What is Contract Manufacturing?
Contract manufacturing is a contract between a company and a manufacturer to make a certain number of products for the company in a specified period of time.3 min read
Contract manufacturing is a contract between a company and a manufacturer to make a certain number of components or products for the company in a specified period of time. The goods created will be under the company’s label or brand. This is called private label manufacturing. This is often also called outsourcing if it is done across borders.
Manufacturers provide their service based on their own designs, formulas, and specifications unless the customer provides its own. They will create these products to whomever they have contracted with, even competing firms.
Contract manufacturing is beneficial for the manufacturers as it provides a [100 words] guaranteed supply from an expert source. The actual marketing and selling of your company’s final product is controlled by the company, not the manufacturer, unless the contract includes other terms that were agreed to.
Contract manufacturing is beneficial for the companies as it allows them to focus mainly on selling and marketing instead of in addition to making the products.
Contract manufacturing has the following benefits including, but not limited to:
1.Focus on Selling Products
3.Easier Entry into the Market
Saving money is achieved through contract manufacturing because the manufacturer already knows how to make quality products, has the equipment necessary, and can produce other components and products as well. Off-site manufacturing can also save on energy, tax, overhead, and material costs. Manufacturing the product in another country may also allow for labor-intensive production processes.
Risks of Outsourcing
There are some risks to outsourcing if you do not prepare and ensure that the benefits outweigh them. Potential issues that may arise include:
1.The contract manufacturer may only ship to customers in a specific area
2.The contract manufacturer may not ship to individual customers, but only ship large amounts to warehouses
3.You may be giving your best manufacturing ideas to a potential competitor in another country.
4.Lack of a valid legal contract that specifies your legal rights in order to ensure protection against fraud
5.Cultural differences such as language barriers
6.Lack of control over the manufacturing
A manufacturer witnesses the demand for and potential of their product. Ensure you protect against their producing and selling of the same, or similar, product to your market. Your contract should include provisions of recourse and remedies if you find your manufacturer is doing this. If your contract crosses borders, identify which country governs interpretation.
What to Look for in a Contract Manufacturer
Selecting a manufacturer is a very important decision. Here are some important things to consider:
2.Direct Delivery to Customers
3.Good Reputation in Market
4.Good Financial Situation
6.Good Management at the Facility
7.Flexible to Market
8.Can meet product demand
9.Good relationship with contracting company
Picking and Managing the Outsourced Manufacturer
However, just because you pick a good manufacturing company doesn’t mean you don’t have to keep your wits about you. Contract manufacturing is a competitive business and needs to be managed actively.
Companies that get the best results and are most satisfied with their manufacturers are the ones that manage their outsourced manufacturing from their operations office. Whether manufacturing is within your company, or outsourced, managing manufacturing and the upstream supply chain requires skilled management professionals.
Just finding the lowest quote price will not find you the right manufacturer. A quote price will only show you a percentage of the total cost to your company. Do not allow a manufacturer to put additional costs on you in the form of fees and additional non-quoted-charges.
Don’t worry, just because a manufacturer is building for a competitor doesn’t mean they aren’t the right manufacturer for your needs. Find the most broadly capable and compatible manufacturer for your business, even if they also work for/with one of your competitors.
Finally, make sure you look into the operations of the manufacturer. Do not just talk to the sales department of that manufacturer. You want to ensure you know exactly what manufacturing services you are buying. The manufacturer is the company responsible for making the product to the correct specifications. Find out if there is a third-party company supplying the manufacturer and whether that is a deal-breaker for you.
If you need help with contract manufacturing, 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.