The Small CPG Brand’s Guide to Co-Manufacturing and Co-Packing

For many growing CPG brands, outsourcing is the key to scaling up without investing in massive facilities or specialized equipment. While co-manufacturers and co-packers facilitate growth, they also introduce new challenges.

What are co-manufacturing and co-packing?

Co-manufacturing (contract manufacturing) is when a third-party manufacturer produces goods on behalf of a brand. For small CPG companies, this allows them to scale production without investing in their own factory or equipment. The brand typically provides the product formulation and specifications, while the co-manufacturer handles sourcing, production, and sometimes even packaging. This model helps startups focus on sales, branding, and product development, while leveraging the expertise and infrastructure of experienced manufacturers.

Co-packing (contract packaging), while often conflated with co-manufacturing, is the process of outsourcing only the packaging of products to a specialized partner. A co-packer might receive bulk product from a manufacturer and then fill, label, and package it according to the brand’s guidelines. This is especially useful when a product requires specific packaging formats (like pouches, jars, or shrink wraps) or labeling for different markets. Co-packing adds flexibility and can streamline compliance with retail and regulatory standards without bringing packaging operations in-house.

10 tips for outsourcing the work but keeping the control

When production and packaging happen outside your walls, how do you maintain control over quality, inventory, and timelines? Here’s how you can outsource the work but keep the control:

1. Choose the right partners

Align on values and capabilities

• Look for partners who understand your product category and share your standards (e.g. clean label, allergen control, sustainability).
• Assess certifications (e.g. FDA registration, SQF, organic, Kosher) and equipment compatibility.

Vet with care

• Visit facilities or do video tours.
• Ask for references from similar brands.
• Do trial runs or short batches first.

2. Lock down clear agreements

Contracts should cover:

• Scope of work – Ingredients, packaging materials, labeling, shipping.
• Quality standards – Specs, tolerances, and testing protocols.
• IP ownership – Your formulas and branding stay yours.
• Confidentiality & non-competes – Especially if you’re working with innovative formulations.
• MOQ & lead times – Minimum order quantities, flexibility, and penalties for delays.

Use a lawyer familiar with CPG or food law if possible.

3. Set up a clear supply chain flow

Many small brands manage raw materials and packaging themselves (turnkey vs tolling):

• Tolling: You supply ingredients/packaging, they process.
• Turnkey: They source everything, based on your specs.

Startups often prefer tolling for control and cost savings, but it adds logistics complexity. Ensure you’re aligned on who’s doing what and when.

4. Maintain tight quality control

Define QA/QC expectations

• What in-process and finished goods checks will be done?
• What happens if there’s a deviation?
• Will you get Certificates of Analysis (COA)?

Inspections & audits

• Periodic site visits (or 3rd-party inspections).
• Review of batch records and traceability logs.

5. Use an ERP to coordinate

Managing third-party manufacturing without a system leads to chaos. A lightweight MRP/ERP system helps you:

• Track raw materials and finished goods
• Schedule production batches
• Forecast material requirements and set reorder points
• Maintain traceability for recalls or audits
• Share real-time data with subcontractors or 3PLs

6. Plan around lead times and delays

Co-manufacturers and co-packers often serve multiple clients. You’re likely not their top priority.

• Build in buffer inventory and time.
• Use a production calendar and lock in runs in advance.
• Clearly communicate launch dates or promo plans.

7. Create a playbook and documentation

• Standard Operating Procedures (SOPs) for your product.
• Batch formulations and change request protocols.
• Visual examples of finished product and packaging.
• Labeling guidelines (to meet regulatory needs in different markets).

Documentation reduces errors and makes scaling easier with multiple partners.

8. Communicate like a pro

• Weekly check-ins or updates (email, Slack, shared dashboards).
• Shared Google Sheets or ERP portals.
• Fast feedback loops when issues arise.

Active communication builds trust and helps avoid finger-pointing when problems occur.

9. Plan for scaling and redundancy

Don’t become over-reliant on a single subcontractor:

• Always keep one or two backup options in the pipeline.
• Diversify geographically or by SKU if possible.
• Document all processes for easier transitions.

10. Watch margins & monitor performance

Co-manufacturing can eat into your margins if not managed tightly:

• Regularly review your actual costs per product.
• Negotiate price breaks as volumes increase.
• Track KPIs like yield, spoilage, OTIF (on time in full) deliveries, and defect rates.

Bonus: Common pitfalls to avoid

• Relying on handshakes instead of contracts
• Not owning your raw material supply chain
• No digital system to manage production and inventory
• Assuming a co-manufacturer will “care” as much as you do
• Failing to plan for growth or redundancy

Managing outsourcing with manufacturing ERP

For a while now, manufacturing ERP systems have been accessible to companies of all sizes, including small businesses and even startups. As opposed to the traditional giant systems that take years and hundreds of thousands of dollars to implement, modern cloud-based ERPs are user-friendly, easy to implement, and affordable even for 1-person companies.

There are two primary approaches CPG manufacturers can take when managing subcontracting in an ERP system:

1. Using purchase orders (POs) only, when a vendor delivers a shelf-ready finished item.
2. Combining manufacturing orders (MOs) with POs, when vendors carry out specific operations within your production workflow, such as filling, labeling, or shrink-wrapping.

Once the subcontracting functionality is enabled in the ERP, features typically include:

• Assigning vendor-specific bills of materials (product recipes).
• Sending components or packaging materials directly to vendors.
• Defining subcontractors as part of your production routing.
• Tracking outsourced steps, progress, and logistics alongside internal operations.
• Supporting unit conversions where vendors use different measurement systems (e.g., pieces vs. pounds).

For full-product outsourcing, ERP systems help manage material shipments, vendor inventory, and cost accumulation through purchase orders. For partial outsourcing, it enables detailed production tracking, coordinating vendor operations within a larger manufacturing order—even across multiple subcontractors or production stages.

This approach provides the flexibility to manage single-step jobs or multi-level outsourced assemblies, all within one integrated system.

Read about MRPeasy’s subcontracting functionality.

Key takeaways

• Co-manufacturing and co-packing allow small CPG brands to scale efficiently by outsourcing production and/or packaging to specialized partners, eliminating the need for large capital investments in equipment or facilities.
• Maintaining control while outsourcing requires deliberate management, including choosing the right partners, locking down detailed contracts, and defining clear roles in the supply chain (e.g., tolling vs. turnkey).
• Quality assurance is critical. Brands must set strict QC standards, conduct regular audits, and ensure traceability through documentation like COAs and batch records.
• Using a modern ERP system streamlines subcontracting, allowing brands to manage raw materials, production schedules, vendor operations, and inventory tracking in one place, even when using multiple vendors.
• Common pitfalls, like poor documentation, relying on verbal agreements, or lacking digital tools, can erode margins and product quality, so brands must plan proactively, monitor performance closely, and communicate consistently with their partners.

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