Contract Manufacturing: Definition, Importance, and Benefits
At its core, contract manufacturing involves a partnership between a company and a third-party manufacturer. The manufacturing partner produces goods based on the specifications and requirements provided by the company. This process is particularly beneficial for businesses seeking to scale production without investing in additional facilities, equipment, or labor. By delegating manufacturing responsibilities, businesses can maintain high-quality output without overextending their resources.
Why Choose Contract Manufacturing?
The reasons for why a company chooses to turn to a contract manufacturing can be numerous and they can relate to the availability of manufacturing resources or technologies, availability of production space, the expertise available from both partners, financial reasons and many more. Contract manufacturers often provide the customer with their full expertise on how to manufacture a product, as well as providing the necessary technologies and facilities for the process.
Imagine that your business is already pretty established, your existing products are selling well and you have innovative new ideas to complement your product portfolio. You want to extend your product line with a new product that is more complex due to customer needs. The sales forecasts are looking well above the products you sell at the moment. Ramping up a new production line for this product is definitely necessary to reach all of your goals, and you want to get to work already. If you’re thinking of the best way to get your production rolling, keep reading!
The product is awesome, you know how to design it, you have the strategy and the marketing campaigns are ready to roll. The financial forecasts are in, and the demand within the target market should go over the roof if everything goes well. Then you get the price for the equipment needed for the production, and it makes your hands sweat, just a little bit. So, what to do next? You know that the price tag on the machinery and all of the necessary equipment is just too much to get started with. Or if you’re starting your new business, it would be your first big acquisition and you don’t necessarily have the knowledge on how to optimise the process to be able to reach your financial goals on costs.
In case of something like this, it might be wiser to look for a manufacturing partner. A contract manufacturer, who is more than happy to manufacture your product from start to until it arrives to your loading dock. In most cases, the contract manufacturer already possesses the necessary expertise and equipment to take good care of your manufacturing. Let’s see how a good contract manufacturer might be helpful.
Access to Expertise and Advanced Technology
You have the product design ready. But what if there is something that could be designed a little bit better considering the manufacturability of the product? When you find a good contract manufacturer with extensive knowledge of product design, they will be able to tell you exactly what that something might be, as well as how to improve the design. Finding a contract manufacturer who knows their way around automation solutions can help you improve the product. In addition the contract manufacturer is probably able to offer you alternative technologies considering the manufacturability. Even material choices might be a big factor in reaching the ultimate goal of having a smart, profitable product with good manufacturability features.
Second of all, the forecasts look very nice considering the product volumes. Again, well done on creating a product that has a clear target market and enough demand to make a plus sign on your financial statement. You did the math, and you would definitely need more production capacity on top of what you’re running with now. But again, when negotiating with the possible contract manufacturer, they made it very clear that your production can be running day and night, and your volumes are very doable, and they can be even increased in case if it’s necessary. The raw materials flow through their efficient procurement channels, and your production can be scaled up as much as you need.
In addition to the already existing production means, the contract manufacturer has a good reputation of producing high quality products with on-time deliveries. If you’re lucky, they will also be located conveniently related to your headquarters. This made you think about the carbon footprint of your product, and how you could reduce that. Or at least we hope you thought about that! Strategic location is an important aspect to think about.
What does contract manufacturing include?
It’s up to you! Most small- to medium-sized contract manufacturers rely on their flexibility. You can choose what services you want to have. Naturally, the contract manufacturer might want to offer you the most extensive service that they possibly can. Sometimes that makes sense to both of you, sometimes not. The biggest contract manufacturers on the other hand tend to be less flexible about contractual matters and what you will have to commit to.
Some articles that examine the advantages and disadvantages of contract manufacturing quite often mention a certain loss of control over your product as a disadvantage. We wanted to make note of this, because for us this sounded quite negative and actually quite the contrary to reality. At Ouneva Group, the wishes and requirements of our customers are the base for any production. Any demands for the product or the production are taken into account before driving up the production, and ensuring good communication ensures flexibility if needs for changes should arise.
In practice what contract manufacturing includes, is the manufacturing of products and additional services for manufacturing. What you get included within the manufacturing depends on the partner you choose and your needs. Some contract manufacturers prefer to just manufacture, others provide extra services including R&D, testing, logistics and other supporting functions. Ouneva Group offers all the services according to the needs of our customers. Something to keep in mind as well is that some contract manufacturers, especially the bigger ones, will have to consider the amount of yearly revenue they can create with your contract. Small sales might not be interesting for them, so bear this in mind and pay attention to your production needs and have a two-way conversation with the contract manufacturer about your goals!
