Attention, entrepreneurs! If you can count to six, you may be able to find the perfect contract manufacturing partner for your indie beauty brand. That’s according to speakers during a recent webinar produced by the New York Chapter of Society of Cosmetic Chemists.

The session featured insights from Carl Melville, founder and managing partner, The Melville Group and Ron Puvak, executive director, Contract Packaging Association. The webinar was moderated by past NYSCC Chair Susanna Fernandes, team leader, e-sales, Tri-K Industries.

Melville is also the founder of Copackconnect.com. Designed for brands and contract manufacturers, the site matches marketers and manufacturers. Or, as Melville explained, “it helps brands figure out all the crazy calls they get from people who aren’t qualified.”

Copackconnect.com uses artificial intelligence (AI) to match brands’ request for quote (RFQ) with the right copacker.

“All relationships start somewhere. Once the match is made, we step out of the way,” explained Melville. “It’s all about the relationship between brand and copacker.”

The Benefits of Using a Contract Manufacturer

But before a startup starts test driving a potential partner, they should know what to look for in a contract manufacturer. Firstly, why should a company choose a contract manufacturer?

There are several reasons, according to the speakers:

• Capacity;

• Efficiency;

• Innovation; and

• Speed-to-market.

Contract packaging/contract manufacturing is a $124 billion business and growing more than 10% a year. Melville said the business will top $203 billion by 2030. There’s plenty of room to grow.

“Private label has a 22% share of the CPG market,” said Melville. “It is swamping the boat and driving the market.”

But it’s not all good news for private label. Dollar revenue is up, yes, but pounds (units) are down.  Contract manufacturing is highly impacted by inflation. As a result, dollars don’t tell the story.

Wants vs. Needs

For legacy brands, there is nothing a contract manufacturer can do that they can’t. It’s a different story for emerging brands.

“They need a lot of help,” observed Melville.

For startups and indies, every dollar invested in production means one less dollar for innovation, sales, marketing and production. In contrast, established brands are in the continuum. They rely on contract manufacturers for introductions, tests and short runs.

So what should entrepreneurs look for in a contract manufacturer? The speakers shed light on several of these six key traits:

1. Operational Transparency
2. Functional Alignment
3. Compatible Cultures & Concerns
4. Structural Collaboration
5. Strategic Outcome Alignment
6. Common Value Metrics

Melville noted that technology has changed everything when it comes to Operational Transparency. But best practices using this technology is evolving, too. More companies are using machine learning; but how far along they are in their AI journey varies. Some startups spend $20 a month on ChatGPT. In contrast, Melville recalled one hedge fund spending $100,000 a month on AI.

AI helps with Functional Alignment, too. Someday, it will bridge functional silos, but Melville cautioned that companies aren’t there yet.

Melville called Cultural Compatibility the No. 1 factor on the list. “Why do we have trust in business? To reduce the cost of transaction!” AI can mitigate cultural friction through adaptive communication frameworks. But Melville insisted AI isn’t dehumanizing, it’s optimizing the human situation.

“It is a tool; it is the handmaiden not the master,” Melville said. “Besides, computers talking to computers can’t be any worse than attorneys talking to one another.”

AI Helps with Contract Negotiations

AI can help with contracts, too. Puvak noted that every new client and every new brand requires a new contract, a process that can take many hours. Algorithms uncover similarities or lack thereof. When partners can predict when and where the next 1,000 units will come from, the margins look better. AI brings a level of sophistication to the process, Puvak argued.

“Right now, it’s a back-of-the-envelope process. AI won’t replace humans, but we’ll have better data,” he insisted. “We are a lean industry. We don’t have tons of staff. The owner is one level above the production floor. They need sophisticated tools.”

Regarding Strategic Outcome Alignment, AI gives users an entirely new way of looking at data. AI runs Monte Carlo simulations over a 10-year time horizon, creating millions of datapoints.

“You can tell your board—this is where it’s going, this is what we need,” explained Melville.

AI helps brand owners and contract manufacturers stay on top of their businesses on a regular basis.

“I assume a lot of people on this call are parents,” said Melville. “Do you sit down with your child once a year and ask, ‘How’s it going, Junior?’ No! You talk constantly!”

AI enables businesses to take static KPIs and turn them into adaptive value networks. These networks use AI and machine learning to create adaptive, self-managing networks. These networks feature real-time monitoring, dynamic response and self-optimization and learning.

“Wouldn’t it be nice to see a compliance issue weeks before it becomes an issue?” asked Melville. “It’s possible, thanks to predictive compliance scoring forecasts.”

AI will enhance relationships between brands and manufacturers, concluded Spivak. “Companies moved from spreadsheets to enterprise resource planning.”

This is another step in the evolution, he pointed out. AI can be integrated into spreadsheets and ERP to enhance their capabilities.

AI is forcing companies to rethink the brand-manufacturer relationship. Sites such as Copackconnect and associations like the Contract Packaging Association can help startups make the right connection.