When an arrangement is made between two companies for one company to produce product on behalf of the other, it is commonly called contract manufacturing or private labeling. In the case of private label supplements, one company will provide the product complete on behalf of the client company. The arrangement commonly includes the formulation of the product; the raw materials used the manufacturing and shipping. The client company has no need to maintain any of the facility required for manufacturing, they can focus their attention on distribution and marketing.
The basic working model can work for a host of different industries and products. The arrangement is not complex; it is simply a matter of one company outsourcing what they need from another company. There are many businesses that can take full advantage of this including manufacturers and distributors of private label supplements. The same arrangements can be made in the food industry, the manufacture of high volume electronic components and even car components and medical supplies. As long as the quality, cost and availability are suitable, there are few limits on these contract manufacturing arrangements.
Many contract manufacturers, especially those involved in the manufacture of private label supplements will initiate proceedings with the potential client. In many cases the manufacturer has developed many different formulas that can be employed. This allows the client to go to market with products that are tried, tested and approved for use. The manufacturer attempts to show the client how the unit cost of the private label product will be less as the distributor has no high manufacturing overheads to amortize.
There are many advantages for both parties in these private label arrangements. From the manufacturer’s point of view, he can be guaranteed of long term and steady work as the contracts that are entered into dictate the volume that can be expected over the life of the contract, which can often run for a number of years. From the point of view of the client, he eliminates any expense that is associated with in-house production; there is no need for equipment or production facilities. There are no issues associated with labor, if the employees of the manufacturer need special training, it is not the problem of the client; all the client needs to do is focus on increasing sales to meet the contract quantity.