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Choosing a contract manufacturer

A firm that specializes in manufacturing components or products for another "hiring" firm is known as a contract manufacturer. While this type of manufacturing was once only the domain of technology companies it has spread into many other areas including pharmaceutical and cosmetic companies.There are many industries that utilize this process, especially the aerospace, defense, computer, semiconductor, energy, medical, personal care, and automotive fields.This type of manufacturing can include many different types of production including but not limited to:CNC machining, chemical development, complex assembly, aluminum die casting, grinding, broaching, gears, and forging.

In a contract manufacturing business agreement, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the cost of manufacturing the parts based on processes, labor, tooling, and material costs. Typically a hiring firm request quotes from multiple contract manufacturers.When the bidding process is complete, the hiring firm will select a contract manufacturer who then will begin the actual manufacturing of the components or product. The contract manufacturer literally acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm.It falls to the contract manufacturer to oversee production and bring the product to market for the contract price.

Some of the largest and most profitable companies use contract manufacturing as an alternative to operating and maintaining their own factories. Contract manufacturing can be used for anything from single components to a complete product.There are many different and varied components and complete products that are made using contract manufacturers.Some of these products are: printers, computers, cellular phones and personal care products (cosmetics, hair care and personal hygiene).

Many companies today are finding that in order to stay profitable and move a product quickly they must choose a contract manufacturer.This is done to help the parent company minimize their capital spending and often results in being able to shorten the time it takes to fully a develop a product on their own. These companies are finding that choosing a strictly manufacturing company to develop their products helps considerably with their profit margin.Contract manufacturers are set up to produce large numbers of products in the most cost and time efficient way possible.This especially give the hiring company (owning the product) more flexibility in meeting shifting consumer demands. But for these benefits to be realized it is essential for a firm that is outsourcing to choose a contract manufacturer that is best suited to its needs.

Contract manufacturing also has extended internationally.Companies are finding that using contract manufacturing in an international context, thereby establishing a foreign subsidiary as a contract manufacturer can have favorable tax benefits for the hiring/ parent company, allowing them to reduce overall tax liabilities and increase profits.The amount of profitability depending upon the activities of the contract manufacturer.

There are major ramifications in choosing a contract manufacturer.The very success of the product can ride on making the correct choice.By choosing the wrong or inefficient contract manufacturer a hiring company (also known as the parent company owning the product) can literally be dooming its product to failure right from the start.How fast a new drug or agricultural chemical reaches the market, and how successful it is when it gets there often depends on how quickly, reliably and economically an outside manufacturer can produce the compound. If the new product is a pharmaceutical, its manufacturer must also meet stringent certification requirements, such as those of the U.S. Food and Drug Administration (FDA), for the product to be considered for approval.
It is essential with such high stakes that the parent company evaluates a potential contract supplier carefully.

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