How to effectively choose a beverage contract manufacturing partner?

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  • How to effectively choose a beverage contract manufacturing partner?

    For newbies in the beverage market, finding experienced contract manufacturing partners brings many benefits. Limited facilities, a lack of capital to invest in expensive equipment, and the recruitment of specialized new staff are significant weaknesses of newbies. In addition, during the ideation process, your company’s new product requires a modern production process that exceeds your company’s potential. Or the shipping segment of your company’s products is too expensive when your company is in an unfavorable location. Whatever the reason is, beverage a drink contract manufacturing partner can help you grow your business.

    Newbies are necessary to ponder important components in the contract of beverage production with their partners

    1. Components in a beverage producing contract

    Beverage production contracts often include the following specific provisions:

    Information of beverages

    First, the product information must represent the exclusivity of the product. The supplier side must be the exclusive manufacturer of the product. In addition, both parties acknowledge that the supplier is the owner of the recipes for this complete beverage product in the contract. This means that the supplier side will not copy any formulas nor make them available to a third party.

    Should know: The ultimate guide on the contract manufacturing agreement (template included)

    The second element that needs to be mentioned is raw materials. The contract will specify who will provide the necessary materials for the production of the beverage product. This is also the party responsible for the quality of raw materials for the production of products. In addition, the contract also stipulates the maximum time to supply raw materials before starting the production stage.

    Besides, in the typical beverage manufacturing process, the number of units of the finished beverage product will often be less than the estimated total output based on raw materials and packaging materials. This is called production loss. Production losses can range from 2% to 5%. Typically, the partner manufacturing the product will be responsible to the supplier for production loss. In addition, the manufacturer is also the one to remedy the damage in many different ways.

    Trademarks

    The contract should clearly state the ownership of the trademark and the right to use the products by the supplier. In addition, the product needs to be registered as an exclusive trademark at the competent intellectual property authorities in a particular region or country.

    Trademark is an indispensable factor that must be mentioned in the contract

    Pricing and delivery

    The contract should stipulate the order procedure between the two parties. The manufacturing company must submit the purchase order to the supplier by the specified delivery date. All orders will specify the quantity and type of beverage flavor and any other special instructions.

    Beverage inspection is also essential in the beverage production process. The two sides need to clarify the issue of beverage quality. Typically, the manufacturing company is paid only when the finished products are delivered to the supplier without defects at the time of inspection. In addition, the supplier may reserve the right not to accept any shipment that does not pass check or fail to pay for substandard shipments.

    The liability of both parties for damage during the transportation of the product should also be clarified. Who will be responsible when the product is damaged during the distribution process? Who is responsible for tracking and monitoring the shipping of the product?

    Read more: Top 10 largest worldwide beverage distributors (Update 2021)

    Insurance and indemnification

    It is also one of the essential contents that should be clarified in the contract. In this section, the parties need to clearly state their responsibilities and obligations to compensate for damage, loss and loss related to the beverage production process, violation of the exclusivity of the product. Usually, the responsible party needs to accept compensation and undertake not to cause harm to the Partner Company, its officers, employees, agents and representatives, attorney’s fees, and litigation costs arising from or relating to negligence or willful misconduct.

    Responsibilities of sides

    The parties need to clearly define the obligations and responsibilities of each party in the contract. This section will usually be separated into a table of contents since there will be content responsible for both parties. Some of the content items can be mentioned as:

    • Materials
    • Procurement and Bill of Materials
    • Inspection of Testing of Materials
    • Retention, Storage and Handling of Materials
    • Specifications of Beverages
    • Manufacturing and Packaging of the Beverages
    • Inspection and Testing of the Beverages
    • Notification and Approval of Deviations
    • Release and Shipment of the Beverages
    • Retained Samples of the Beverages
    • Storage of Beverages
    • Stability Activities
    • Process Qualification and Process Validation of the Beverages
    • Annual Beverages Quality Review
    • Complaints on the Beverages
    • Returned Beverages
    • Recall of the Marketed Beverages
    • Audits and Inspections of Facilities and Beverages

    Remember to consider carefully before signing the beverage manufacturing contract

    Criteria for choosing a beverage private label manufacturing partner

    There are many private label beverage manufacturers on the market with their distinct advantages. It will be a big challenge for newbie companies to choose the proper private label manufacturer for their company and products. Selecting the appropriate manufacturer for your beverage products is related to the success and profitability of your business. Here are some criteria you should consider in your search for a private label manufacturer.

