There are many strategic benefits to using a contract manufacturer. By outsourcing manufacturing, a company does not have to worry about the great financial burden of acquiring and maintaining a plant, equipment and personnel, or the increasingly active government regulations and the general “headache” that is intertwined with a manufacturing plant. The primary strategic benefit of using a contract manufacturer is that it allows a marketing company to do what it does best: market and sell products.
If you have been thinking of starting your own manufacturing facility, you might want to think twice. To establish a manufacturing site in today’s regulatory environment requires a facility that is spacious enough for product workflow and cleanliness, equipment that meets or exceeds good manufacturing practice standards, and a highly trained workforce.
The manufacturing process does not end with the actual finish of the product.
Core Competencies & Opportunity Cost
When considering entry into a new business, it is important to look at two things. What is the core competency of my organization? And what is the opportunity cost for entering this new business? For most supplement marketing companies, their core competencies are marketing and selling products, not manufacturing them. Their strength lies in creating brand awareness and increasing market share.
The opportunity cost is a fundamental economic idea that basically says that you must weigh how much of one thing you’re willing to sacrifice to gain another. To put this in context, if you were to spend $5 million on a new manufacturing plant, would that be the best investment for your marketing firm? That is a lot of money, and could be used for a variety of advertising mediums including mass circulation magazine and network television advertisements. By spending the money on marketing and promotion rather than a manufacturing plant, a chain reaction begins.
It is a simple ideology to adhere to, which is not unique to our industry. Rather, many large corporations utilize the services of contract manufacturing and service firms. Apple Computer uses contract manufacturers to produce its personal computers, so it doesn’t tie up capital in unnecessary ventures. The former chairman of General Electric told his subordinates to be either the #1 or #2 contender in their particular business or discard it.
By utilizing the services of a contract manufacturer, a marketing firm is able to capitalize on its core competencies of marketing and selling.