Understanding Contract Manufacturing
A business unit with a proficient design but lacking in key manufacturing skills or bandwidth to handle large consignments might seek to enter into contract with a manufacturer that is skilled at the manufacturing process. A manufacturer may outsource one or more tasks of the production process to a third party. From designing to the end product, any scaled-down process that is outsourced would be bound by Contract Manufacturing. In simple words, production of goods by one firm under the label/brand of other, mutually benefiting each other.
Process of a Contract
The company before getting into the contract sets up it’s requirement in terms of quality, quantity, delivery and also establishes guidelines or even inspection. They state their requirements and then select a manufacturer based on the price quoted, that meets the requirements. At times, one manufacturer can provide most of the services like a Tooling and Die manufacturer would be well equipped to broach, grind, forge and even doing aluminium die cast which a gear manufacturer requires.
We at SolutionBuggy have facilitated industries to search and talk to such experts who have not only been able to implement design contract manufacturing for larger industries but also have a diligent follow up process which has helped industrialists to save costs and in turn improve productivity and efficiency and increase bandwidth to take up new orders.
To learn more about such initiatives, logon to www.solutionbuggy.com
Follow @SolutionBuggy
A business unit with a proficient design but lacking in key manufacturing skills or bandwidth to handle large consignments might seek to enter into contract with a manufacturer that is skilled at the manufacturing process. A manufacturer may outsource one or more tasks of the production process to a third party. From designing to the end product, any scaled-down process that is outsourced would be bound by Contract Manufacturing. In simple words, production of goods by one firm under the label/brand of other, mutually benefiting each other.
Process of a Contract
The company before getting into the contract sets up it’s requirement in terms of quality, quantity, delivery and also establishes guidelines or even inspection. They state their requirements and then select a manufacturer based on the price quoted, that meets the requirements. At times, one manufacturer can provide most of the services like a Tooling and Die manufacturer would be well equipped to broach, grind, forge and even doing aluminium die cast which a gear manufacturer requires.
Merits
1. It is cost effective to a business, enables
them to increase their production capacity, also acquire new orders which the business
would not be equipped to manufacture.
2. Decreased
labour cost-if the manufacturer belongs to a lower
labour cost region, then cost of production reduces drastically.
3. Operational
advantages, when the demand for product increases or if the
product has seasonal demand, the business can outsource production only for the
specific period resulting in cost saving.
4. Professional
expertise will amplify in production of flawless components
to improve the current product or to enhance quality and also reduce defective products.
Like a copacker/contract packager or even CNC machining companies that are
mostly used for the processing of complex components and their assembly.
5. Reduced
inventory costs, outsourcing the processes would
eliminate inventory space necessity. For example, manufactured parts can be
forwarded to a copacker/ contact packager, an expertise in packaging and
directly shipped to market.
6. Reduced
material costs, a manufacturer might produce the same
or similar products for various companies resulting in economies of scale due
to bulk purchase.
Challenges
1. Shipping,
outsourcing the manufacturer from a low labour cost region can involve shipping
costs or even damages to products whilst shipping which might not turn out to
be economical.
2. Risks,
distant location can cause a barrier in communication, day to day control or
quality control. Manufacturers having clients of similar field can cause issues
of having competitors as clients which might also result in losing commercial
or technical information.
3. Complexities,
having multiple CMs can make a business model inefficient and complex if one of
the CM fails to abide the delivery time. This would result in delay of the
entire production processes.
4. Loss
of intellectual property, giving away the core formula to a
CM can result in duplication of the products affecting the business.
We at SolutionBuggy have facilitated industries to search and talk to such experts who have not only been able to implement design contract manufacturing for larger industries but also have a diligent follow up process which has helped industrialists to save costs and in turn improve productivity and efficiency and increase bandwidth to take up new orders.
To learn more about such initiatives, logon to www.solutionbuggy.com
Follow us at
Follow @SolutionBuggy
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