Contract manufacturing is an arrangement where a company hires a third-party to handle production of their product or good. This is a common practice for businesses that do not have their own in-house manufacturing capabilities but still have products to sell.
If that scenario describes you, then contract manufacturing may be a solution. But what are the advantages of these arrangements, and what are the possible drawbacks? Here are some pros and cons of contract manufacturing.
Think of everything you need if you want to manufacture your products in-house. You’d need to purchase the necessary equipment, rent a space large enough to handle your production quantity, and hire the workers to get the job done. This doesn’t include quality control and other important departments that work in parallel to the actual manufacturing.
By hiring a contract manufacturer, you can eliminate those costs. The manufacture will have everything necessary to mass-produce your product. That means you can focus your budget on other avenues to achieve success. You can invest more in your marketing and other endeavors to ensure you actually sell your product, which is the goal of your business in the first place.
A common problem with in-house manufacturing is what happens when your demand exceeds your capabilities. You are only going to initially invest enough into your production line as you need at the beginning. But if your product becomes popular and customers demand more, what do you do then?You’d need to re-invest into your manufacturing and expand your capabilities, which will take time. That means you’re leaving money on the table.
Contract manufacturers prevent these types of issues. These manufacturers will have much greater capabilities to produce larger quantities of goods than a start-up or small business would when they first launch. So, if your product takes off quickly, you can simply contract your manufacturer to make more as well. And even if the company you hire doesn’t have the capability for a larger order, there are always other manufacturers that can meet your demands now so you don’t have to wait days, weeks, or even months to do so yourself.
Maybe you have a groundbreaking idea for a product or good with high sales potential, but you don’t know the best materials or ingredients to make it with. Contract manufacturers will employ the technical experts with years of experience who will know how to optimize your product. Whether it’s suggesting an ingredient that will improve stability and quality or knowing an alternative component that produces the same results at a cheaper cost, these manufacturers can help cover the gaps in technical expertise that your company may lack.
The obvious downside with contract manufacturing is you lose control of the production process. Instead of having your own employees supervising from start to finish, you cede that control to a third party. And while they have talented staff, greater capabilities, and all the other benefits, some people can still feel uncomfortable with this process.
For instance, what happens if a piece of machinery needed to make your product breaks down? If you control the manufacturing, you can quickly address the problem and order a replacement as soon as possible. But a third party may see the problem as less concerning since you are just one of their many clients. You are the number one priority for your business, but that is not always true with a third party.
All the benefits of contract manufacturing disappear if you hire the wrong one. An unreliable or inexperienced manufacturer can produce an inferior product from what you envisioned and selling those on the market can ruin your reputation with customers. It’s also possible to hire a manufacturer inexperienced in making your type of goods, and they may not be able to anticipate issues that can affect production along the way. Or they may not know what to look for during quality control testing.
There are many contract manufacturers out there, so it’s important to conduct thorough research before hiring one of them. Make sure you talk to past clients and sample some products similar to yours to ensure they can handle your needs and the quality you desire. Because if you choose the wrong one, then your company will suffer.
There are many pros and cons for contract manufacturing, so you should research your options carefully before making a decision. But consider that many of the problems are often caused by hiring an unreliable contract manufacturer and are not a problem with the process itself.
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