What is third party/contract manufacturing in Pharmaceutical/Ayurvedic sector? Procedure, Requirements, Inventory !

Pharmaceutical third party/contract manufacturing is easy way to expand your business whether you want to start pharma marketing company or you want to expand your manufacturing business by manufacturing of other companies products along with own products.

Pharmaceutical/Ayurvedic Third Party Manufacturing:

Pharma Third party manufacturing/contract manufacturing is easy way to start pharma marketing company in India. This concept provide easy solution for manufacturing of own brands.

Third party or contract manufacturing is referred to out sourcing of products or to get manufactured one’s brand names from others manufacturing unit out. In current time it is very popular concept among marketing companies. Even companies having their own manufacturing units are gotten manufactured their products from outside. Multinational companies are also gotten manufactured their products at loan license or third party basis.

Third Manufacturing/Contract Manufacturing:

When a firm/company (marketing/manufacturing firm/company), called party ‘A’ enters into an agreement with the manufacturing firm/company, called party ‘B’ and Party ’B’ agrees to manufactured generic/patent-proprietary product of party ‘A’ in the manufacturing facility belonging to Party ‘B’ on bases of party ‘A’ wholesale drug license. Majority of Pharma marketing companies are engaged in third party manufacturing.

Third Party/Contract Party Manufacturers:

Elzac Herbal India (Ayurvedic Third Party Manufacturer)
V.P.O. Gheer, Distt. Karnal-132001 (Haryana)
Contact: 8930765982, E-mail: contact@elzac.in

Vatson Remedies
Plot No. 761, Hsiidc, Rai, Sonipat (Haryana)
Contact: 8059478187

Why is this concept so popular?

One of the best reasons of popularity of this concept is simplicity and easy availability. You don’t have to do much work and investment. It gives opportunities to even those persons who don’t have own manufacturing units to start their own Pharma company. Starting and running a manufacturing pharmaceutical company is difficult and tensed work, and require high investment but starting and running Pharma marketing company is easy thanks to third party manufacturing. Before announcing of excise free zone of Himachal Pradesh and Uttarakhand, it was not so popular as it is today, but after implementation of excise free zone in these above states, it became one of the most popular concept in pharmaceutical industry.

Procedure to start own marketing company and get product manufactured at third party basis?

• Choose Company Name
• Apply for Company Registration
• Apply For Wholesale Drug License (Read Requirement and Procedure for Wholesale Drug License Read Here
• Apply for GSTIN
• Select Molecules and Combination for manufacturing and chose Brand Name. 
• Send quotation for minimum batch size and minimum possible rates at third party basis. We recommend you to send query to many third party manufacturers to get best deal. 
• Choose pharmaceutical manufacturer to which you want to get manufactured your product. 
• Manufacturer will ask you to send affidavit with respect to brand name or trade mark. This is generally for the purpose to specify that this brand name of product belongs to you and you will be totally responsible for brand name or trade mark conflict and manufacturer will not responsible for any brand name conflict in future. 
• Manufacturer will also ask for scan copy of your drug license number and GST number. These documents will provide authenticity and proof of your address and firm name. 
• Send Marketed By address which you want to put at products 
• Finalize design of packing material. Printing and procurement of packing material depends upon you. You can procure packing material yourself or you can let manufacturer to procure and print packing material for yourself. 
• Deposit initial advance in manufacturer account and your third party Pharma manufacturing process has been started. Generally, manufacturers take 25% advance and remaining 75% against Performa invoice after completion of manufacturing of your products. 
• Manufacturer will book you product through transport or other mean (as you prefer) to your premises or location. Now process has been completed. 

Requirements for Pharma/Ayurvedic third party manufacturing?

For getting third party manufacturing, you don’t need to have much requirement. You should have

• Company Profile 
• Address Proof 
• Drug license number (Not applicable at Ayurvedic Products) 
• GST Identification number 
• Brand Name non resemblance affidavit 
• Agreement for manufacturing 
• Packing material printer (in case you will procure printing material) 

Eligible to get pharma product manufactured at own brand name?

