Manufacturing Contracts: Everything You Need to Know
Manufacturing contracts are a business agreement used when making products. and used when you're hiring a manufacturer to make a product you're ready to market.3 min read
Manufacturing contracts are a business agreement used when making products. They're used when you're hiring a manufacturer to make a product you're ready to market. In any industry, it can be hard for small companies to establish contracts with major manufacturers.
AVLs and ASLs
Manufacturers typically have an approved vendor list called an AVL or an approved Source list called an ASL. It's hard for small businesses to convince bigger businesses to give them a chance. It's a challenge to get on the AVL or ASL list for any specific big company because there are numerous vendors in competition for the same spot. The reason the competition is so stiff is that establishing a regular relationship with a big manufacturing company pays very well for the smaller company.
Big companies usually produce products in large quantities, so their suppliers have the advantage of receiving steady work which can simplify the task of managing human resources for the smaller company. Advantages of this nature compile and increase quickly when you're working with a big client, who is sometimes also called a hero client.
Opportunities to Advance as an Employer
When you're working with a big client and a bigger volume, you have the chance to offer steady work and more opportunities for your employees. This makes your business an increasingly competitive employer, and it makes it less likely that key people in your business will look for other job opportunities. It also makes it less likely than another business will be able to swoop in and make your employees a better offer than your company does.
Basically, it isn't necessarily easy, and a lot can be involved in getting a contract with a large manufacturer. It can be worth the effort, though, because it provides a steady source of work upon which you can build your business and make plans for your business after you've successfully gotten the manufacturing contract.
Aspects of Manufacturing Business Relationships
While the industry you're in creates a great deal of variation in this, some things that are typically part of a business relationship of this nature include:
- Specific details of your contract regarding the product your company is slated to produce.
- Industry certifications, such as International Organization for Standardization (ISO). ISO certifications include ISO 14001 for environmental management systems, ISO 13485 for manufacturers of medical devices and pharmaceuticals, ISO 50001 for energy management systems, and ISO 39001 for road traffic safety management systems.
- Scalability and flexibility need to integrate into your business model to ensure you can meet the demands of a large manufacturing contract.
Scalability can be extra challenging for small businesses because they don't always have the resources to meet the demand or the capacity needed to maintain relationships with big companies. Some kinds of tasks are best handled in-house for a small manufacturer. These include managing your certifications and staying on top of scalability.
Creating new designs doesn't necessarily need to be an in-house task. Taking advantage of things that you can outsource after you've established a major manufacturing contract can increase your chance of holding on to it.
Small businesses find great opportunities when bidding on military and government contracts because manufacturing items for the government is a way to receive regular contract work. Plus, the payments are prompt. The process for acquiring this type of contract is basically the same, with the main difference being that you may have to apply for additional security clearances if you want to produce items for the military.
One key to successfully selling to the government or military begins with assessing the products that your company makes and your services. Then, you just need to figure out which ones they might need. There's a good chance your business already sells something that will fulfill a need that the government has. The government purchases a wide variety of things, including machined parts, phone services, agricultural supplies, and furniture.
To get started working with the government on manufacturing contracts, file for status as a federal vendor by applying for a Dun & Bradstreet number, fill out the application for a North American industry classification system code, and then set up your business profile on the System for Award Management website.
If you need help with manufacturing contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.