With the globalization of markets the contract manufacturing, widely practiced in Europe during the 1970s, is becoming increasingly popular.
It is very profitable for large transnational corporations to trust their output to regional producers; in addition, it significantly reduces costs and facilitates the entry into the national markets.
East, Southeast Asia and, above all, China stand out in this trend. China has equated the contract production to the level of national business; most of the largest brands with the worldwide reputation use the industrial facilities in China to manufacture their products.
In the last decade, due to the relative stability and impressive growth of the consumer demand in Russian Federation, attention of the foreign customers has been focused on Delfin Industry. It should be noticed that this interest is mutual.
At present, according to experts, the share of products manufactured in Russia, in the terms of manufacturing, ranges from 5 per cent in the automotive industry to 50 per cent in the cosmetic industry.
However, despite the overall fall of world consumer demand, associated with the financial crisis in Russia, the demand for the certain types of products hasn’t dropped, in fact it started growing again (cosmetics, auto, etc.). As a result, foreign companies increased the volume of their orders and, thereby, increased the share of the contract manufacturing in Russia, where the structure of certain industries would reach the target of
The President of Delfin Industry declaredthe contract manufacturing as a priority model for the business development of Delfin Industry.
We talked about Delfin Contract background with the area manager Egor Genevsky.
— Egor, at what point have you chosen contract manufacturing? What was your decision determined by?
— Well, I would say that is the reflection of global market trends. Speaking conventionally, we dimidiate business: the first part is the creation and promotion of the product and the second part is the production. The allocation is very profitable for both sales and manufacturer.
This kind of economic relationship has a substantial priority over traditional business models. For example, the percentage of waste products in contract manufacturing is significantly lower; this scheme incorporates double-quality control.
Regarding to our company ... We have the extensive experience in this field, which has been accumulated for several years. In 2008, it was decided that it is reasonable to combine separate lines of business, one way or another related to the fulfillment of contracts for non-affiliated customers into a separate structural unit of a business association. We started from the administrative expediency with the expectation that these areas will be mutually beneficial.
— What customers are you focused on? Are there any restrictions?
— We are well prepared to fulfill orders of any size and any complexity. The limitations are only in the realm of our technology.
Currently, we are able to implement any project for our clients, all the way from A to Z. We develop an original recipe for the parameters constrained by the customer. We manufacture an individual mold for the canisters, the canisters; we design the layout of labels and print them. We manufacture a variety of products from automotive special liquids to cosmetics, starting from a test sample to the millions of units. In general, we implement both point operations and the entire production cycle.
At the customer discretion we perform a substantial part of the logistics and customs operations. Thus for our customers ABRO we provide transportation of the products released on our own production sites to the Third World market — the Middle East, Africa, etc.
— Are you contingent on the conjuncture of the company products? Do you mean that Delfin Industry in-house product manufacturing influences the performance of contractual orders?
— No, never. It is impossible, and the customer is protected by the stringent contracting liabilities, and secured by financial guarantees.
Regardless, this is not the main thing, even very large orders initiates at the last moment are completed in an expeditious manner, we are flexible enough to launch the production plan and meet the deadline.
In addition, our production grows, with the large contract orders from the leading manufacturers, we have a unique opportunity to continuously raise the level of applied technology, product quality and, returning to the subject of the production plan, increase our capacity.
Meanwhile, even filling the orders for the large-size customers with a worldwide reputation, the occupational capacity of Delfin Industry lines does not exceed 40 per cent, which means we do have the potential for the contractual framework expansion.
— Have you achieved any significant success since the moment when the individual contract areas were formed within the association?
— Certainly. Simply mentioning the list of our partners, in perfumery and cosmetics area they are L’OREAL, Schwarzkopf & Henkel and Beiersdorf, in motor oil, special fluids and automotive chemistry production we work with TNC, ABRO Industries inc., AGA, Hi-Gear, TFG «Pride».
What is, in your opinion, the reason for similar companies to expand to the Russian market, bypassing Eastern Europe or South-East Asia?
— To provide an explanation I must focus on our specialization: motor oil and special liquids in particular and cosmetic products. The reason here is simple — the base material for the production of this kind has the Russian origin. It is beneficial for the foreign customers to set up the product manufacturing here, helps to shorten the long logistics chain, solve problems with the customs, etc. You have to take into consideration that Russia and the CIS countries today are the fastest growing consumer markets in Europe.
In general, Russia has a number of strong competitive advantages that we have to use.
— In which directions are you developing in the future? What are your priorities?
— We are constantly exchanging experiences with our Western partners in the U.S. and European headquarters. Delfin Industry is also actively engaged in the contract manufacturing. This gives us foundation for continual growth.
In the nearest future we would like to strengthen our structural units in manufacturing, printing products and plastic packaging. For the time being, we are mainly involved in carrying out orders of so-called «full cycle», while our capacity allows to broaden volume, include programs of our specification.
Until recently we had a narrow specification, at present, having modernized our production, we are ready to significantly expand our business proposals. For instance, today we can produce packaging for products of almost any type, from
Overall, we have work to do and direction to grow, most importantly a variety of our services is in strong demand. This is the best proof that the decision of Delfin Industry to establish a separate direction, dealing with the contract production, was right.