What Companies Use Contract Manufacturing?
What companies use contract manufacturing? Is it just limited to auto parts manufacturing and a few other industries?
We get these questions all the time. The answer is that all industries use contract manufacturing in some way. Some of the most common examples are: Parts that require large capital investment in equipment, such as metal or machining equipment. Parts that require specific manufacturing skills, such as assembling printed circuit boards.
Some companies even have complete products that are manufactured by a contract manufacturer. Fror example:
Giants like Apple or General Motors
Companies with smaller volume products, such as medical device manufacturers
We can think of four reasons to turn to contract manufacturing.
1. Minimize Capital Investment And Risk
Building a factory or even simply retrofitting a production line requires a significant capital investment, as well as many other resources. In addition to capital, these resources are needed:
- Construction management
- Manufacturing engineering
- Financial analysis resources
- Project management
In addition to the above resources, the project will be time consuming. Investing a lot of resources can make sense for products that are already well established and have relatively low risk. For the less established products, the more speculative products, contract manufacturing makes a lot of sense.
2. Certainty Of Costs And Terms
Even if your company has a lot of capital to build a factory, the cost of the final product is still uncertain. If there are cost overruns during construction, or the labor costs are higher than anticipated, that will increase the cost of the product. Production timelines are also at risk with any new project.
There are aome factors negatively affect the production timessuch as:
- Construction delays
- Delays in logistics and installation of the manufacturing equipment
- Hiring and training of new employees
If you want to know exactly how much your product will cost and when it will be delivered, hire a contract manufacturer with proven experience. It will take care of the calculations for you and provide you with costs and delivery times in the contract. It's that easy, just as it should be.
Running your own factory requires a commitment of capital and human resources. Once these commitments are made, it is very difficult to make changes. These may include:
- Production processes
- Manufacturing technologies
- The tools
- Raw material suppliers
- Manufacturing locations
No company wants to suffer the headaches of making changes in a factory, especially when you could dedicate your time and energy to the main part of your business, for example sales. When you hire a manufacturer, you don't have to worry about any of the internal changes they make (unless they directly affect your parts). It is the responsibility of the manufacturer to maintain its part of the agreement with you. That means your internal problems are irrelevant to you as long as:
- You receive your parts on time
- Parts meet your standards
In addition, you are free to change manufacturers or move production to another country. Many companies audit their manufacturers at the end of their contract . If a contract manufacturer does not meet your requiremnts and standards, you can go for another manufacturer. But if you had your own factory, you couldn't just change manufacturers. He would have to stay with the factory and its problems.
Flexible Production Volumes
Contract manufacturing also offers flexible production volumes. There is no point in having your own factory if your parts don't need full-time production. If you need a small volume of parts, say every 2 weeks, there is no point in investing in a factory, equipment, and labor.
Many contract manufacturers, especially overseas, only ship large minimum orders. They have several reasons for this:
- They have to fill entire containers to ship them to you
- They need to move their inventory of raw materials and / or subcomponents
- They lack an existing production process for the similar part.
- This article has more information on the points mentioned above.
The good news is that some contract manufacturers, especially those near you, may offer you much smaller production runs. If you want to order small, look for a contract manufacturer that:
- You can send your order by truck, rail or plane
- Have low production costs and can pass the savings on to you
- Have low installation costs
- Can provide you with an accurate minimum order figure without much communication
4. Experience And Expertise
There is a popular saying that goes, "Do what your company does best and outsource the rest."
Manufacturing is not your company's strong suit? So it makes sense to outsource it to an experienced manufacturer. We have already discussed that opening your own factory costs an arm and a leg. Even if he had more money than Jeff Bezos, his state-of-the-art factory would not be an immediate success. A manufacturing company needs time to resolve initial difficulties before it can become as good and as optimized as an established manufacturer as it will affect the results of quality of your products.
You should opt for a quality contract manufacturer that:
- Have experience in manufacturing your product or a similar product
- Can start production quickly
- Produce quality products
- Employ skilled workers
- Have quality industry certifications
Rather than reinventing the wheel, most companies would do much better hiring an established and experienced manufacturer.