You have likely heard 3PL lingo being tossed around if you are anywhere close to the world of ecommerce, and especially if you are a small business owner. Co-packer, co-manufacturing, co-man, private label…what does it all mean, and how do you know when your business could use it?
Co-manufacturer (or co-man) is short for contract manufacturer, and co-packer is short for contract packer. Both terms refer to a facility that either manufactures your product line or receives your finished product in bulk and packages it for you. Co-packing and co-manufacturing are commonly used when the producing company doesn’t have the packing capacity, machinery, skills, or knowledge required to meet demand or to scale efficiently.
A co-packer is similar to a co-manufacturer in most industries, and in the food business, the terms can be used interchangeably (although you’ll hear co-packer most often). A co-packer works under contract with your company to manufacture your food product as though it was manufactured directly by your company.
Co-packing is critical for businesses that need help scaling, and outsourcing to a co-packer offers a greater-than-average advantage to companies in the food industry. This is thanks to the abundant opportunities for operational efficiencies in food production. Co-packing and co-manufacturing enable a food company to lower its production costs while maintaining production quality and increasing profit margins.
How, exactly?
Outsourcing to a co-packer allows you to grow to meet a larger demand without investing in your own equipment. Additionally, a good co-packer will have relationships with raw material suppliers and methods of efficiency at scale within their production, including automation. Because co-packers and manufacturers produce for and service multiple customers, they can offer better pricing by acquiring bulk ingredients, allowing your company to benefit from economies of scale.
Under a co-packing agreement, the hiring company owns the rights to a proprietary formulation, and the co-manufacturer/co-packer creates the product. Under this type of agreement, the co-packer typically signs a non-disclosure agreement that prevents proprietary information from being shared (or from being used to create any additional product outside of the agreement).
Under a private labeling agreement, the food manufacturer produces its own formulation and then packages it under the customer’s brand label. Under this type of agreement, the food manufacturer owns the proprietary rights to the actual product. However, in some cases, the food manufacturer will work with a customer to formulate and produce something that is exclusive to that customer’s private label.
In both types of agreements, the products are manufactured by the co-packer/manufacturer and distributed under the customer’s brand; the distinguishing factor is who owns the proprietary formula after the contract is fulfilled.
The difference between co-packing and 3PL (Third-Party Logistics) mainly comes down to the services offered by the provider. A co-packer will primarily focus on manufacturing and packaging; when you work with a 3PL, you can outsource your supply chain, logistics, assembly, and fulfillment.
It’s wise to think through co-packing vs 3PL with an eye on the future. Consider your anticipated growth and choose a provider that has the capabilities to handle increased demand. This will save you from the disruption of having to change companies later. Look for a 3PL one-stop shop like Happy Orchard that can help you scale efficiently and stay ahead of increasing demand.
The short answer is before your business is overwhelmed with growth. It can be difficult to nail down when to make that shift, though, especially if you haven’t considered an alternative to in-house logistics before. But, if managing logistics is preventing you from growing your business, it’s time to look into 3PL providers.
Are you bogged down with order fulfillment? Are you running out of storage space? Would you be crushed by a sustained spike in demand? Do you have more great ideas but just don’t know how to make them at large scale? A quality 3PL provider will be positioned for exactly these scenarios.
Happy Orchard is a trusted 3PL one-stop shop, offering bulk ingredients, co-packing and co-manufacturing, private labeling and more in our state-of-the-art, automated facility supported by top notch customer care and white glove service.
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