Beyond Contract Manufacturer Selection
How To Successful Execute a New Relationship
By Bill Hunt, CEO, Surefil
The growth in outsourcing and the excellent results achieved speak for themselves. Financial performance (lower cost), faster speed to market, and better bottom line results are all being achieved by a number of companies. There are, however, some companies who have failed to achieve the desired outcomes. A review of the basics and how to manage the outsourcing relationship will help avoid any pitfalls or setbacks.
Once a qualified contractor is selected the execution begins. The launching of a new CMO (contract manufacturing organization) tests all the work done on the basic or strategic business audit. The steps to launch are as follows: (see chart)
Defining the Business Scope
Once a contract has been awarded, it is time for the operation resources to take over the program. A good CMO will assign a program or project manager who will be schooled in project management and have tools available such as “@Task” or “Microsoft Project Management” software. Surefil has launched @Task, but any such software is appropriate. With the business scope defined, including number of products to be launched and the timing of the launch, the project management begins. A high-level product management Gantt chart is produced to go from launch to commercial production. A gathering of the implementers at the contractor location is recommended. This launch event allows for team building between the contractor and the brand marketing company. This marks a change from the contractor selling their services and brand company as a buyer, to a joint implementation team culture and focus. This is critical for ongoing success.
The brand company then needs to supply the engineering notices that cover the bill of materials, the processing instructions, the packaging records and specifications, the test procedures for incoming materials, in-process tests and finished goods testing. This and other information makes up the “blue book” specifications. With this in hand, the contractor needs to perform a document transfer process, create part numbers and input all of this information into a validated IT system. With this complete and verified, the IT process can progress.
The major brand companies have sophisticated IT platforms like SAP or Oracle that allow the CMO to be included as a manufacturing and/or warehouse location. At Surefil, finished pallets are bar coded and scanned as they are produced. This allows the brand company’s SAP system to automatically make the finished goods available for sale in their systems. Additionally, sales and customer service can sell and allocate the product to a retailer even minutes after production. It also allows for the automatic scheduling of shipping. Frequently, pick-ups are within hours (3-5) of a full truckload of product being produced.
The basic transactional business process needs to be followed as always. Suppliers need to be contacted, credit applications need to be completed, and so forth. These usual and customary activities need to be managed through the project schedule for effectiveness.
Training – Training – Training
The recognition that new activity requires adequate training is often overlooked or at least goes unplanned. Training is required on all aspects of the program: product production (compounding); packaging line set-up and execution; entering of BOMs, subassemblies, WIP; and warehousing of hazardous or regulated chemicals as necessary. In Surefil’s case, new activity training is funded, to a certain level, by the State of Michigan. But even so, qualified trainers need to be recruited and scheduled.?
The saying often goes, “What can be measured will be achieved.” It is common knowledge that performance management yields results. The score card is the brand company’s way to communicate the results desired from the contractor and give feedback on how it is going. The most effective score cards are comprehensive, “self-performed” and regularly reviewed.
A comprehensive score card measures manufacturing volume to schedules, quality and yield, supply chain performance – incoming materials inventory, warehouse inventory accuracy and finish goods inventory accuracy. It also measures key performance items like “on-hand finished goods in days” and percent first quality yield—basically, all aspects of the activity that affect cost, quality and customer satisfaction.
The data for the score card should be inputted by the contractor or come from the brand company’s IT system. This eliminates the defective discussion by the contractor of “Well, these numbers are wrong or inappropriate”. They are the contractor’s own input, so report accuracy is “off the table” as a discussion item.
Communication and Performance Management Touch Points
Performance management systems work. They lay out expectations and drive results. A weekly conference call initially gets all of the relevant parties together on a pre-set basis. The call should be chaired by the project manager and should include a “to do” list. Consistent and frequent communication is absolutely critical to the relationship success. An annual team building event goes a long way to building trust, confidence and performance.
DOs and DON’Ts
In closing, the contract relationship is just that – a contract relationship. The Brand Companies don’t expect added services for free. Make sure a commercial arrangement is struck for all activities. Communicate frequently and religiously review performance. A quarterly review is not sufficient.