    Read more: Why start-up businesses need to outsource manufacturing? 7 reasons to consider

    Minimum Order Quantity

    MOQ (Minimum Order Quantity) refers to the minimum quantity of a particular product that a private label producer can meet according to the customer’s needs. The term MOQ appears commonly in the B2B (business to business) field. With a production order that requires large quantities, the products will have to go through many different stages with many types of fixed costs such as factory, machinery, warehousing, operation, transportation. To minimize the cost per product, the order quantity must exceed a quantity quota – that norm is the MOQ!

    How many products will you need to order with a private label manufacturer? If the number is too large and you don’t know if sales will be positive, your business runs the risk of sitting in a pile of unsold inventory and possibly even nearing the end of its expiration date of the product. Therefore, look for a private label business that doesn’t require you to buy too much of a minimum – especially when you’re just starting. Also, in case you find a suitable private label manufacturer but are not satisfied with the MOQ quantity, you can proceed to negotiate. You can bid MOQ but ask for specific amounts of items needed for easy inventory management. If the supplier’s MOQ is more significant than your need, both parties can consider lower quality raw materials to replace the original materials to reduce production costs. However, it is still best to find a supplier that can meet the needs of your business.

    Selection and Pricing of Products

    Manufacturers’ limited product offerings are unlikely to support your future growth. In the future, as your business expands, you will need a variety of different products. At this time, if the manufacturer cannot provide it, you will have difficulty because you have to find another manufacturer or replace the product to match the current manufacturer’s production capacity. Therefore, find a private label partner that offers a wide range of products in different sizes, designs, formulations so you can expand your offerings based on customer feedback and current trends on the market.

    In addition, you should also consider the price you buy products from the manufacturer. Will this price allow enough profit for you to build your brand? Also, does the manufacturer offer you promotional prices based on competitive products or bulk orders? Make sure you get a fair profit and that your product is price-competitive when it goes to market.

    You should select a partner who can provide a diversity of products

    Quality

    The inclusion of branded products is an easy way to identify a private label manufacturer of high quality. Products produced by private-label enterprises need to ensure the quality of both raw materials, food safety, and packaging. While the terms of the contract will clarify the manufacturer’s responsibility for the quality of the product, carefully selecting the manufacturer based on the products they have created in the past will save the time and cost of your business. You can refer to reviews from past customers of private label manufacturers or feedback on the mass media.

    In addition, choosing a manufacturer based on product quality also needs to be consistent with your company’s product quality orientation. For example, the main focus of your business product is on the gut health of your consumers. Therefore, you want to offer a wide variety of products that are high in probiotics. In this case, your manufacturer selection process becomes easier as you review the manufacturer based on your probiotic expertise.

    Certifications

    • Facility Certification: GMP is an essential certification in the US, overseen by the US Food and Drug Administration (FDA). GMP is also a vital tool in ensuring complete control and monitoring of the production process.
    • Product Certifications: In addition to facility certifications, you will most likely want your manufacturer to provide specific credentials for your product. Some certifications like USDA Organic, Vegan Certified or Non-GMO Project can somewhat guarantee the quality of your product. If your goal is to provide high-quality, on-trend products to consumers, you’ll want to make sure from the outset that your manufacturing partner will be able to provide certifications such as those on your product.

    Certificates can partly guarantee the quality of beverage products

    Conclusion

    In summary, the above article has shared the important factors in a beverage production contract as well as the criteria for choosing the right contract beverage production partner. Finding beverage production partners is significant for businesses just starting to set foot in the beverage market. At Tan Do Beverage, we can provide products and services to satisfy our customers’ requirements. From idea generation to product delivery to consumers, Tan Do is committed to supporting and becoming an extremely reliable partner.

    Lilian Nguyen
    Hi! I'm Lilian Nguyen. I'm an expert in OEM, ODM, private label beverage industry with 8 years of experience. I believe that it is crucial for companies to focus on the benefits which the product provides to their target customer and what does it mean to the community. When i am not working, i run a blog on making healthy snacks & drinks and join in a hiking club. I'm an expert in the beverage industry invited by Tan Do Beverage to work. I'm in charge of publishing articles, research articles on the beverage industry or anything healthy to help readers have a better view of what they are looking to do, prepare to do or are doing related to the beverage industry. Email: lilian.nguyen@tdfood.com.vn

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