Firm or person having its own wholesale drug license number is eligible to get product manufactured at his own brand name.

Minimum batch size for pharma/Ayurvedic third party manufacturing?

Batch size depends upon manufacturer and molecule you want to get manufactured. Big giants don’t take small batches whereas small manufacturers can even manufacture small quantity for you. Batch size also depends upon cost of product you want to get manufactured. Costly products can be manufactured in small batches whereas cheap products usually require good number of quantity. Some manufacturers can even manufacture small batch size as 100 boxes for tablet/cap and 500 pc for liquid/syrup, 1000 pc for injections.

Days it takes in manufacturing process:

Time depends at availability of materials like packing material, raw material, excipients etc. Usually manufacturing process will take 30-45 days for new product and 15-25 days in case of repetition. Most important, process duration also vary manufacturer to manufacturer. Few manufacturers take less time and few takes more time to manufacture product. But above mentioned duration considered to be standard. Process includes:
Product Approval – 5-7 days
Packing Material – 10-20 days
Manufacturing Process: 12-15 days
Transport: 2-8 days

Costing:

Costing for third party manufacturing is calculated as per following mentioned product/process’s cost and price.

• Raw material cost: Involves Active ingredient/s cost and Excipients cost 
• Packing Material Cost i.e. Box, foil, label, lami tube etc. 
• Secondary Packing material like tape, shipper, PVC etc. 
• Manufacturing Process cost 
• Quality assurance and Quality control cost 
• Transportation 
• Labour Charges 
• Tax 
• Profit Margin 

Inventory require to get manufactured product at third party basis?

Total inventory require to get manufactured is generally depend upon cost of product. Inventory may vary product to product or dosage form of product. Here, we are discussing briefly about it. Packing material costs major portion of inventory in starting. For cheap products it may be more than the total cost of batch. But it is one time inventory. For example, if you are going with ofloxacin salt manufacturing in Tablet/capsule form, Liquid form, Injection Form and Ointment form. This is for example purpose not exact calculation. Prices or inventory may vary.Read complete inventory estimate here

Procedure for packing material Procurement?

Packing material procurement is as important as raw material procurement. Either you can directly involve in procurement of packing material or you let it to manufacturer to procure it for your brand.

• Finalize packing material vendor.. 
• Get prepare best design for you packing material 
• Select paper, tin, aluminium 
• Send design and matter for approval and correction to manufacturer 
• Send it in printing..Read complete detail about packing material procurement here

Payment Term and Conditions:

Payment term also vary party to party. For older parties payment term as per mutual agreed term i.e. generally 45 days. For Newer Parties manufacturing is usually done at 25-30% advance and remaining payment against performa invoice at time of dispatch of finished product.

Goods and Service Tax:

Most of Pharmaceutical And Ayurvedic Products has 12% Tax. Some essential medicines come under 5% tax slab.

Transportation and Insurance:

Transportation charges mostly bear by marketing company or as per mutual agreement. All transported material should be secured under insurance which is generally 0.5% of total bill value.

Read Related Article:

• I want to Starting pharma marketing company with loan license/Third Party manufactuirng. Procedure
• How to sell ayurvedic medicines online?

Check List For New Parties:

• Approval Letter For Product Approval From The Party On Party’s Letter Head. 
• Third Party Agreement. 
• Affadavit Performa For Address Proof. 
• Contact Information Details Of The Party 
• Account Numbers Of Pharma Franchise Help For Depositing Product Approval Charges. 
• Dl No. / GST No. Of The Party 
• Packing Investment Details To Be Given To Party. 

Quick Link to download:

• Click to Downloads Quotation Format
• Click to Downloads third party agreement format
• Click to Download Packing material availability format
• Click to Download Purchase Order Format
• Click to download Product approval letter format
• Click to download Brand Name and MRP declaration format
• Affidavit Format for Contact information, Third Person Authorization

Third Party Agreement sample Format:
(Stamp Paper)

An Agreement depicting the terms and conditions settled between M/s Pharma Franchise Help, Karnal(HR) called first party and M/s——————- called second party.
We M/s Pharma Franchise Help, Karnal(HR) through our director Sh. Ajay Kamboj and M/s through its proprietor do hereby solemnly affirm and declare that we have mutually settled the following terms and conditions applicable to both the parties.

