Looking for contract manufacturing?

When it comes to manufacturing there are two ways of doing it:

1. Roll up your sleeves and do it yourself.
2. Find someone who knows how to do it well and have them do it for you.

The first option is empowering. You have complete control over the process, quality, and the ultimate outcome. In the same way, you can run around your house fixing any problems that arise with some elbow grease and a tool belt. You would have complete control to make repairs how you want.

Except manufacturing isn’t all that simple. And instead of elbow grease, you will need an army of elbow greasers with an immense level of expertise. Not only that, but you will also need to buy a house (manufacturing plant) and very expensive machinery to get the work done. 

This is a big undertaking. Especially for businesses that focus on scaling their business through sales and marketing. That is why working with a contract manufacturer is SO valuable! A contract manufacturer gives you access to valuable resources at a fraction of the cost.

After reading this article you will understand what a contract manufacturer is and what a partnership includes. Finally, we’ll show you how to select one that fits your needs.

 

What is Contract Manufacturing?

Contract manufacturing is the process of outsourcing your production requirements to a facility that is better equipped to fulfill them.  In other words, a manufacturer is hired to make products or do other labor for the hiring company. In most cases, the manufacturer produces a set amount of products within a given period of time. 

 

How does contract manufacturing work?

 First, the contract manufacturer approves all the job requirements. Then it will perform the job based on the contractual agreement.  This includes approving the design, material, processes, shipping requirements, and more.

The contract manufacturer does not own any intellectual properties that it is producing. No, the hiring company owns most, if not all the IP. This includes drawings, processes, work instructions, packaging, and more. In fact, many contract manufacturers make products EXACTLY to their customers’ specifications. These are build-to-print services. There are also build-to-spec services, but that won’t be covered in this writing.

The contractual agreement can extend for a long period of time. This gives the hiring company the ability to order products on demand from the manufacturer. To receive more products, the company places an order and specifies a date they need it delivered by. The contract manufacturer then pulls together the necessary materials and starts producing parts. Once good products are available, quality will inspect the parts and send samples. Once approved, production can continue until the order is complete. This process repeats until the agreement is either completed or terminated.

Learn more about the resources you need to pull together before starting production.

 

What types of contract manufacturers exist?

There are many niches that leverage the services of a contract manufacturer.  As a rule of thumb, most contract manufacturers are exporters or converters of raw materials, machinists, or assemblers. For example, we are a plastic injection molding company. We convert raw plastic material to produce plastic components. These are used in applications for medical devices, automotive, and mission-critical operations. Our specialty is in plastic materials and processing. And we also offer machining, assembly, and other services as secondary ops.

For a better overview, check out this list of contract manufacturing examples:

• Raw materials processor (rubber, plastic, steel)
• Die casting/ mold building
• Machining (CNC, milling, grinding)
• Stamping
• Foundry model (for semiconductors and electronics)

 

Why is contract manufacturing important?

Contract manufacturing is important because it provides the ability to perform full-scale production that would otherwise be impossible without capital-intensive investments. 

Manufacturing requires expertise, a skilled labor force, accessible resources, quality control, supply-chain management, and more. Even then manufacturers themselves can’t produce everything they need. With a contract manufacturer, a company has access to the necessary resources that would be otherwise near impossible to get. With access to these resources, they can focus their strengths on their customers’ needs.

 

What Work does Contract Manufacturing Include?

First, you need to pinpoint what work you’re hiring for. For example, if you’re hiring a sub-component manufacturer then the scope of work will be different than an assembler. But, if you hire a comprehensive manufacturer you will have more options to choose from.

Generally, there are a few important assets included in working with contract manufacturers. These assets are the main selling points for why you need a manufacturing partner:

Facility and Equipment

The facility and equipment cost is a huge factor in outsourcing decisions. With contract manufacturing, you are essentially leasing the space and equipment owned by them. This is less expensive and causes much fewer headaches.

Labor

We are talking about two kinds of labor forces: skilled and unskilled labor.

Unskilled labor– This labor force includes machine operators, assemblers, heavy-lifters, and others. They are often underappreciated, but super valuable members of the team. These people handle raw materials, finished goods, and make sure your products are taken care of. Ultimately these workers aren’t expensive but are an essential part of the puzzle.

Skilled labor– Skilled labor refers to those who deploy knowledge, expertise, or a rare and valuable skill in their work. This includes engineers, processors, machinists, material experts, and more. These workers are fewer in numbers but contribute more value. Additionally, these experts are more difficult to find the more specialized they are. This makes it harder to bring their expertise in-house for your own processes. But, they work for manufacturers in their respective vertices. Which makes them accessible as part of the partnership.

