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Turnkey Personal Care Manufacturing Has Great Value

Turnkey Personal Care Manufacturing Has Great Value

by | Oct 28, 2018 | Manufacturing

Introduction

Turnkey manufacturing is an industry term that describes the ability for a customer to sign a purchase order and turn over all aspects of the supply chain management to their manufacturer.  At BPI Labs, we do turnkey manufacturing for a few of our customers.  This option isn’t for everyone, but it might be for you.  Read on to learn more.

What you will read in this post:
  • The benefits of turnkey manufacturing
  • How we turn your product turnkey
  • The turnkey options
  • Who is right for turnkey

The work that turnkey manufacturing saves you:

When our clients do not use turnkey manufacturing then they must perform all the following things to manufacture their product at BPI Labs.  They will need to find suppliers of packaging, request samples of product, negotiate prices, submit packaging samples to BPI Labs for testing, perform their own quality checks, order their packaging for an upcoming job and pay the invoice, track their packaging and update BPI Labs about its status. The work does not end here, however.

After the job is finished, they will need to receive all the left-over packaging back to their warehouse for storage after we finish a job.  (Although that last part can be mitigated with a warehousing agreement with BPI Labs.)  If any packaging arrives at BPI Labs damaged or as a wrong item, then our customer must take the claim up with the packaging supplier and reorder.  Any mistake in managing this supply chain often results in increased shipping charges for expedited shipping and sometimes delays the job until BPI Labs can reschedule a manufacturing date.  This is a general list of all the work turnkey manufacturing saves you.

How BPI Labs does turnkey manufacturing

Turnkey manufacturing by BPI Labs eliminates most, if not all, of the above work.  We will find packaging suppliers with whom we trust, negotiate prices, request samples, purchase packaging for upcoming jobs and pay the invoice, and store leftover packaging in our warehouse.  The relief your company may feel on its cash flow might be enough reason to consider turnkey packaging.  But your warehouse will feel slimmer and more organized because you won’t need to store leftover packaging and you won’t need to deal with lost or missing inventory.  The only thing turnkey manufacturing by BPI Labs does not do is choose your packaging for you.  That only makes sense since your product’s packaging represents your brand, not BPI Labs’ brand.

The only thing turnkey manufacturing by BPI Labs does not do is choose your packaging for you.

How we make your job turnkey:

When BPI Labs feels that a customer is ready to have their job made turnkey, we’ll send out samples of their chosen packaging to our suppliers for a matching component.  It is not unusual for our suppliers to locate the originating manufacturer and offer a counter-offer to supply the packaging.  BPI Labs will then leverage its own volume discounts and negotiate the lowest price possible from suppliers with competing offers.  Sometimes this results in turnkey manufacturing being cheaper even with BPI Labs’ turnkey fees.

It is notable that most turnkey jobs begin as a hybrid of turnkey and not-turnkey.  This hybrid situation happens when BPI Labs is responsible for sourcing some of the packaging for a job.  This usually happens during a transitional phase, but sometimes our customers never fully transition into a completely turnkey manufacturing relationship and that’s okay too.

Why doesn’t everyone use turnkey?

Turnkey is not for everybody.  If our customer is able to source packaging for significantly less than BPI Labs, then it may make sense for them to manage the supply chain.  BPI Labs does charge 20% on the landed cost of packaging for its turnkey service, and customers who must have the lowest price possible will not want to pay the turnkey fee.  Also, having control of the supply chain may appeal to certain businesses where they feel they have a core competency in that area.  Finally, turning a product into a turnkey job does require some labor and might delay the introduction of a new product into a market.  This makes turnkey a better option for products that have already seen a successful introduction.

Conclusion

Turnkey manufacturing offers significant advantages over the more hands-on approach some of our customers take.  First, turnkey is more cost-effective for customers who are not in a good position to perform all the manufacturing logistics and are not doing enough volume to benefit from discounts.  Second, turnkey absolves you of the risk of delay due to mismanagement of the supply chain and the burden of holding left-over packaging.  Third, turnkey lets BPI Labs perform more of the manufacturing work it knows so well, and it leaves your company free to focus on its markets, brands, customers, and growth.

Turnkey might not be a great option if you’re highly price sensitive with a competency in supply chain management or if you are introducing a new product into the market and there are many factors of your product still in flux.  However, after all the factors of your product have congealed, it may be time to begin looking at turnkey.   If you think turnkey is an option you would like to explore then please contact your project manager at BPI Labs today to discuss the possibilities.

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How To Get Personal Care Products at a Great Price

How To Get Personal Care Products at a Great Price

by | Oct 24, 2018 | Manufacturing

The first and best thing you can do

The first and best thing you can do to get a price you’ll love is to have a manufacturing price point in mind. BPI Labs will work to meet that price point so long as we know it at the outset. BPI Labs can then help you design your product to hit your optimal manufacturing price point.

