The Inside Scoop on Outsourcing Product Development

Outsourcing some product development and R&D projects offers added flexibility, saves time and money and frees processors to work on other important tasks.

By Lauren R. Hartman, Product Development Editor

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Visit any food show, and you'll see entrepreneurs trying to get their items to the retail level and growing companies struggling to fulfill increasing demand with limited production capacity. Even at larger, established food companies, there's so much cost cutting, deadline tightening and operational streamlining that developing products in-house can be difficult.

Certainly, processors continue to design their own products and formulations in-house, corralling marketing, distribution and financing within their collective walls, and supporting the resulting products on their own. But contract R&D specialists usually can complete a project faster than internal teams because they apply a heightened focus and dedicated resources to the project. This can cut costs in the short term, and boost profits in the long run if the product gets to market faster.

Outsourcing is a fairly standard tactical approach in the food business, says Dave Behringer, chief technology officer at 915 Labs LLC (www.915labs.com), Centennial, Colo. (and a professional chef). "It was never meant to replace internal resources, but allows an organization to use skilled staff only when needed. Once they have an established an external ecosystem, it's easy and cost-effective to outsource activities as needed on a project by project basis."

Leave the R&D to us

"The pace of new product developments has become so fast, it's very difficult for developers to create everything [in-house]," says Barb Stuckey, president and CIO of Mattson (www.mattsonco.com), San Francisco. The food and beverage-centric product design and development firm creates products, strategies and branding programs, using culinary and technical expertise and trend and consumer insight. Some of its success stories include Soylent 2.0 drink meal replacement and Ripple dairy-free milk.

"Outsourcing has many other benefits," she explains. "Clients hire us because they want to tap into our deep experience across categories and technologies. Companies that do a good job with innovation and product development have more good ideas than they have resources."

The cost savings associated with outsourcing can be significant, depending on the circumstances. While the food company works on sales and marketing, initializing formulations, producing prototypes and executing lab and pilot plant experiments can go to the R&D provider, which commits limited capital into analysis, plant trials, ingredient supply and equipment. Formulation secrets stay secure as the product gets into the marketplace, and the food company gains a new perspective and a bit of expertise with some outside product development help.

"As with all innovation and new product launches, there's no guarantee of success," Stuckey points out. "As such, many companies want to wait and see if the product [we help them with] succeeds in the marketplace. If it does, they can then build out internal R&D resources to support the business. If not, they don't have to lay off an entire team."

While outsourcing requires considerable coordination, R&D departments can attain skills beyond their in-house capabilities or harness local knowledge in a market they're trying to cultivate or enter, Stuckey explains. "There's often a short ramp-up period for us to fully understand the consumer dynamics, inner workings, brand tenets, manufacturing assets and company culture for a specific project. However, we pride ourselves on being quick studies, since innovation and new product development is all we do."

Startups often use external food product R&D. Frequently without the resources and other assets for their own production, startups look to contract manufacturers and packagers for operational efficiency, a shorter time to market and improved cost control.

Mattson's client size and type vary as much as the applications. Stuckey says startup/entrepreneurial clients get a partner with the depth of expertise of a large firm. "Conversely, large clients get a partner with the nimbleness and entrepreneurial spirit of a small company," she says. Large companies often utilize Mattson because they no longer have the tolerance or patience to start a new brand and product line internally.

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