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What to watch out for with contract manufacturing

businessnegoations19314770.jpgContract manufacturing is when you hire out your manufacturing processes to an outside firm. When you create a working agreement from your company to another company, you are involved in a contract that allows you to produce products for another company or vice versa. Many times you will be in charge of other things like ordering the raw goods along with the shipping of the products. If you are the company hiring contract manufacturing, you are able to save money on warehousing along with labor costs. The purchase of the raw materials, producing products, and warehousing these products can become extremely costly in a hurry.

The great thing about contract manufacturing is that it can work in a number of industries, not just the manufacturing industry. All you really need to focus on is outsourcing the product to a company that can reasonably produce it. A lot of companies use contract manufacturing to produce their products and service as they find it is cost effective and provides them with faster delivery of their products. Some of the industries that use contract manufacturing include the following:

  • Personal care and hygiene products

  • Pharmaceutical companies

  • Computer equipment

  • Automotive industry

Contract manufacturing can all be done electronically, which is a huge advantage for many businesses that are overwhelmed with other needs. How can you find a contract manufacturer for your business? The best place to start is by working with some of your existing vendors. They can provide you with referrals to contract manufacturing firms. Depending upon the product you need to have produced for your company, a lot of the contract manufacturing companies may actually find you. They want to increase their customer base and they are actively seeking smaller businesses or industries that are in need of their service.

When you find a contract manufacturing company you should ask for a tour of their facility, even if this means you need to have a digital facility. You need to take a look at the type of equipment they are using to produce your products. Ask them how often they have their equipment serviced and you also need to find out what their defect ratio is. You need to have the lowest defect ratio as possible in order to provide quality products and services to your customers. If there are product defects, make sure the contract manufacturer will pay for them to be replaced and shipped to your customers. Since their machines or customers are casing the defects, you need to be sure that this money is not coming out of your pocket.

Read over your contract and make sure you completely understand what you are agreeing to. Since contract manufacturing firms thrive on acquiring as many contracts as they can, you may be agreeing to a long contract without finding out what type of products they produce specific to your business. Have a 60-120 day opt out time period where you have the option to see what type of products they product and if your customers are happy with them. If you like working with the company, you can then get into the process of negotiating a longer contract for a comfortable fee.

Contract manufacturing is a great way to have your products produced for your business but it is not the only thing your can expect from a contract manufacturing firm. You can also expect to receive additional services like telecommunication services. Contracting out additional services for your business will provide you with a well-rounded contract so you can offer your customers a number of different valuable products and services without an expensive cost.

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