It is no surprise that manufacturers of cleaning products, especially disinfectants and cleaners, have risen post pandemic. The is now steadily increasing uptake of quality cleaning products with demand also surfacing from unknown segments. This upsurge has given a boost to contract manufacturing and private labeling as well. This new model of contract manufacturing has sustained cleaning brands through the pandemic, not just in India but across countries.
What is the concept of contract manufacturing, the layout, its structure? Mrigank Warrier, Assistant Editor, Clean India Journal unfolds the bare realities of this model, in conversation with some of the leading contract manufacturers of cleaning products in India.
Let us assume Company A wants to enter the cleaning market with a certain product; it can approach Company B with information about its existing customer base and its requirements. Company B helps Company A enter the cleaning market in a faster, more efficient manner, without having to make any capital investment.
Since Company B typically has its own R&D center and its manufacturing facility, it may even develop the product for Company A, manufacture it, create packaging, and give Company A the finished product. All Company A needs to do is give Company B its brand labels.
As a contract manufacturer, Company B takes full responsibility for the manufacturing process, right from procuring raw material to packaging the finished product in the godown with batch coding. Company receives the finished ready-for-sale product in its storage facility, and can focus its entire effort only on marketing and sales.
Types of contract manufacturing
- Based on which company develops the product: Company A may develop the formula/design, and share it with Company B for production by Direct Technology Transfer, or Company B may be tasked with both designing and manufacturing the product.
- Based on the type of Company B: Company A may end up manufacturing for a reputed cleaning product brand, or it may do so for a private label like a supermarket chain, which will stock the same product manufactured by market leaders as well as under its own brand – offered with a very good price advantage to the customer. For example, a supermarket may sell sanitiser produced by reputed FMCG companies, as well as under its own brand.
- Based on product-to-company relationships: Company A may offer the same product to be marketed by Company B, Company C, Company D etc. Or, Company A may sign a non-disclosure agreement with Company B, and produce a product only for that company.
Advantages of contract manufacturing
No capital investment required: Company A does not have to sink any funds into setting up a production facility. Instead, it relies on the existing facility of Company B.
Cost-effective production: Since the cost of production per unit is frozen in the contract, production/manufacturing costs are controlled and Company B can market the product at a profitable margin, helping sustain both Company B and its distributors.
Geographical sales reach: If Company A is manufacturing its own product, it is likely to have one or two production facilities in the country; products then need to be transported for sale from here to areas far away from the site of production, increasing logistics and product costs. By contracting with different Company A’s in each region, Company B can reach its product to a wider market.
Ease of doing business: Managing labour, supply chain logistics and adhering to governmental regulations like pollution control norms are entirely the responsibility of Company A. Company B needs to focus only on sales.
Director, Megamorph Marketing Pvt Ltd
We work with eight-nine companies like Raymonds Consumer Care and Eureka Forbes for 300-400 products. Metro Cash and Carry is one of our biggest customers; we manufacture products for all their 28 stores.
One of the biggest challenges we have as a contract manufacturer is responding to surges or drops in demand. Since we don’t have a direct view of the marketing company’s sales, we mostly work according to their forecast and Purchase Orders (POs). We only get to know what we have to do for the next month once we get a PO from a customer. There are months where everybody gives very high POs and there are months where there is no production at all.
We try to work on a rolling forecast model with most of our customers where we take in three months of requirement – of course, there will be a little bit of fluctuation – this gives us flexibility because we know that a certain customer will need a certain amount if not this month, then at least in the next month.
In terms of process quality, most customers start with an audit by their quality team, where they evaluate our facility, manufacturing process and product samples. That gives them a benchmark for how we operate and the quality standards we stick to. Then together, we set up a specifications sheet which mentions what specifications every product manufactured will meet. Every batch we manufacture we check against those specifications.
There are times when there are effects on products because of environmental conditions like sunlight and extreme heat. We maintain samples of products in our lab from each batch, so that a customer can counter-check any time.
We have two manufacturing facilities, which help us bring down the logistics cost for our partners. Supplies for north and west India are manufactured and sent out from Indore, and the same for the south and east India is done in Bangalore. If each company had to set up their own plant, they would be restricted in terms of geographical reach.
Each product requires its own specific set of machines for filling and labelling. For e.g, a toilet cleaner may be corrosive and needs a certain kind of machine. Dishwashing liquid is highly viscous and needs another machine. This requires a lot of initial investment, but there may not be enough demand for each product for a company to invest in a production line for each product. Since the company supplies to multiple customers, it can maintain production and cost efficiency.
If a company invests in its own production line for Product X, it has no choice but to continue manufacturing that product at least until it recovers the cost of investment. But if it contracts manufacturing of that product to us, it has the option of manufacturing and marketing Products Y and Z too. Hence, by partnering with us, a marketing company can offer a mix of products which it can keep changing according to market conditions, without having to worry about an idle production line for any product.
We’ve been in the contract manufacturing space for 12-15 years, and have gained a certain level of expertise. Instead of starting from scratch, a marketing company can piggyback on us. Labelling is easy, but fine-tuning the product takes time. That’s the advantage of taking direct technology transfer from us.
Saumil A. Shah
Proprietor, Reiniger Systems Pvt Ltd
we have six types of chemicals, four types of vacuum machines, three-four microfibres and mops, and are working with 13-14 companies.
Our priority is manufacturing innovative and eco-friendly products. We are not dealing with third-parties who want strongly acidic or cheap chemicals, or those who use single-use plastics. We use designs mostly from European companies who are into R&D.
The PO from a company is different every month. A company may have sold 80% of the stock it ordered from us last month; 20% may be left over. For this month, it will order only 80% of its usual PO.
In the present scenario, no one wants to order or keep excess stock. We also work with great flexibility; for the first order, there is an MOQ but if the client remains with us, we don’t insist on MOQ because we too have invested in developing the product, which we continue to produce by rotation.
We take a yearly production target/plan from the marketing company. Let us say we have fulfilled their PO for three months, but that stock may be sold only over six months. So after three months, they will audit their stock, estimate how much time it will take to sell the remainder, and gauge market conditions.
Tenders – especially government tenders – are more in March-April-May, and during festival season. Hence, demand surges predictably at least thrice a year, and we always have 2-3 months advance notice.
About 70-80% of quality assurance is in the paperwork you do before starting production. The more time you spend on design/drawing, the less issues you will have during production. After we produce samples, companies send suggestions, and we revise and rectify our product. Very often, the company will send the samples to their customers and ask them for their review.
During lockdown, we did more business by selling under our own brand. Many companies did not want to risk procuring stock in a volatile market; logistical issues during the lockdown also discouraged them.
After the lockdown began to be lifted, many companies approached us because they wanted to get back to business. Two types of clients came: those who wanted to market our products, and those like pharma/IT companies who got products made from us with ‘not-for-sale’ labels on them; these were for their own internal use or for corporate gifting. We recently manufactured 10,000 bottles of disinfectant spray for a pharma company.
Business Head, Alpha Products
The customer doesn’t have to maintain any raw material inventory, because to manufacture a single product, it requires a minimum of four to five products, right up to preservatives.e are engaged in the contract manufacturing of FMCG products for the retail sector. At present, we are manufacturing products for home care like bathroom cleaners, floor cleaners, glass cleaners, toilet bowl cleaners, hand wash, room fresheners etc.
Every customer has a certain final sales price in mind, including marketing costs. Sometimes, we manufacture products subject to customers’ requirements. Considering their strengths and weaknesses, products are manufactured depending on their price potentials. Pricing depends upon demographics.