Last Updated on September 10, 2012 by Mike

Contract manufacturing is a business process where two companies establish a working agreement, where one company produces equipment or goods for the other. The hiring company gives the manufacturing company a design and orders the required number of units to be produced. The contract manufacturers will usually give a quote that includes the cost of labor, materials and production process. The hiring firm is responsible for the design, as well as sales and marketing.

(Photo credits: Victor1558)

Most companies ask for quotes from different manufacturers before they settle on one. The hiring company does not have to deal with issues such as ordering raw materials, hiring labor, getting production facilities, and everything else that goes into manufacturing. Many different industries use contract manufactures to create their goods. Contract manufacturing is very popular in the pharmaceutical industry, the medical devices industry, as well as food manufacturing and other sectors.

There are many benefits of contract manufacturing for both the client and the manufacturing company.The manufacturers have to be  able to convince the prospective clients of their ability to produce the desired goods, meeting and exceeding their expectations.

1. Cost saving

The company that hires the contract manufacturer saves on cost. The firm will not need to invest in equipment, manufacturing facilities, raw materials, machinery and other requirements. They will not need to source for specialized labor or shoulder other costs that come with manufacturing. The company can use their resources in sales and marketing, leaving the manufacturing to a company with more resources.

2. Advanced skills

A hiring firm can take advantage of the manufacturer’s specialized skills. This helps in creating efficiently engineered products. When creating medical products, stringent measures have to be taken. The facilities that manufacture these products have to be approved by the relevant bodies. Contract manufactures make sure that they hire highly experienced staff that can produce goods of the required quality.

3. Enhances competition

Companies are able to compete on a level playing field with their competition when they are using contract manufacturers. A small company can compete with larger players in the market and will benefit from the advanced resources of large manufacturers. In many cases, competing companies find that the same contract manufacturer manufactures their products.

(Photo credits: Philipp Lücke)

In most cases, the contract manufacturer will not show loyalty to one company over the other. They concentrate on the production and leave the marketing details to the clients.

4. Dividing risk

Another benefit of contract manufacturing is that the risk that comes with developing new products is divided. When one company is responsible for everything from designing to production and marketing, any loses that the company makes can be crippling. The company in this case is gambling on the success of the product and if anything goes wrong, it can cause the company to make huge financial loses or even to collapse.

5. Encourages innovation

The availability of contract manufacturing has encouraged people to be innovative. When you know that you do not have to bear the cost of production, you can come up with designs for different products. Many products in the market are the result of one individual’s idea. In most cases, the individual has no financial capability to manufacture the product.

Having contract manufacturers has allowed many innovative thinkers to create products that have been well received in the market. Many people have been turned into instant millionaires because a company was willing to put its resources behind their idea.

(Photo credits: ElectronicFrontierFoundation)

6. Guaranteed work

For the contract manufacturer, the guarantee of steady work allows the company to expand its production services. The manufacturers have to ensure that they have regular contracts coming in, in order to remain in business. These manufacturers have invested in expensive equipment and they have to find the clients in order to justify the costs. The increasing competition in the contract-manufacturing field has led to a lowering of costs and smaller firms and individuals can afford to hire the manufacturers.

Medical device manufacturers are responsible for creating safe and effective products. They have to make sure that quality and safety of the manufacturing process is of utmost concern to ensure that product safety is not compromised. Any facility that does not maintain high standards can lose its accreditation and its reputation. The hiring companies are very particular when contracting manufacturers for medical devices. They have to make sure that the company they choose can meet their specifications.

 

Chad is a blogger who writes articles on manufacturing and has a special interest in medical contract manufacturing.