How to Find a Suitable Contract Manufacturing Partner?

Bhagyashri Kambale | December 10, 2021 | 997 views
MANUFACTURING_PARTNER
The benefits of contract manufacturing are triggering manufacturers to utilize it as a strategy to speed up production and increase revenue. According to BCC Research, the worldwide contract manufacturing industry should increase from $2.0 trillion in 2018 to $2.7 trillion in 2023, a 6.7% CAGR.

Given the growing demand, contract manufacturing has a long way to go in innovating new solutions for manufacturers.

As technology takes over and enhances many of the processes we used to handle with manual labor, we are freed up to use our minds creatively, which leads to bigger and better leaps in innovation and productivity.

– Matt Mong, VP Market Innovation and Project Business Evangelist at Adeaca

Let us look at the benefits and concept of contract manufacturing, often known as manufacturing partners in some circles.

 

Contract Manufacturing: Concept and Benefits

 

Concept

Contract manufacturing is a business model in which a company agreeswith a contract manufacturer to make components or finished goods based on the hiring company's design. In short, it is a business model in which one company hires another company to manufacture components or goods for them or their products.


Benefits

The following are some of the primary advantages of contract manufacturing that attract manufacturers to adopt this concept and find a trusted supplier to manufacture any product or part of their product without much difficulty.

  • Cost Efficiency: In contract manufacturing, companies do not have to pay for the facility, equipment, or labor needed.
  • Resource Allocations: The money and resources saved through contract manufacturing can be redirected towards other company operations.
  • Faster Lead Times: Hiring a contract manufacturer reduces manufacturing time. This improves market speed, delivery time, and customer service.
  • Quality Control: Contract manufacturers are likely to have their own quality control processes in place, which allow them to spot counterfeit or damaged products early on.
  • Advanced Skill Sets: Companies can benefit from the skills they may not possess, but the contract manufacturer does.

 

Contract Manufacturing Examples

Here are some examples of contract manufacturing companies that offer manufacturing services to other businesses and work on full-service outside manufacturing projects.

 

Example 1: Kimball Electronics Group

Kimball Electronics Group provides a comprehensive range of electronics manufacturing services, including engineering, prototyping, testing, electronic data interchange (EDI), new product introduction, and repair depot services. Soldering, assembly, reflow, de-paneling, flux application, inspection, screen printing, testing, and rework are all processes used in their manufacturing.

 

Example 2: Scapa Healthcare

Scapa Healthcare, headquartered in Knoxville, Tennessee, provides contract manufacturing services for medical and cosmetic products. Their portfolio of products includes sunscreen, silicone medical adhesives, and innovative materials. Additionally, the organization provides development, packaging, and logistics services.

 

Things to Consider While Selecting a Contract Manufacturing (CM) Partner

You need to know how to identify the ideal contract manufacturer for your business to accelerate production and produce high-quality items. Below, we've listed some of the most important things to keep in mind while looking for an outsourced manufacturing partner for your company.

 

Competency

Understanding a contract manufacturer's (CM) capabilities in terms of logistics and fulfillment is critical. Is your potential CM able to meet shifting product demands? How to use the CM's services? You may need one or more services from CM for your product, so always examine their capabilities or develop a list of their services and see which ones are valuable for you.

 

Knowledge or Prerequisite

A qualified, experienced, subject matter expert CM always correctly understands the requirements and delivers the services as per expectations and within the time frame specified in your production schedule. Always inquire about their qualifications or certificates in the places where your product will be manufactured.

 

Compliance

Any contract manufacturing plan must have an agreement or compliance clause. Always inquire about the compliance procedure and thoroughly understand the terms and claws to avoid future issues.

 

Workforces

Verify your possible contract manufacturer's personnel count. Is it easy to talk to them? Is labor skilled enough to meet the product's goals? It is critical for large-scale production and production, requiring swift responses. Any work force shortage might cause production delays.

 

Gear & Expertise

Check for machines and equipment as well as human labor in your possible CM. Many CM lease equipment to complete a project. So always check how the CM will organize the essential equipment for your project. Expertise in using the equipment is also necessary. Verify which machines were used and whether or not professionals were involved.

 

Whereabouts

The CM's location is the main factor to check. Because the CM may have numerous plants, knowing which plant is assigned to your product is essential to knowing every aspect of its production. Also, the assembly location must allow you to visit and inspect the manufacturing between cycles.

 

Business Stability

Finding a reliable contract manufacturer with solid financial backing and market roots is essential to avoid market scams. However, you must also analyze and solve risk factors like equipment failure, supplier capacity, and unreasonable expectations.

 

Selection Myths of Contract Manufacturing Partner

Once you've produced a list of shortlisted contract manufacturing partners who meet all of the criteria described in the preceding heading, you can proceed by following the steps below to select the best contract manufacturing partner.

 

Look for Who is Willing to Invest in Your Business

Incorrect. The objective is to find a vendor prepared to manufacture at a loss. A contract manufacturer's strength is that they can stay competitive and make a profit for both parties.

 

Focus on Tier 1 CM Partners from the Market

This one is indeed not acceptable. Tier 1 is a financial phrase used to separate large corporations from smaller ones. You want a contract manufacturer who understands your business and your needs. Don't worry about the manufacturing partner's size.

 

Go Ahead with the One Who Offers the Best Services at the Lowest Price

Trying to get the cheapest quote isn't always the best idea. You should get a quote from your contract manufacturing partner, but the quote may not always reveal the complete story. Cost per unit frequently captures approximately 75% of total supply chain cost.  Some contract manufacturers charge the OEM the remaining 25%. Consider the complete picture while selecting a CM partner.

 

Final Words

Manufacturers use contract manufacturing to meet their commercial goals. Therefore, contract manufacturing is a win-win situation for both industrialists and contract manufacturers. Finding the proper contract manufacturing partner for your company is not straightforward, but our brief guide can help you identify the right manufacturing partner.

 

FAQ

 

What makes a good contract manufacturer?

The most significant contract manufacturing firms are more than just supply chain partners. They recognize and treat your items as if they were their own, are meticulous in their operations, and are concerned with quality and capital.

 

What differentiates contract manufacturing from outsourcing?

A contract is a legally binding arrangement. It involves two or more parties. For example, outsourcing is outsourcing some tasks to an outside organization under a contract agreed upon by both parties.

 

What's the difference between contract manufacturing and licensing?

Contract manufacturing only outsources production phases, while licensing is far more complex. In return for fees, a corporation sells the right to utilize its intellectual property to another company. Licenses are like franchises.

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