• That M/s Pharma Franchise Help, Karnal(HR) would manufacture the following products to be marketed by M/s. ——– 
• That the above brand names are for the exclusive use of M/s—————and that these brand names would not be henceforth given to any other marketing or manufacturing organization and neither would they be used by M/s Pharma Franchise Help, Karnal(HR) 
• That M/s—————are at Liberty to get the above mentioned brand names registered with the appropriate authorities for their exclusive use. 
• That the above brand names shall be considered as adopted by M/s.————-themselves. If any other manufacturer is already manufacturing or marketing any product by any of the above brand names, M/s.———————will hold whole responsibility for adopting the name. Any loss on account of any reason i.e. withdrawal of the product, paying compensation to the other party or any legal expenses incurred etc. shall be of M/s ————- 
• That M/s Pharma Franchise Help shall provide all packing material on payment by the second party. M/s——————————shall get all the printed matter details from M/s Pharma Franchise Help and get their labels, cartons printed in confirmation of Drugs and Cosmetics Act and under guidelines of the first party. M/s Pharma Franchise Help holds the right to reject such material which is in contravention of Drugs Act and also which M/s got printed without their approval. 
• That company will charge 0.1% of the amount of bill for insurance against transit loss. Open delivery will be taken by the second party from the transporter at the time of taking delivery where in any breakage or shortage is suspected during transit. The shortage or breakage certificate obtained as above may be sent to the First party which will in turn claim damages from the transporter but reimburse the amount to the second party within a month from the date of receipt of shortage certificate. 
• That the wastage in process to the extent of 2% to 5% depending upon the product produced by the first party shall be borne by the second party. 
• That in case due to any technical flaw or amendment of any Act the Authorities impose extra excise duty at later date on the products of second party, the second party will bear such duties and pay to the first party the difference in amounts that the Authorities impose on the first party. 
• Delivery: Products shall be delivered by 1st Party within 30-45 days from the dated receipt of purchase order along with advance from 2nd party or the availability of packing material whichever is later. 
• Payment terms: 50 % of Purchase order value shall be released along with purchase order as an advance. Further 50% of Invoice amount shall be released before dispatch of goods. 
• That the first party will use their own dies presently available with them for the products to be manufactured by them for the second party but if the second party desires any special size dies which are not available with first party or dies with any trade or marketing markings on the product, the second party shall provide such dies at their cost to the first party. 
• That the first party shall deliver all products manufactured by it for the second party at its factory premises. The second party shall at their own expenses collect and transport the material from the factory. Any damage or shortage during transit shall be borne by the second party. Similarly, the expiry of the products shall entirely be the responsibility of the second party. 
• That utmost care shall be taken by the first party to manufacture the products to the entire satisfaction of the second party. However, if any product is received back from the market due to any manufacturing defect, it will be reprocessed by the first party at its own cost. However, the cost of printed matter wasted in this process and expenses incurred in returning and again collecting the products from the first party shall be borne by the second party. 
• That for the termination of this agreement four months notice would be required to be served by any party intending to terminate the agreement. 

We M/s Pharma franchise Help and M/s ———-do hereby once again solemnly affirm and declare that the above terms and conditions have been mutually agreed upon by both the parties.

For Pharma Franchise Help                                                         For————-

Director Prop./director                                                                 Director Prop./director

Witness
1.
2.

Related Post:

• What is the procedure for packing material Procurement, Inventory, type in Pharmaceutical/Ayurvedic Manufacturing Company?
• How to start Pharma Marketing Company by Third Party Manufacturing Concept?
• How to ensure quality of products in third/contract manufacturing?
• What is the Minimum Order Quantity (MOQ) for third party manufacturing?
• Why do third party/Contract Manufacturer require Trade Name/ Brand Name Affidavit?