Contract manufacturing vs. private label manufacturing

Many people think that private label and contract manufacturing are the same thing, but they are not. When considering outsourcing cosmetics, supplements, or medicines, you need to decide which solution better suits your company’s situation and operations. Learn about the most important differences and benefits of these production processes.

Contract manufacturing vs. private label – what is it and what are the differences?

The term “private label” hides the concept of “own brand“, which is very important for understanding the essence of this production process. Well, the form of operation in the private label mode consists in the fact that products are introduced to the market under the brand created by the company. However, their production process is carried out by another entity. How to understand it?

For example, company X has created the Y supplement brand. It wants to create a series of products under it, the development and production of which it outsources to an external company Z. The most important point of this option is its “turnkey” implementation. All you need to do is find a company in the industry that operates under a private label and offers products that meet your requirements. Now all you have to do is commission their production under your own brand and distribute them to the market. Ultimately, company Z then becomes only the producer, and company X only the brand owner.

Contract manufacturing, on the other hand, involves outsourcing the product manufacturing process itself to another company. This is a situation where company X has an idea for a new supplement, has developed its specification and ensured high quality. However, it does not have, for example, an adequate production facility, so it outsources this process to an external company Z. However, it can resign from its services at any time and, having the exclusive right to the recipe, transfer production to another place. Therefore, the contract manufacturer never becomes the owner of the product and cannot independently change its specification.

Private label, contract manufacturing – advantages

Each of these processes brings greater or lesser benefits. We will look at the most important ones.

Advantages of private label:

• lower investment costs (e.g. no need to develop recipes),
• the possibility of carrying out small production orders,
• competitive prices of own brand products than other, more popular brands,
• short lead time to market,
• minimal involvement in the creation process.

Benefits of contract manufacturing:

• full control over product specification (possibility to refine recipes),
• high involvement in making decisions related to production,
• the ability to influence production requirements,
• originality and uniqueness of the brand, which is associated with an advantage over the competition.

Contract manufacturing or private label – what to choose?

The choice of the best solution depends on the financial and technical capabilities of the company. Contract manufacturing offers much greater freedom, which allows you to supervise the entire production process and possibly interfere with changing the composition of the manufactured product. However, this is a choice that is more likely to be made by customers placing large orders, focused on a high level of interest in their product on the market. Certainly, cooperation with an external company in contract manufacturing also requires placing a minimum order for a quantity greater than in the production of an own brand. Private label, on the other hand, is a more economical solution, aimed at small companies that do not have the budget, resources, or time to develop the entire product formula. They do, however, have a brand under which they want to market it.

However, you need to be aware that choosing a private label takes away freedom of movement and the chance to decide, for example, on the composition of the product. Therefore, contract manufacturing of medicinal products is a more advantageous option for many entrepreneurs.

Check out other entries on our blog to learn more about the production of medicines and supplements and all issues related to this process. We encourage you to read the topic of the most important legal regulations for medical devices.