One of the big advantages in using a contract manufacturing are the possibilities for product or process development. We discuss these benefits more in depth in another article, Streamlining your supply chain. But we really wanted to emphasise this point, because in the end, the best ideas usually come out when a group of experts in their fields put their heads together with clear communication and teamwork. In the best-case scenario, when you find a good contract manufacturer, they will be ready to collaborate with you on your product development needs and desires.
Choosing the Right Contract Manufacturing Partner
Every company claims to be the best, but finding the right contract manufacturing partner for your business requires thorough research and careful consideration. Start by analyzing your manufacturing needs in detail. Ask yourself: What is your core business? What is your vision for your product and company? Are there additional services you might need, such as assembly, testing, or logistics?
Once you’ve defined your requirements, leverage your network, read about the latest technologies, and ask for recommendations to identify potential partners. Consider whether your product has specific needs, like customizations or complex assembly, and evaluate whether the manufacturer can handle these aspects.
It’s also essential to factor in industry-specific requirements, such as environmental standards, quality assurance, and regulatory compliance. Look for a manufacturer that not only understands these demands but also aligns with your values and goals. A strong partnership is built on mutual understanding and shared standards, ensuring the success of your production process.
We listed some good tips from our procurement professionals in the article about streamlining your supply chain here. Here are some of them:
-ask for recommendations from your network
-find out about the candidates’ certifications and technological expertise
-check that the contract manufacturer is financially sound, as well as reliable with contractual matters
-make sure you have good communication with the contract manufacturer from the beginning
-find a contract manufacturer that has a clear ESG strategy and smart sustainability goals
-ensure that the contract manufacturer has an established and competitive logistics network
– try to find a contract manufacturer that matches your procurement strategy
Once you’ve evaluated your needs and conducted thorough research, selecting the right contract manufacturing partner is critical to achieving success. Businesses should evaluate potential partners based on their industry expertise, production capacity, quality assurance processes, and reputation. It’s also important to establish clear communication and alignment on production goals to ensure a seamless collaboration. A reliable partner can help businesses achieve their objectives and maintain a competitive edge in the market.
What happens after finding that perfect match?
Going through the process of finding a contract manufacturing partner might be a lengthy one. But let’s imagine that you have the contract signed after a successful period of conversation, and after a few prototypes, it’s finally time to start the actual production.
Depending on the contract manufacturer, you will probably be involved in the process of ramping up the production. In the beginning, you might have daily or weekly communication about how everything is going and production batches will be quality controlled carefully to determine whether the current process is well optimised. The contract manufacturer takes care of all of the practical matters related to the production.
A good thing to know about production optimisation, and a little something that we mentioned in our article about streamlining your supply chain: when you’re collaborating with a contract manufacturer that is able to provide multiple production technologies under the same roof, the product lead time from design to the market will be considerably shorter compared to you doing it all by yourself. Finding that perfect partner who has the expertise in testing, automation and optimising your production will make your production management much more straightforward.
Good collaboration between you and your contract manufacturer is best described as smooth! The communication might be quite frequent when you’re ramping up the production with your contract manufacturer. Normally quarterly or yearly meetings are a regular part of the communication. Keeping you up to date about your production is usually the responsibility of an account manager in the manufacturing company. If you are interested in how account management looks like at Ouneva Group, we wrote an article about one of our longest customer collaborations. The article describes the role of an account manager through more than a decade of experience. You can take a look at the article by clicking here.
After your production is running, then what? Well, that’s the point of contract manufacturing. Then you focus on your sales, marketing and other functions such as R&D and innovation! The biggest advantage with a contract manufacturer is that you save tons of time to be spent on other operations. Being on top of things related to your production is surely a daily or a weekly task, but otherwise, you can sit back and focus on your core expertise and tasks.
How Ouneva Group Supports Your Business Needs
At Ouneva Group, we specialize in delivering high-quality contract manufacturing solutions tailored to meet the unique needs of our clients. With decades of experience, cutting-edge technology, and a commitment to excellence, we ensure that your products are manufactured with precision and efficiency. Contact us today to learn how we can support your business with efficient and reliable manufacturing services.