What Is Contract Manufacturing? The Pros and Cons of Outsourcing

By: on August 9, 2021

Imagine: Your team just came up with an amazing new product that customers will love. But how will your business manifest this idea from sketches and digital models into a physical product?

Perhaps your business needs the entire product built or you might only need certain parts of the product manufactured. Whatever the case may be, you might need to consider a contracting manufacturer.

Let’s discuss what contract manufacturing is, the pros and cons it presents to your business, and the different risks to consider (and mitigate) when choosing a contract manufacturer.

What is contract manufacturing?

Contract manufacturing is the production of goods by a third-party company (the contract manufacturer) for a company that cannot produce the goods in house. Ultimately, contract manufacturing is a form of outsourcing that helps businesses manufacture their products and goods.

What are the pros and cons of contract manufacturing?

There’s a reason why an increasing number of companies across a variety of industries are turning to contract manufacturers to help them get the job done (full research available to clients).

Contract manufacturing presents significant pros to businesses including:

  • Reduced costs
  • Access to people with specific skill sets
  • More sets of eyes on your product to catch mistakes
  • Easier-to-scale production
  • Ability to focus on your company’s core competencies

By outsourcing to contract manufacturers, businesses can save money and time by not having to manufacture products or product elements themselves.

But this can come at a cost.

Any time you take a piece of your business and outsource it, you relinquish some control. Contract manufacturing can pose risks to your business, including:

  • Not having full control over product quality
  • Being dependent on the contract manufacturer’s schedule
  • The possibility of your product being poached or sold to competitors
  • Communication barriers due to language and cultural differences
  • Damaging your business’s reputation if product quality diminishes or if the contract manufacturer mistreats its employees

The product you hire the contract manufacturer to produce will, ultimately, be a reflection of your company, not the company you hired to make it.

This is why it’s important to choose your contract manufacturer carefully and make sure they adhere to both your industry’s quality standards and your company’s own quality standards.

How can I mitigate some of the risks involved in hiring a contract manufacturer?

The good news is that you can mitigate and manage the risks that come with hiring a contract manufacturer, starting before you even seek out a contract manufacturer service.

Before outsourcing, you should always do your homework and define your expectations and business’s needs around outsourcing. What process do you plan to outsource? In what ways will this impact your business overall? The processes you choose to outsource should not be core to your business—generally speaking, these essential processes should be kept within your direct control, which may mean keeping them in house.

When you decide to hire a contract manufacturer, make sure to:

  • Communicate your expectations regarding quality, supply chain, and security from the outset and work these elements into the contract from the very beginning. If a company’s quality standards don’t align with yours, they’re not the right fit.
  • Perform on-site audits to check the contract manufacturer’s quality system maturity level at every stage in the manufacturing process (full research available to clients).
  • Formalize your working partnership with the contract manufacturer through a well-defined contract manufacturing agreement that sets quality expectations from the outset.
  • Only hire a manufacturer you can trust, and make sure to back up this trust with research and a contract. If a company seems shady, it probably is and will not be the right fit for your business.

Although risks associated with outsourcing through a contract manufacturer can be managed and mitigated, they can never be fully eradicated. Any time you outsource a business process, while you might gain significant advantages, such as reduced costs and the ability to scale production, you are still giving up control.

Use software to manage relationships with your contract manufacturer

If you’re ready to outsource and looking for next steps, consider how software can help with your manufacturing processes. From improving in-house production to boosting safety compliance, there are software platforms out there that can help.

Manufacturing software, for example, can help you manage your relationship with outsourced manufacturers to ensure things continuously run smoothly. Another thing you can do is to confirm that the contractor has a quality management system in place that aligns with your own quality standards. Remember that the quality of the products built by the contract manufacturer are still a reflection of your company.

You can read reviews from businesses such as yours, or connect with one of Software Advice’s advisors for free to see which systems might be a good fit.

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