Contract manufacturing means you get all the benefits of a quality manufacturing facility without the costs of running and managing it. Contract manufacturing also lets you take advantage of locations for lower cost manufacturing and reduces management costs for your own business. With our contract manufacturing listings, you can find the best options for all your manufacturing needs today.
Contract manufacturing is a form of outsourcing, where a business will manufacture components or in some cases complete products to order for a third party. The hiring company will approach contract manufacturers with an idea or design, or in the case of materials, even a formula, and ask them to produce a set amount of material or number of components.
While a contract manufacturer may also do design work and even pre-production solutions, in its purest form, a contract manufacturer will include the labour, tooling, material and other production costs necessary to create the desired products at their own location. The contract manufacturer may also provide shipping to wherever the product or component is needed, but that is usually an additional cost, with hiring companies often sourcing their own logistics.
There are many reasons why a business would choose to use a contract manufacturer, both in terms of costs and practicality. Especially for start-up businesses, having a contract manufacturer creating your products dramatically reduces initial costs. You don't have to pay for building a factory, machinery or hiring staff, you just pay for the cost of the manufacture of your products. Because location is not so important, it also means companies can use cheaper options for manufacturing that allow them to keep products at lower price points compared to in-house options too.
The short answer is that you can be a manufacturer without having the expense of owning a factory. It's like having caterers in for your next party. You get all the benefits of professional production, without having to know anything about the cooking process, hire staff and all the rest. You just say what you want and that is what you get.
Some say that the main advantage of contract manufacturing is that it streamlines production, and this, in turn, leads to cost savings and fewer headaches. However, while this is true, it does underplay the opportunities that contract manufacturing brings, and the advantages of not having to develop a production line from scratch really means.
Like everything today, manufacturing is heavily tech assisted, with manufacturing equipment being extremely expensive for even relatively simple production lines. But a contract manufacturer allows you to not only avoid that investment, but the training, and complex systems needed to deliver the extensive management oversight required for maximum efficiency.
Contract manufacturing is when a business outsources certain manufacturing requirements to another. It is often used by major companies requiring the mass production of goods that find it more financially viable to outsource the manufacturing. This could be because they already have the facilities that the hiring company doesn't have in house, it could be because the contractor's location makes it cheaper for them to produce the products, or it could be a combination of the two.
For some businesses, it may even be that they simply do not have the skills, equipment or knowledge in house to manufacture these products or components, and in this case setting up a new production facility and hiring staff would be significantly more expensive. Practicality comes into it too, even for businesses that have the resources to develop in-house production solutions, it may simply be easier to get someone else to do it. If you have a relatively small property, it may be impossible to expand it enough for a new production unit, or legislation may make it extremely complex to launch such a facility locally.
In those situations, contracting to a specialist in another location not only makes sense, but is both faster and easier for the project.
Nothing is perfect, and like any other business process contract manufacturing involves a level of compromise for the hiring company, with the following disadvantages of Contract Manufacturing:
Difficult to Find a High-Quality Provider. As with any business deal, without proper research, you could end up outsourcing to the wrong company.
Your Readiness to Outsource.
Loss of Control.
Intellectual Property Risks.
You know when you go to a new restaurant, you never really know what you are going to get. What will the service be like, will the food be good, these are all questions you have. You can look at reviews, but nothing really prepares you for when you take your seat the first time. That's like contract manufacturing. This is especially true if you are dealing with manufacturers who are separated not just by distance, but language and culture too.
There are great contract manufacturers everywhere, but it takes a lot of time and effort to find them, so be prepared to do that work before choosing your contract manufacturing partner. Handing over part of your business to them can be difficult, you are used to controlling everything and suddenly one of the most important things of all, manufacturer of the things you sell is not only being done by people you may have only met once or twice, and sometimes not at all, but it's happening thousands of miles away completely out of sight. Some have difficulty with this, others see it as part of business today.
We talked about distance, culture and language gaps, and this can be a real stumbling block. Creating effective communications that solve language and cultural differences is an essential part of the contracting process. Having designs stolen and misused is always an issue that anyone creating anything of value should take interest in. There is no option for hiding product information with contract manufacturing, so it really is a question of finding the right partner.
To calculate total manufacturing cost you add together three different cost categories: the costs of direct materials, direct labour and manufacturing overheads. Expressed as a formula, that's:
Total manufacturing cost = Direct materials + Direct labour + Manufacturing overheads.
Because every manufacturing project is different though, your precise costs will depend on the product itself, the volume you want and the materials it uses. Shipping can be handled by the manufacturer or yourself, but is an essential cost whoever manages it and should be remembered too. You should always seek quotations from several contract manufacturers for any project to get a good idea of the kind of costs involved.