Pricing is multifaceted

There are three phases to pricing your cosmetic product

Pricing at BPI Labs is a multi-phase approach that occurs during the development or on-boarding of a custom product. The costing phases begin with the formula and its ingredients.  Then there’s a phase where we consider the packaging and filling cost for your formula.  The final phase has us considering additional bill of materials requirements and manufacturing agreements such as warehousing agreements, product certifications, turnkey manufacturing, non-standard testing such as assay testing, and other specifics your brand and company desire.

There are three primary variables in pricing your cosmetic product

Variables that affect the cost of your product include the cost of ingredients used in your formulation, the difficulty of obtaining and using packaging to fill your product, and the volume discounts we can apply to your orders. Read on to learn how to use these variables to your advantage and get a personal care product manufactured at a price point you love.

The variables that matter

Materials Used in Your Formulation

There is significant flexibility in pricing in the formulation of your product. Generally, the greater percentage of water present in a formulation the cheaper the materials costs will be for manufacturing. Water is one of the cheapest ingredients that can be used in a formulation, and it is certainly an essential ingredient for personal care products in most cases. Our customers, who compete on price, run into difficulty when they would like to include in their formula expensive ingredients at greater quantities than competing products. Examples of expensive ingredients include: fragrances, essential oils, OTC drugs, rare ingredients from limited sources, and premium ingredients, like materials with advertised anti-aging properties.

Our customers, who compete on price, run into difficulty when they would like to include in their formula expensive ingredients at greater quantities than competing products.

The materials price does not need to come as a shock, however, since BPI Labs can create a formulation and price it simultaneously. Your first price is a budgetary, bulk material price and it is the cost involved in just the material acquisition and compounding. If you do not like this price then we will iterate on the formulation until you have satisfactory price or until we don’t believe the formulation can be feasibly altered any further for cost savings.

Packaging and Direct Labor

There are two important considerations when it comes to packaging. First, how would you like to have your packaging purchased and shipped? BPI Labs can provide a turnkey service where we will source, purchase, and store packaging for your orders. This comes with a 20% additional cost on the packaging after it has arrived at BPI Labs. However, our customers tell us it is worth the cost if they don’t need to arrange logistics, arrange tracking, and tie up their cash in packaging. Alternatively, our customers can source, purchase, and ship packaging to our location. However, many jobs over the years have been delayed because a customer forgot to purchase and have shipped an essential packaging component.

See our post on turnkey manufacturing here to read about the options.

Second, packaging that can’t be used on automated machinery will create bottlenecks that slow production speed. Special stickers, brochures, or any hand-applied packaging components increases the amount of time to complete a job. This, in turn, increases the amount of direct labor required to finish your job. The metric we use to determine direct labor is pieces-per-minute (PPM). This metric is the number of finished goods we complete every minute, and the higher this number the faster we’re completing the job. Using packaging that works on automatic machinery improves the PPM and decreases the cost of your job.

Volume Discounts

Volume discounts have a cascading affect, and they’re most important to consider with smaller orders. Shipping, materials, and fixed costs all dramatically decrease on a per unit (finished good) basis as your order size increases. BPI Labs’ volume discounts also increase to our customer; but by how much? In 2018 we did a small study of how the cost-per-piece of finished goods goes down with every increase of a thousand units ordered. We looked at over 150 products we priced over the last couple of years. The results suggest that you’ll see dramatically increasing cost savings up to 20,000 units. (These prices don’t reflect the shipping cost.)

Graph Above: The horizontal X-axis shows the number of units ordered. The vertical Y-axis shows the decrease in percent on average for all products we produce from an initial order of 1000 units on a per unit (finished good) basis. I.E. A shampoo at 1000 units could have a 75% decrease in per unit cost at 20,000 units.

It is important to interpret the graph accurately. Every point on the graph is an average price paid for all products, which means individual product categories might vary significantly in price at different order volumes. When looking at specific product categories, such as lotions or creams, there is a significantly greater degree of variance than there might be for salts or powders. The fact remains that our customers can choose to have either a premium or cost-effective product made at BPI Labs. The graph shows that your cost savings per unit purchased are most significant up to about 20 – 40 thousand units purchased.

Conclusion

The most important and best thing you can do to get a price you love is to have a manufacturing price point in mind at the outset of any project.  Beyond that, there are three primary phases and variables influencing your product’s price. The variables include the cost of materials, obtaining and using packaging, and order volumes. BPI Labs only recoups its costs when its customers are successful in the market. Consequently, we’re highly motivated to manufacture a product for you that has market staying power and has a profit margin you love.

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