Getting the Most Out of Contract Manufacturing

Differentiating yourself in the m­­­­­arketplace with quality contract manufacturers.

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The natural products industry is growing and dietary supplements are part and parcel to this growth. According to the Council for Responsible Nutrition’s (CRN) 2016 Consumer Survey, 71% of adults use dietary supplements, making them an important source of income for natural products retailers (1). However, as the industry grows and shelf space shrinks, there comes the need to differentiate oneself and stand out from the competition. As this is not an easy task, contract manufacturers may be an ideal solution.

Taking the Leap
Contract manufacturing can be a great tool for those who have a concept they want to execute but do not have the infrastructure to formulate and manufacture dietary supplements. “The investment in a manufacturing facility is quite expensive, so for newer startups it makes complete sense to outsource manufacturing,” explains Robin Koon, executive vice president, Best Formulations, based in City of Industry, CA.

Wendy Hafen, marketing specialist, Arizona Nutritional Supplements, Chandler, AZ, seconds this. “One of the main reasons [companies] turn to a reputable contract manufacturer is for the cGMP certified facilities or equipment required to manufacture supplements according to FDA guidelines,” she explains. “There is a large financial commitment to operating one’s own manufacturing facility, including hiring of personnel, maintenance of equipment, sourcing of ingredients, production, distribution and so forth.”

Relying on a contract manufacturer as a startup also allows one to focus on other aspects of the business, says Jay Kaufman, president of Paragon Laboratories, based in Torrance, CA. “[Our] in-house capabilities give brands the ability to focus their resources in areas of marketing and research,” he explains.

“The companies who choose to work with us also value the fact that we have in-house experts in innovation and R&D, lab sciences and testing, quality control, procurement & sourcing, and more,” says Hafen. “The full turnkey service and expertise that is all under one roof is a major selling point for companies to outsource their brand production.”
Even for experienced manufacturers, contract manufacturers are necessary for developing specialty products one does not have the machinery or expertise to produce.

Trends
Consumers want results. Whether they are purchasing a dietary supplement or health food, they are looking to get something out of it, namely functionality. “Functional products [should] not only have nutrients like protein, fiber, etc. but offer something additional so consumers get more bang for their buck,” explains Emily Ross, technical beverage sales, Agropur, based in La Crosse, WI. “Maybe they add probiotics or veggies or a certain supplement, but to differentiate yourself in the supplement market you have to bring something other than the bare product line.”

“Some of the largest categories we are seeing trends in are areas of enhanced energy, sports nutrition, whey proteins, amino acid supplementation, probiotic antioxidants, and digestive enzymes,” says Koon, which generally point to active individuals and a potentially younger demographic. While supporting overall health with dietary supplements remains the strongest reason for supplement consumption, trends shifting to more specific needs and outcomes demonstrate that more young consumers are turning to supplements and other functional products.

CRN’s most recent consumer survey shows that supplement consumption between different age groups is leveling out with 70% of adults ages 18 – 34 and 70% of adults ages 35 – 54, saying they take dietary supplements, compared to 65% and 68% respectively, the previous year (1). This may explain how energy jumped to the second reason for taking supplements with 30% of respondents, while 42% cite overall health and wellness benefits.

Koon also observes that “condition-specific dietary supplement products are the strongest category products.” He adds, “There seems to be less emphasis on simple vitamins and mineral products and other commodity formulas.” It seems obvious, but the key here is marketing. Certain ingredients may be well known for their support of categories such as heart health, but products specifically formulated for that purpose and clearly expressed on the label have an advantage. “Customers are also looking for differentiated formulas, different dosage forms, and cleaner labeling (i.e. natural, organic, non-GMO, etc.),” he adds.

What becomes important for the brand is presentation because they know that consumers are reading labels and are looking for something specific. “Companies are trying to be more label transparent with the consumers — not as many proprietary blends and are showing exactly how much of each ingredient is present in formulas,” says Jeff Reget, private label sales for Agropur. Simply, consumers want to understand what’s on the label and make an informed decision. Brands also want to offer convenience, with “on-the-go” being an important factor in everyday life.

The investment in a manufacturing facility is quite expensive, so for newer startups it makes complete sense to outsource manufacturing.
– Robin Koon, Best Formulations

“Companies are trying to be innovative with packaging to increase their market appeal while reducing cost, such as preformed bags and shrink sleeves applied to HDPE canisters,” adds Reget. “More single serving packets are being requested as they are seen to be more convenient for an on-the-go lifestyle.”

Choosing a Contract Manufacturer
First and foremost, you want a contract manufacturer that is cGMP-compliant. “In order to be cGMP [Good Manufacturing Practices] compliant, you must meet the FDA 21 CFR part 111 requirements for supplements, and Part 117 requirements for foods,” explains Hafen. “The FDA performs unannounced inspections of facilities and is always monitoring activities throughout the industry.”

In order to meet and maintain this compliance, most contract manufacturers utilize the services of third party auditors and certifiers. “Here at Paragon, we are audited and certified for GMP by the top certifying bodies which are NSF, UL, and the Natural Products Association (NPA),” says Kaufman. NSF, UL and NPA are in high demand for GMP certification, not only by contract manufacturers but by potential clients who demand third party certifications.
“NSF, NSF Sport, and TGA certifications are routinely asked about,” says Hafen. “Arizona Nutritional Supplements is already NSF and NSF Sport certified and is in the process of becoming TGA certified to allow us to provide supplements in Australia. TGA is the Australian equivalent to the FDA and has higher restrictions for supplements entering Australia.”