Sub-components

While some companies are makers of one-piece products, others make multi-part assemblies. These multiple parts, or sub-components, are a part of a large device as a whole. Many companies will contract a manufacturer to produce these sub-components so that they don’t have to produce every part in-house. They will even ask to produce multiple parts, assemble them, and ship them as a finished good. 

Full-Scale Production

This allows businesses to contract out many production activities down the supply chain. For instance, in the automotive industry, there are three-tiers of suppliers:

Original Equipment Manufacturer (OEM) – An OEM is the label company that is often designing, marketing, and selling the car. These manufacturers make some original parts but engage more in ordering parts and assembling the final car. They order parts from their 3-tier suppliers.

Tier 1– Tier 1 suppliers are the direct suppliers to the OEM. This tier of companies works with multiple car manufacturers. But, they have some exclusivity with one or two OEMs. 

Tier 2– Tier 2 suppliers also make car parts in this example. Yet, these companies usually don’t sell directly to OEMs. Instead, Tier 2 suppliers sell to Tier 1 who then distributes that along their channels. Another difference is that Tier 2 suppliers are not industry-specific. In other words, while some do make automotive parts, they can also serve other industries. Tier 2 suppliers are experts in their niches and have a broader capacity for serving different markets.

Tier 3– Tier 3 suppliers are suppliers of raw materials, like plastic and metal. Each of the tiers above is dependent on this one. Because of this, Tier 3 has a great responsibility within the manufacturing supply chain.

To summarize this section, contract manufacturing can be distributed amongst the three theirs. In fact, this allows for greater supply-chain visibility and flexibility.

 

When Should I Start Considering Contract Manufacturing?

If you’re reading this right now and salivating at the idea of contract manufacturing, then you’re ready. If you’re not sure yet, then that’s fine too! Ultimately, you must look internally at your own capabilities to determine if it’s right for your business.

In our experience, companies who fit the bill for contract manufacturing:

• Have limited resources (equipment, labor, process, expertise)
• Are already stretched thin (limited bandwidth)
• Want to focus on their current strengths
• Have a complex supply-chain
• Have variable demand for their products

 

How do I choose a contract manufacturer?

There are many factors that go into choosing a contract manufacturer. 

The most important- find one that you trust will have your back and can do the job right. 

You can find hints about how a manufacturer conducts business with some thorough research. Most contract manufacturers have a way of conveying their capabilities for your specific needs. Others will have references, work history, or verified qualifications that prove they can meet those needs.

Here are the top 5 things we recommend taking a look at when comparing contract manufacturers:

1. Certifications:

Most manufacturers that are well established have ISO-certified quality management systems (QMS). If not, then the company would need further investigation or should be removed from your list. ISO certification from a third party demonstrates the manufacturer’s commitment to quality. Plus, some certifications cover industry-specific requirements that need to be met. This should give you more confidence in their ability and results.

2. Examples/ history of working in your industry

The point of contract manufacturing is to relieve your business of extra work, not add more. Thus, a manufacturer with experience in your industry can help you solve problems and speak your language. Without this quality, you will spend more time asking questions than solving problems. Look for one that has experience within your industry, or has similar capabilities.

3. Excellent Referrals

Manufacturing is a business that thrives on referrals. If someone had a great experience working with a contract manufacturer, then they’ll tell you. 

If not, they will also tell you.

Most companies keep supplier scorecards that show performance over time for that manufacturer. Other sources include reviews, verified partner badges, group affiliations, and similar third-party verifications.

4. Good labor practices

This one is harder to test but is a crucial piece of the puzzle. You will find that some manufacturers aren’t transparent about their labor. This could be a sign of trouble. A poor work environment affects the quality of their work, aka your product. And if they don’t treat workers well, how do you think they treat customers? I’ll let that go unanswered.

5. Supply-chain network

As I’ve stated a few times, the supply chain is crucial. You want a partner with a steady network of suppliers who can activate when needed. Long lead times, late deliveries, defect parts are all things you want to avoid right? These hiccups cost your business money, so avoid them with a well-tied supply chain partner.

 

What Are the Benefits of Contract Manufacturing?

When working with contract manufacturers, you are reaping a ton of benefits. But, those benefits don’t come without some risks as well. Here we will break down some positives and negatives when outsourcing your manufacturing.

 

Advantages of contract manufacturing:

• Cost savings
• Scalable production
• Flexible manufacturing solutions
• Increased Quality
• Repeatable outcomes

 

Disadvantages of contract manufacturing:

NONE… Just kidding, there are a few:

• Stolen intellectual properties (IP)
• Bad fit for service
• Unreliable and potential for poor customer service
• Less control over the outcomes
• Disagreements over terms, partnerships, etc…

 

Final Notes

In summary, contract manufacturing is a great service that can help your business scale. For businesses that lack manufacturing resources, I would highly recommend finding a contract manufacturer to work with. Finally, if you have any questions about the process or you would like to learn more about our service then give us a call!