How does contract manufacturing work? Is it the best for you?
The idea of contract manufacturing has been around for a very long time. It forms a part of outsourcing, but it’s quite specific. Let’s take a look at how contract manufacturing works.
So what is contract manufacturing?
Contract manufacturing is when a small company employs another company to create their products.(1) The small company usually provides a design (or formula) for the manufacturers to produce.(1) This sometimes means the manufacturers improve the products.
Using contract manufacturers is useful for trialling a new product or releasing a limited edition one.(2) This is because the original company don’t have to create a whole manufacturing line for a few products.(2)
The contract manufacturer
Outsourcing production to another company is a complicated and sometimes fraught process. Because of this, it’s important to do your research and think about what you want from the company. Finding the right fit can make all the difference.(3)
Take the time to find the right one. It can help you to establish a long-lasting working relationship with the right contract manufacturer.(4)
Seize the opportunity to interview lots of different options. Make sure that you understand their capabilities, and they understand yours. Check the manufacturer’s experience level and evaluate their staff’s competencies.(4)
- Highly reputable in the marketplace
- A clean, well-managed facility
- ISO-certified manufacturing quality standards
- Ability to keep up with production demand
- Experienced in maintaining communication
- Positive cash flow
A reliable contract manufacturer will take the mystery and uncertainty out of the process.(6)
Benefits of contract manufacturing
There are many benefits to using contract manufacturing in the creation of your products.
- Cost savings
- Quality control
- Increased production
- Saving time
Arguably the biggest cost benefit is not having to build a production facility.(1) This is particularly true with new businesses, or ones that do not have a lot of space.
The time between design and a product on the market will be decreased.(2) This is because it’s not spent on building, or on training new staff.
Using a bigger company often means that the quality of the products is likely to be higher. This is due to the fact that they’ll already have all their qualifications and systems in place. It’s likely that the manufacturer will be able to create more products quicker as well.
Contract manufacturing also lets people at the hiring firm continue their own jobs. Often this will be marketing and sales.(1)
Are there any risks?
Unfortunately there are some risks involved in outsourcing the creation of a product.
One risk is that the client has very little control over the manufacturing of the product. Once the information has been sent over to the manufacturer, the client doesn’t have a say in the process until the final stage.(3)
However, the contract manufacturer usually has little say in the product’s design. This may be a problem because it might include something that the company cannot achieve.(3)
In certain cases, there may be some human rights concerns. Some CMs, particularly overseas in developing countries, do not give their workers fair wages or appropriate working conditions. You'll want to make sure you're working with a company that values its employees and treats them fairly in every stage of the production chain.(5)
All in all, the process incurs the risk of hiring the wrong contractor.(3)
What’s the process like?
The process of manufacturing can change, based on the choices of the hiring company. There are different services available, depending on how much help is wanted or needed.(6)
The main different services are:
- Product Design
Some contract manufacturers are involved at the very start of the process. They help in design, and build prototypes that they test before the product is manufactured.(6)
Other companies only deal with manufacturing, so when working with them, you’ll need a finalised design before you begin.
Here’s a breakdown of the main different services:(6)
Product Design1) Sign a contract or service level agreement (SLA) - this should include a section about intellectual property rights.
2) A meeting with designers/engineers to complete and brush up the product design.
3) The engineers will create prototypes and test them until you’re satisfied.
4) The engineers keep a model of the prototype.
5) Start the discussion around expectations for manufacturing with the manufacturer.
Manufacturing1) Agree on and sign a manufacturing SLA (if it didn’t come under the SLA for the design). This means info about time, cost, and volume.
2) The manufacturer will produce tools and molds etc that can be used in a short (test) manufacturing run.
3) The manufacturer will then run the test batch, to check the quality.
4) Then the final products (or components) are created. Each batch will undergo quality control testing.
Assembly1) The manufacturer only assembles the product and tests its performance.
2) Manufacturer packages up the end product and prepares shipping labels to destination.
3) You (or sometimes the manufacturer) will send the products off to their final destination, and track the progress of each shipment.
4) The manufacturer gives every document to you. This will include models and prototypes.
5) The manufacturer might retain a copy of the most important documents, tools and molds. This is so the process will be quick if you use them to manufacture again.
End to end
With the end-to-end process, a contract manufacturer will do all the steps above for you. It’s up to them where they start and finish in the design-to-production process, but the decision will be dependent on what you need.(6)
That was a lot of information to take in, so let’s just go over the most important points.
Contract manufacturing is a part of outsourcing. You employ another company to manufacture your product. This may be because you don’t have the space for a manufacturing plant, or enough time or people to make the process feasible.
There’s a number of different services that contract manufacturers offer, and they can be involved at any part of the process. These services include; product design (and manufacturing), manufacturing, assembly, and end-to-end (full involvement). They all have their strengths and weaknesses, so make sure to look at what would work for you.
It’s important to choose the right manufacturer for you. If it goes well, you may be able to create a long-lasting business relationship.
There are some risks involved in contract manufacturing. But if you’re careful and take some precautions, there’s no reason not to use a contract manufacturer.
All in all, contract manufacturing can be a very cost and time effective way to get your product launched. It’s definitely worth considering!