Ross says third party audits have become a gold standard for contract manufacturers. “These aren’t regulated by the government but offer assurances that a company has the quality processes in place to make quality, safe products,” she explains.

However, clients can also take matters into their own hands. “Customers will often perform annual audits to confirm compliance to the regulations,” says Shawn Wegner, VP quality and engineering for Agropur Ingredients, custom solutions. This may provide an added layer of protection.

All the while, the industry is in the process of developing a variety of self regulatory efforts to encourage manufacturers and suppliers to be more transparent with the government, the retailer and consumers, as a way to protect industry from heavy-handed government intervention and weed out bad-actors. One of these initiatives is the Supplement Online Wellness Library (OWL). Created by the Council for Responsible Nutrition (CRN) and developed and administered by UL, the OWL is an online database of products divided into two tiers. The first tier is free and features a product image, a complete product label and other fields of information, obtained from the label itself. Companies will pay a fee to participate in the second tier, which allows them to provide more detailed proprietary information and documentation about their products and to choose who will have access to that information. CRN is marketing this tool predominantly as a resource for the regulator but hopes consumers and retailers benefit greatly from the Supplement OWL simply by seeing the companies that are choosing to be transparent.

From a marketing perspective, a brand may see this as an opportunity to stand out and demonstrate virtues of transparency in an effort to win shelf space and maybe even the well-informed consumer. Another initiative that is in the works by NPA is the Supplement Safety and Compliance Initiative (SSCI) which is retailer-driven (For more info on SSCI, see our Raw Materials story on page 15). So far, participating retailers include GNC, Walmart, Whole Foods Market, Walgreen, Target and Vitamin Shoppe and the intention is to develop schemes, which are quality and compliance practices, for a number of scopes that apply to different aspects of the supply chain — in this case manufacturers — to which certifiers will have to benchmark their standards against and manufacturers will have to meet in order to achieve SSCI approval and acceptance from retailers.

OWL only recently launched with manufacturers submitting their labels each day and SSCI is still in the works, with hopes to launch by Q1 of 2018. So whether these programs will have the intended impact on the industry or how industry is viewed by regulators is difficult to say. “The self-regulatory efforts have great intentions, however the current systems are still in the early stages and will need full buy-in of the supplement industry to allow for prolonged success,” says Hafen. “These programs are a great start to help with transparency within the industry, and will further help identify products that are mislabeled or contain illegal substances.”

Others are a bit more skeptical. “Because [OWL] is not a mandatory registration process, but a voluntary one… it will never be complete since any one can opt out,” says Koon. “It is a good start though.”

Koon is, however, more confident in SSCI. Because it is retailer driven, he says, “It would force suppliers to comply (similar to being required to be GMP certified).”

While time will only tell, the reason we bring these up here is because inevitably, OWL and SSCI will become part of the conversation between the hiring firm and the contract manufacturer, in fact, it may be already. According to Koon, Best Formulations is already providing supporting material to those who want to participate in OWL, so it’s important for brands to be aware of these options and contract manufacturers to be prepared to comply with these initiatives if and when they gain some real traction.

Just as transparency is important in manufacturing, so too is it important in business dealings. You have to be honest with the contract manufacturers, be clear about what your needs are and you want them to be honest and frank about whether they can accomplish your request and how. Asking lots of questions and making your standards clear is the only way to know if the relationship will work and whether the ongoing process will go smoothly. Do they support the USDA organic standard? Are they Non-GMO Project Verified? Who are their suppliers? What are their limitations? All important questions. And you better hope they ask you plenty of questions, too.

“Every step of the process from product development to production to logistics has areas that you have to feel comfortable navigating together,” explains Ross. “A good co-manufacturer will not only discuss what could go wrong and how to avoid major pitfalls, but will also partner with you when errors do occur. If your supplier isn’t transparent with you now, when everything is going well, it is unlikely that will change when something goes bad.”
So much goes into manufacturing a product that cooperation and communication are key to success. You want the contract manufacturer to be as invested in the end product as you are, and you want to show interest to demonstrate how serious you are about succeeding.

“Working closely with our customers and partners ensures that we are formulating and manufacturing the products they wish to bring to the marketplace,” says Reget. “This means sourcing quality ingredients, using them at the dosages desired, and validating they are present in each serving at that amount. We allow customers to take advantage of our highly recognized strategic sourcing program or source materials from their recommended suppliers at costs they negotiate.”

Attentiveness is important, particularly when formulating a novel product or working with an unfamiliar process. “Our particular specialization is in making softgels,” says Koon. “Due to the specialized unique nature of having a liquid fill, the contract manufacturer usually is quite involved in helping the formulation process.”

Hafen seconds this notion. “Every single one of our customers is unique in what they are looking to produce, so customization and flexibility is always necessary,” she explains. “Many times our customers have an idea of what they are looking for but don’t have all the specs figured out, so they turn to our team of formulators and R&D experts to create something truly unique for them.” WF

References
1. “Supplement Use Among Younger Adult Generations Contributes to Boost in Overall Usage in 2016—More than 170 million Americans take dietary supplements.” https://www.crnusa.org/newsroom/supplement-use-among-younger-adult-generations-contributes-boost-overall-usage-2016-more, Accessed 8/30/2017.

Published in WholeFoods Magazine October 2017

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