Outsource Manufacturing of Sports and Health Drink Beverages – Decision Criteria

Not long ago, an overseas acquaintance inquired about what sorts of criteria a health or sports beverage drink company ought to consider when determining to outsource production or not. Well, this is a very good question no doubt, and I’d say there are several concerns such as; proprietary information, trust, supply chain food safety, and ability to actually deliver on time and as promised. Okay so, let’s explore some of these factors for a moment shall we? Now then, here are the questions I was asked to comment on:

A- What criteria should be used to choose an outsourced manufacturer?
B- If the company is only offering one product in its line is GMP a primary concern?
C- Can the recipe and proprietary information be protected if the product is outsourced?

As we get into the meat of this discussion you can see how critical all these things are from a business standpoint right? Let me give you some of my thoughts on these 3 questions above in greater detail to give you a better understanding if I might.

A- Supply Chain Trust, Cost, and Safety. Consider reliable fresh water supply, filters. This would preclude some cities in many East Asia areas. Also, corruption, cheating, and Six Sigma attention to details – is crucial, further I’d be weary of their vendors too. Remember Pierre Water fiasco, or the sports drink “Arginine Extreme” and Jessica Hardy the swimmer. Reputation to the consumer is paramount, so is food safety, especially to consumers in modernized nations.

Regarding “cost” we must also realize that it only makes sense to outsource while the product demand is small, once demand is large the economies of scale may change the cost-benefits to in-house production. However, a vendor making your product losing the account may steal the ingredients and sell it under a different name or sell it to your competitors in the markets you are selling into.

Think about the quality control and careful care in secrecy to Pepsi’s recipes. Trust is a serious issue. Of course, McDonalds carried the same potato supplier for 40-years, which worked out good for them. Manufacturing in China has challenges, and in the EU or USA costs are prime factors. Turkey has been considered a nice place to manufacture, but inflation there is a problem. South America is decent – Peru, Brazil, Chile?

B- When it comes to good manufacturing processes, hands-down the EU and USA are tops, but China is in many cases stepping up to the plate with pharmaceuticals, and they had better if they wish to maintain growth in that sector. Another challenge is those contract companies which are sophisticated enough in Asia to use proper GMPs (Good Manufacturing Processes – similar to TQM, ISO 9000, or Six Sigma) – well, such companies are most likely already working with other firms, perhaps even your competitors. So, remember; “loose lips sink ships” and keeping secrets when there is monetary incentive to give away secrets is not so likely in China, really it’s a problem everywhere (Cite: WSJ Article; “FBI’s New Campaign Targets Corporate Espionage,” by Evan Perez, May 11, 2012).

C- This last question really hits the nail on the head, but if the company is expanding rapidly and modifying its formulas, then you’d be one step ahead of the competition. Let’s say you were going to take the active long-life molecule in red wine “resveratrol” and grape-seed extract, and mix it with honey, cinnamon, carrot juice, ginseng, caffeine, and electrolytes – in this case you’d want to send the manufacturing contractor at least some of the ingredients without telling them what they were, and never allow those ingredients to be shipped directly from your supplier, with a NDA from each and every supplier. Will this help secrecy – yes, in the short term, but not over all.

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