What is Contract Manufacturing?
Contract manufacturing is primarily used in the manufacturing industry for companies involved in supply chain management. It is a common practice in a variety of industries including automotive, industrial manufacturing, agricultural machinery and equipment, food handling, consumer goods, aerospace, defense, energy, medical devices and equipment, and semiconductor fields.
Contract manufacturing (CM) is also called private label manufacturing. Contract manufacturing allows organizations to outsource production processes. Companies contract with an outside machine shop to produce a product or part of a product. This is often used to increase production rates or to expand product offerings without investing in new equipment and machinery.
Smaller companies may also contract a metal fabrication shop to fully produce the parts needed for their products without developing their own production facilities. The label or brand remains the property of the company hiring the contract manufacturing organization.
Advantages of Using Contract Manufacturing
When you partner with a reputable manufacturing firm, you receive many significant advantages. Instead of relying entirely on in-house capabilities, you have the option of contracting out some or all your production processes.
This leads to:
Reduced Lead Time
Easy Market Entry
Lean Supply Chain
Free Up Resources
Contract manufacturing reduces resources and labor, providing cost savings. At The Federal Group USA, we already have the equipment and facilities to handle a wide range of manufacturing processes. Compared to producing your own parts, you may also enjoy savings when it comes to energy costs, labor costs, capital investment costs, and raw material expenditures.
Contracting also frees up resources, allowing your organization to focus on core competencies. Your existing staff may focus on their primary responsibilities, increasing their efficiency and overall performance.
Contract manufacturing provides a way to reach markets more quickly, especially when you do not already have facilities in the region. For example, our Michigan fabrication shop allows you to produce and ship products through the United States from a central location at a faster speed.
Contract manufacturing improves distribution and streamlines supply chain management. When you partner with an outside firm, you gain the benefits that come with that firm’s existing relationships. We already have suppliers for the raw material needed for the production process, eliminating some of the logistics involved in the supply chain.
No matter if you outsource the entire production process for your product or the production of a single part, you reduce the overall manufacturing time. You can continue your operations while an outside firm works on your product, providing great efficiency. As the company that you contract with likely has the resources and experience to meet your needs, you can also expect faster production processes.
These advantages provide improved economies of scale. The combination of cost savings and increased production allows your company to lower prices or overhead to develop a more profitable product.
Product Manufacturing Reliability
Pre-Production Part Approval Process (PPAP)
Lab Testing & Reporting
When Should You Consider Using A Contract Manufacturer?
Many of the largest companies rely on contract manufacturers. Organizations such as Google, Amazon, General Motors, Tesla, John Deere, and Microsoft have the funds to develop plants for producing their products. However, they recognize the advantages of contracting the production of components.
Contract manufacturing is best suited for companies facing the following concerns:
• High start-up costs
• Lack of capital
• Product quality
• Faster market entry
• Lack of expertise
• Facility constraints
Startups may not have the resources to manufacture their own products. Purchasing specialized machinery can cost hundreds of thousands or millions of dollars. With contract manufacturing, startups have a solution for manufacturing metal products without on-site facilities. This also allows startups to avoid spending money on machinery and equipment for failed products.
Another common reason to work with an outside manufacturing firm is to deal with a shortage of capital. Along with startups, established businesses may find themselves without the funds needed to produce their products. These companies may use contract manufacturing to maintain or increase production without increasing spending on on-site facilities.
Contract manufacturing is also useful for improving the quality of your product. When partnering with an outside firm, you gain their knowledge and expertise. The firm likely has specialized knowledge, which helps to foster innovation and detect design errors before reaching the manufacturing stage.
As mentioned, contract manufacturing reduces manufacturing time, allowing you to reach the market sooner. This is useful for companies that want to establish their brands quickly. With contract manufacturing, you enjoy lower costs, faster production, and improved products. Businesses can avoid the need to establish their own production facilities while producing a high-quality product.
When your in-house facilities lack the capabilities to meet customer demands, consider using contract manufacturing services. Outsourcing production processes allows your organization to focus on marketing and selling products and exert less effort in manufacturing. If you’d like to speak with us about a contract manufacturing project or to get a no-obligation quote, feel free to contact us today.
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