Co-manufacturing (contract manufacturing) is when a third-party manufacturer produces goods on behalf of a brand. For small food and beverage companies, this allows them to scale production without investing in their own factory or equipment. The brand typically provides the product formulation and specifications, while the co-manufacturer handles sourcing, production, and sometimes even packaging.
Co-packing (contract packaging), while often conflated with co-manufacturing, is the process of outsourcing only the packaging of products to a specialized partner. A co-packer might receive bulk product from a manufacturer and then fill, label, and package it according to the brand’s guidelines.
10 tips for outsourcing the work but keeping the control
When production and packaging happen outside your walls, how do you maintain control over quality, inventory, and timelines? Here’s how.
1. Choose the right partners
Align on values and capabilities
- Look for partners who understand your product category and share your standards (e.g. clean label, allergen control, sustainability).
- Assess certifications (e.g. FDA registration, SQF, organic, Kosher) and equipment compatibility.
Vet with care
- Visit facilities or do video tours.
- Ask for references from similar brands.
- Do trial runs or small batches first.
2. Lock down clear agreements
Contracts should cover:
- Scope of work – Ingredients, packaging materials, labeling, shipping.
- Quality standards – Specs, tolerances, and testing protocols.
- IP ownership – Your formulas and branding stay yours.
- Confidentiality & non-competes – Especially if you're working with innovative formulations.
- MOQ & lead times – Minimum order quantities, flexibility, and penalties for delays.
3. Set up a clear supply chain flow
Many small brands manage raw materials and packaging themselves (turnkey vs tolling):
- Tolling: You supply ingredients/packaging, they process.
- Turnkey: They source everything, based on your specs.
Startups often prefer tolling for control and cost savings, but it adds logistics complexity. Ensure you're aligned on who’s doing what and when.
4. Maintain tight quality control
Define QA/QC expectations
- What in-process and finished goods checks will be done?
- What happens if there’s a deviation?
Inspections & audits
- Periodic site visits (or 3rd-party inspections).
- Review of batch records and traceability logs.
5. Use an ERP to coordinate
Managing third-party manufacturing without a system leads to chaos.
A lightweight MRP/ERP system helps you:
- Track raw materials and finished goods
- Schedule production batches
- Forecast material requirements and reorder needs
- Maintain lot traceability for recalls or audits
- Share real-time data with subcontractors or 3PLs
6. Plan around lead times and delays
Co-manufacturers and co-packers often serve multiple clients. You’re likely not their top priority.
- Build in buffer inventory and time.
- Use a production calendar and lock in runs in advance.
7. Create a playbook and documentation
- Standard Operating Procedures (SOPs) for your product.
- Visual examples of finished product and packaging.
- Labeling guidelines (to meet regulatory needs in different markets).
Documentation reduces errors and makes scaling easier with multiple partners.
8. Communicate efficiently
- Weekly check-ins or updates (email, Slack, shared dashboards).
- Shared Google Sheets or ERP portals.
Active communication builds trust and helps avoid finger-pointing when problems occur.
9. Plan for scaling
Don’t become over-reliant on a single subcontractor:
- Always keep one or two backup options.
- Diversify geographically or by SKU if possible.
10. Watch your margins
Co-manufacturing can eat into your margins if not managed tightly:
- Regularly review COGS per SKU.
- Negotiate price breaks as volumes increase.
- Track KPIs like yield, spoilage, OTIF (on time in full) deliveries, and defect rates.
Bonus: Common pitfalls to avoid
- Relying on handshakes instead of contracts
- Not owning your raw material supply chain
- No digital system to manage production and inventory
- Assuming a co-manufacturer will “care” as much as you do
- Failing to plan for growth or redundancy
Managing outsourcing with manufacturing ERP
Manufacturing ERP systems like MRPeasy are accessible to even small businesses and startups. As opposed to the traditional giant systems that take years and hundreds of thousands of dollars to implement, modern cloud-based ERPs are user-friendly, easy to implement, and affordable.
ERP features that support subcontracting typically include:
- Assigning vendor-specific bills of materials (product recipes).
- Sending components or packaging materials directly to vendors.
- Defining subcontractors as part of your production routing.
- Tracking outsourced steps, progress, and logistics alongside internal operations.
- Supporting unit conversions where vendors use different measurement systems (e.g., pieces vs. pounds).
For full-product outsourcing, ERP systems help manage material shipments, vendor inventory, and cost accumulation through purchase orders. For partial outsourcing, they enable detailed production tracking by coordinating vendor operations within a larger manufacturing order, even across multiple subcontractors or production stages.
For more information, visit www.MRPeasy.com.
