Contract Manufacturing Benefits
What Is Contract Manufacturing?
Contract manufacturing is the process of outsourcing production of a product, or a portion of a product, to an outside company or companies. Contract manufacturing does not necessarily mean sending work offshore as quality contract manufacturers exist worldwide. Effective contract manufacturing allows taking advantage of specialization: concentrating on and becoming an expert with a particular product or process.
What Are the Cost Benefits of Contract Manufacturing?
Several cost benefits are obvious:
- The outsourcing company avoids the need to lease/buy a facility, purchase tools and equipment, train a workforce and purchase additional insurance.
- A contract manufacturer likely also has existing relationships with raw material suppliers, purchasing economies-of-scale and more efficient processes as a result of experience producing similar products.
- Depending on location, a contract manufacturer may also have access to lower cost labor and restrictive regulation, all significant cost benefits.
Are There Quality Advantages?
The outsourcing company may lack the skills to develop or create a particular product or products, particularly if they are components or sub-assemblies of the final product. Contract manufacturing provides access to factories who possess specialized expertise, and whose very existence depends on quality production of the type of products the company lacks the expertise to build in-house. This allows the company to provide higher quality products to their customers.
What are the Time-to-Market or Scheduling Benefits?
Effective outsourcing provides faster time-to-market.Contract manufacturing allows the company to leverage factory expertise and experience, and many of the cost benefits described earlier also impact scheduling. Supplier relationships, process expertise and testing experience help advance the production schedule, as does the ability to expertly produce products at multiple facilities simultaneously.
Strategic Benefits of Contract Manufacturing
Companies that outsource free up their own resources to focus on core business and functions. With contract manufacturers managing the details, including procurement, scheduling, test, quality, etc., the company can focus on development, marketing and customer service. Contract manufacturing allows the company to strategically manage resources to attract new customers and strengthen customer relationships.
Selecting a reputable contract manufacturer with a proven track record and executing a fair, mutually beneficial agreement between all parties are essential to a successful outsourcing program. Executed correctly, outsource manufacturing benefits the manufacturer, the contract manufacturer, and most importantly, the end customer.