Turnkey vs. Directed Buy: Who Should Source What in Beauty Product Development?

Turnkey? Turkey?

For some reason, turnkey might be one of the most frequently misspelled words I have seen in contract manufacturing.

But what does it actually mean?

The simplest way I can explain it is:

You pay someone else to take care of almost everything for you.

As we discussed in our article, How Does a Beauty Product Actually Get Made? A Practical Guide to the NPD Process, developing a beauty product involves a lot more than creating a formula.

There is formulation, packaging, fragrance, testing, regulatory review, raw material sourcing, manufacturing, scale-up, logistics, project management...and probably a few more things you did not realize you needed until someone asks for them.

If you already know how to formulate, great.

If you have connections in packaging, fantastic.

If your best friend happens to work at a fragrance house or testing laboratory, even better.

But most first-time entrepreneurs do not have all of those resources.

Many do not have any of them.

And that is completely normal.

What Is Turnkey?

With a turnkey project, your contract manufacturer, product development company, or another development partner helps manage most, or sometimes nearly all, of the commercialization process for you.

Depending on the provider, that can include:

• Product brief development

• Formulation

• Raw material sourcing

• Fragrance development

• Packaging sourcing

• Testing

• Regulatory support

• Scale-up and manufacturing

• Filling and assembly

• Finished goods logistics

Essentially, you explain what you want to build, and your development partner helps assemble the pieces.

Sounds convenient, right?

It is.

And naturally, that convenience comes with a cost.

You are paying someone to source suppliers, manage communication, coordinate timelines, solve problems, process purchase orders, and generally make your life easier.

I would not really call that a “catch.” You are receiving an additional service and paying for it fairly.

But there is another cost that is much less obvious:

Control.

Convenience vs. Control

When you work directly with a packaging supplier, fragrance house, formulator, or other specialist, you have direct access to the person actually doing the work.

That matters.

You can explain exactly what you want.

You can respond to questions immediately.

You can hear their suggestions firsthand.

And perhaps most importantly, some of your enthusiasm, priorities, and little details that are difficult to write into a product brief can come through in the conversation.

When another party sits between you and the developer, communication can sometimes turn into a game of telephone.

You tell the project manager.

The project manager tells the supplier.

The supplier asks a question.

The question comes back to the project manager.

Then back to you.

Then your answer travels in the opposite direction.

Eventually, everyone gets there, but it can take longer, and occasionally something gets lost along the way.

You may also lose the opportunity to build a relationship with that supplier directly. That packaging engineer, fragrance evaluator, or development chemist could become an extremely valuable connection for your next product.

If the only reason you are avoiding direct supplier relationships is because you feel inexperienced, don't be too intimidated.

These suppliers work with first-time founders and inexperienced brands all the time. Many good ones are surprisingly patient and genuinely enjoy educating customers.

You do not have to pretend you know everything.

Just ask good questions.

So What Is a Directed Buy?

Now, let's say you do want to select something yourself.

Maybe you found the perfect bottle.

Or you worked directly with a fragrance house and developed a proprietary fragrance.

But you would still prefer your contract manufacturer to purchase it and manage the inventory.

That is where a directed buy can come in.

The terminology can vary by manufacturer, but the basic concept is simple:

You select or designate the supplier and item, and your contract manufacturer purchases it for your project.

You essentially tell the CM:

This is the component I want. This is the supplier. Please buy it for my production.

The manufacturer may add procurement, handling, administrative, or other applicable costs, but you maintain more control over the supplier and specification without having to personally manage every purchase order and shipment.

For many brands, this can be a very nice middle ground between full turnkey and supplying everything themselves.

What About Customer-Supplied Materials?

There is another option.

You purchase the packaging, fragrance, ingredient, or other component yourself and ship it to the contract manufacturer.

This is generally referred to as customer supplied or something similar, depending on the manufacturer's terminology.

Personally, this is the option I would be most cautious about unless there is a good reason for it.

Why?

Because you are not just buying the item once.

You may now be responsible for:

• Forecasting future demand

• Reordering

• Inventory management

• Warehousing

• Freight

• Lead times

• Supplier communication

• Shortages and overages

• Shipping materials to your manufacturer for every production

That is a lot of additional work just to save a few cents per unit.

There can also be administrative complications for the manufacturer.

Customer-owned inventory and manufacturer-owned inventory may need to be tracked differently. Depending on the company's ERP and accounting procedures, the same physical component may even require different item codes or purchasing workflows depending on who owns it.

And if you supply the first production yourself but later ask the manufacturer to purchase the same component, the process may not be quite as seamless as simply changing one field in the system.

Every manufacturer handles this differently, but it is worth asking the question upfront.

When Does Customer-Supplied Make Sense?

There are still situations where supplying materials yourself can make sense.

One is when your contract manufacturer simply will not, or cannot, approve your preferred supplier.

Another is when you can obtain a meaningful cost advantage by purchasing a much larger volume yourself and storing it.

For example, your packaging supplier may offer substantially better pricing at 50,000 pieces, while your manufacturer is producing only 10,000 units at a time.

If you have the cash flow, warehouse space, and inventory discipline to manage the remaining components, purchasing them yourself may make financial sense.

Another scenario is when the same component is being used at multiple contract manufacturers.

Rather than having each CM purchase smaller quantities independently, you may be able to place one large order, obtain better volume pricing, and distribute the components among several manufacturing locations.

And before taking ownership of all that inventory yourself, ask the supplier what they can do.

Some vendors may be willing to accept one larger purchase order but split the inventory into multiple shipments or destinations.

That can potentially give you the volume advantage without turning your office into a packaging warehouse.

So Which Option Is Best?

I don't think there is a universal winner between turnkey and directed buy.

It really depends on two things:

Expertise and bandwidth.

If you have a knowledgeable team with established supplier relationships, you may want more direct control.

If you are a first-time founder with no industry network and already have ten other things competing for your attention, paying someone to manage more of the process may be money very well spent.

And many projects do not have to be completely one or the other.

You might use turnkey formulation and testing while selecting your own packaging.

Or work directly with a fragrance house but let your CM purchase the fragrance.

Or develop several key elements yourself and ask a product development consultant to fill the gaps.

The goal is not to maximize how much you do yourself.

The goal is to decide which parts actually benefit from your involvement and which parts are better delegated.

That is an important distinction.

Build the Right Team for Your Project

Beauty product development already has enough moving pieces.

You do not get extra points for making it harder than it needs to be.

If you have the experience, relationships, and time to manage parts of the process directly, take advantage of them.

If you do not, there is nothing wrong with relying on experts.

That is exactly why turnkey services exist.

At Peachtree Beauty, we can help manage the entire development process or step in only where you need additional support.

Need turnkey development? We can help.

Already have your formula but need packaging and manufacturing support? We can help with that too.

Not even sure which pieces you need yet?

That's okay.

Tell us where you are, and we'll help you figure out what comes next.

Ready to start a project? Contact us. We'll be waiting for you.