How Third-Party Manufacturing Works: Step-by-Step for Startups & Pharma Entrepreneurs

In the dynamic landscape of the pharmaceutical and FMCG industries, the concept of third-party manufacturing has emerged as a strategic game-changer. It offers a cost-effective and efficient way for companies to scale production without the burden of building and managing their own manufacturing units. This article will guide you through everything you need to know about third-party manufacturing companies — what they are, how they operate, their benefits, legal considerations, and how to choose the right one for your business.

What is a Third-Party Manufacturing Company?

A third-party manufacturing company (also known as contract manufacturing company) is a business that manufactures products for other companies under the latter's brand name. The client company provides the formulation and specifications, while the third-party manufacturer produces the product, packages it, and may even handle quality control and regulatory compliance.

This model is widely used in the pharmaceutical, cosmetic, nutraceutical, and herbal sectors, where developing infrastructure from scratch can be prohibitively expensive.

Key Sectors Utilizing Third-Party Manufacturing

1. Pharmaceutical Industry

2. Nutraceutical and Ayurvedic Industry

3. Cosmetics and Personal Care Products

4. Food and Beverages (FMCG)

5. Chemical and Cleaning Product Industry

These industries prefer outsourcing manufacturing to third-party units so they can focus on branding, marketing, sales, and distribution.

Advantages of Third-Party Manufacturing

1. Cost-Effectiveness

Setting up a manufacturing unit involves massive capital investment in equipment, workforce, licenses, and technology. By outsourcing to a third-party, companies reduce overhead costs.

2. Focus on Core Competencies

Brand owners can concentrate on research & development, marketing, and expansion while the manufacturer handles production.

3. Scalability

Third-party manufacturers allow for easy scalability without the need to reinvest in physical infrastructure as demand increases.

4. Expertise and Quality

Established third-party manufacturers often have WHO-GMP, ISO, and FSSAI certifications, ensuring quality control and compliance with global standards.

5. Time-Saving

Product development and delivery cycles are quicker as these manufacturers are already equipped with required resources and a trained workforce.

Process of Third-Party Manufacturing

Here is a step-by-step overview of how the process works:

Step 1: Selection of Manufacturer

Choose a reliable, compliant, and experienced manufacturing partner with certifications such as WHO-GMP, ISO, FSSAI, or AYUSH (for herbal products).

Step 2: Product Finalization

Finalize your product composition, packaging material, design, and labeling in consultation with the manufacturer.

Step 3: Documentation

Submit necessary documentation, which may include:

• Company registration/GST number

• Drug license (for pharmaceuticals)

• Trademark registration (optional but recommended)

• Agreement for confidentiality and exclusivity (if needed)

Step 4: Quotation and Agreement

The manufacturer will provide a quotation based on formulation, packaging, and quantity. Once both parties agree, an official contract is signed.

Step 5: Production and Quality Control

The manufacturer begins production as per agreed timelines. QC and QA tests are performed on every batch.

Step 6: Delivery and Dispatch

Finished goods are packed and dispatched to the brand owner or distributor under their label.

Documents Required for Third-Party Manufacturing in India

1. Company PAN Card

2. Drug License (Form 20B and 21B for allopathic)

3. GST Registration Certificate

4. Manufacturing Agreement

5. Brand Name and Label Approval

6. Certificate of Analysis (COA) for Products

7. Non-Disclosure Agreement (Optional)

How to Choose the Right Third-Party Manufacturing Partner

1. Certifications and Compliance

Ensure the manufacturer is certified under WHO-GMP, ISO 9001:2015, FSSAI, or AYUSH as applicable.

2. Production Capacity

Check if the unit can meet your current and future demand volumes.

3. Quality Assurance Systems

Evaluate the quality standards, raw material sourcing, in-process checks, and final product testing.

4. Packaging and Design Support

Some manufacturers offer in-house design and packaging solutions, which is an added benefit.

5. Client Feedback & Market Reputation

Check online reviews, testimonials, and speak with existing clients to gauge credibility.

Challenges in Third-Party Manufacturing

While the model is advantageous, it does have its set of challenges:

• Limited Control: The brand owner may have less control over production schedules and raw material sourcing.

• Dependency: Over-reliance on a single manufacturer may risk delays in delivery.

• IP Protection: Risk of leaking product formulations without a proper confidentiality agreement.

These issues can be mitigated by drafting comprehensive legal agreements and maintaining open communication with your manufacturing partner.

Global Outlook of Third-Party Manufacturing

According to Grand View Research, the global pharmaceutical contract manufacturing market size was valued at USD 168.9 billion in 2020 and is projected to expand at a CAGR of 5.8% from 2021 to 2028. This growth indicates a rising trend in outsourcing as businesses seek to remain lean and flexible.

In India, especially, third-party manufacturing has become a growth pillar due to:

• Government support through “Make in India” initiative

• Ease of compliance with GMP guidelines

• Skilled labor and low operational cost

Popular Products Manufactured by Third Parties

Pharmaceutical:

• Tablets, Capsules, Syrups, Injections, Ointments

Herbal & Nutraceutical:

• Herbal tonics, Protein powders, Digestive enzymes, Immune boosters

Cosmetics:

• Creams, Lotions, Face washes, Shampoos

Others:

• Health supplements, Energy drinks, Ayurvedic capsules, Veterinary products

Regulatory Bodies and Licensing in India

1. CDSCO (Central Drugs Standard Control Organization)

2. State Drug Controller (for domestic operations)

3. FSSAI (Food Safety and Standards Authority of India)

4. AYUSH Ministry (for Ayurvedic/Unani/Siddha medicines)

For pharmaceutical third-party manufacturing, compliance with Schedule M of the Drugs and Cosmetics Act is essential.

Why Third-Party Manufacturing is Ideal for Startups

Startups and small-scale businesses prefer third-party manufacturing due to:

• Low capital requirement

• Quicker time-to-market

• Freedom to experiment with multiple products

• Flexibility in production volume

Bottom Line

Third-party manufacturing is not just a trend — it’s a proven business model that fosters growth, efficiency, and scalability. Whether you're a startup testing your first product line or an established brand looking to expand quickly without heavy infrastructure costs, collaborating with a reliable third-party manufacturing company can open many doors.

If you are looking for a professional and trusted partner in pharmaceutical or herbal product manufacturing, EthixElite Lifesciences Private Limited offers a robust infrastructure, end-to-end support, WHO-GMP certified facilities, and a team dedicated to quality and timely delivery. With a proven track record and a wide range of therapeutic segments, EthixElite Lifesciences is your ideal partner for third-party manufacturing success.