it comes to the safety of consumers and products they consume. Therefore, under contract and appropriate confidentiality and quality agreements we share everything with our client partners. Surprises should be positive, not negative experiences!

Ung: Brands and CMs should work together to develop a good finished product specification so both are on the same page. The data and documentation will flow from the product specification. For example, if the product is to be claimed as “organic,” then that needs to be clearly identified on the finished product specification and there will be a series of documents required to support that.

Generally speaking, CMs should be transparent with any ingredient information. Beyond technical product information, exchanging consumer and category insights can create great synergies between the two. Our access to market research creates unique value for our brand partners, fueling innovative consumer solutions.

Tricarico: Yes! The CM should be able to explain the process from start to finish. That includes understanding what the raw material supplier verification process looks like, how materials and components are tested once they are received, how they are stored, how they are released into production, what testing goes on during and after production and packaging processes are complete. And they should be able to let you know how they handle deviations or unexpected hiccups.

NIE: Regarding certifications, there are a variety of seals, standards and certifications being used. What should finished-product manufacturers ask to make sure that the accreditations or seals being used are meaningful?

LeDoux: A group of industry leaders is working on this under the Supplement Safety Compliance Initiative (SSCI), which is a retailer-driven initiative seeking to establish benchmarks for inspections of manufacturing facilities and processes.

Too often in the past, companies have run afoul of FDA warning letters shortly after having been given a passing bill of health by an independent GMP-certifying body that is a private corporation. At SSCI we are actively working on finalizing our benchmarking protocols and asking all certifying bodies to submit their programs for evaluation. After that is completed, the Board of Directors of SSCI will be opening a dialogue with FDA regarding interfacing with the agency to help reduce obvious concerns by the agency findings, and to reduce “audit tourism” of multiple facilities. This will strengthen the value of these third-party certifications and open up the opportunity to extend the process further downstream (or upstream) to the raw material providers.

NIE: Related to contract manufacturing (or using CMs), what would you like the industry to know about your proprietary technologies, your services, your sourcing, your systems or something else?

LeDoux: In essence, NAI’s reputation speaks for itself. We have been in business for 40 years, and we are the only publicly traded corporation which provides all of its financial and operating information quarterly under review by audit and the oversight of the SEC. With products produced in our state-of-the-art facilities in California or in Switzerland, we service the needs of customers serving over 40 countries worldwide.

We are the only company to have certification by the Australian Therapeutic Goods Administration for 19 consecutive years, and we have Swissmedic certifications of our Swiss facilities. Likewise, we are an organic processor in the USA, and have been involved in leading the charge for better transparency in regulations and testing for four decades.

Our CarnoSyn IP has been one of the most successful products of its generation in both sports nutrition and in the growing category of healthy aging.

Ung: Best Formulations has been providing contract manufacturing services for over 30 years. We specialize in soft gel manufacturing, two-piece hardshell capsules, tablets, powders, teas and also have full turn-key packaging capabilities. We have distanced ourselves from other CMs through innovation, quality and consumer insights.

Best Formulations has one of the strongest R&D innovation, product formulation and technical teams in the industry. We’re internationally recognized as the leader in vegetarian soft gel innovation and our ability to encapsulate difficult “paste” formulas. The vast majority of the products we manufacture are complicated, unique differentiated formulas.

We provide peace of mind for our customers. And Best Formulations has robust in-house laboratory testing capabilities. A full 10 percent of our staff is in the quality operations department. In fact, quality has been the cornerstone of the company’s values and a point of differentiation.

Consumer insights are how we stay on the forefront of new product development, innovation, and trends and how to connect brands with consumers. Unlike most other CMs, we do our own consumer research to understand the new trends consumers are interested in. If we can better directly understand what the end consumer wants, then we can better offer solutions to meet those needs. NIE