What is a contract manufacturing organization and how to choose one?


What is a contract manufacturing organization and how to choose one?

A contract manufacturing organization is a company that manufactures the products of other companies on a contract basis. It produces the product that bears the name and branding of the hiring company enabling the latter to solely focus on core business strengths such as development, marketing and sales.

How does a contract manufacturing organization work?

A company usually hires a contract manufacturing company to produces the required number of products within a specific time frame. For this purpose, the hiring company provides the formula or the design to the contract manufacturer. The contract manufacturing organization takes these details from a business and takes care of all processes to produce the required product.

The manufacturing organization would make the first mockup, and then it will test the reliability and feasibility of the product. After that, both parties examine the results and agree upon the final specifications. The contract manufacturer will then produce the required number of products and deliver them within a pre-specified time frame.

Services provided by a contract manufacturing organization

Hiring a contract manufacturing company comes with several benefits that empower businesses to experience hassle-free production. It includes

1.       Pre-formulation

2.       Formulation development

3.       Plan and conduct clinical trails

4.       Authorized stability

5.       Method development

6.       Scalability

7.       Registration batches

8.       Commercial manufacturing


Advantages of hiring a contract manufacturing organization

Hiring a contract manufacturing organization comes with several benefits that play a vital role to facilitate the needs of both small and large businesses. It includes

1.      High-quality products

Hiring a contract manufacturing organization has the required tools and expertise to produce excellent products. Especially the companies that have a relevant and recent ISO standard certification can produce high-quality products consistently due to stringent standards.

Consistent, high-quality products assure increased customer satisfaction, fewer product returns, referrals and repetitive buyers. In addition, as the contract manufacturing organization has advanced tools and expertise, the end product will be more functional.

2.      Cost reduction

Hiring a contract manufacturer makes it easy for the hiring company to reduce the cost. The hiring company does not need to invest in machinery/instruments, product designers, operators, and warehouse maintenance. This reduces the overhead costs and contributes to generating a high return on investment.

3.      Resource savings

A contract manufacturing organization commonly uses the lean manufacturing production method to save resources. It uses lean production principles, practices and tools for the development and manufacturing of physical products. This approach assures the elimination of waste, streamlining all processes and spares time for the hiring company to focus on marketing and sales.

4.      Reduced labor

When a company hires a contract manufacturing organization, it benefits from working with a large workforce of skilled professionals. However, instead of hiring a large staff including managers, engineers and many other types of labor; a contract manufacturer does it all for a business.

5.      Faster product launch

A contract manufacturing company has experience producing high-quality products that meet global standards and have advanced tools. This enables the hiring company to introduce its products in the market faster.

6.      Scalability

A contract manufacturing company often succeeds at negotiating competitive prices on the bulk raw materials, which plays a vital role in cost reduction even when the production increases. As the production cost is reasonable, a small business can quickly scale to produce more products.

The manufacturing companies always maintains the record of production preferences of the hiring company and product mockups, enabling the latter to scale up or down faster.

7.      End-to-end services

Some contract manufacturers offer an end-to-end option to the hiring companies. It means that the manufacturer handles every product development process, including material purchases, manufacturing, assembling, packaging, and shipping. Therefore, it helps a business reduce time and money as all functions are taken care of under one roof.

8.      Customized solutions

A contract manufacturing company works with several companies to provide a hiring company with customized and compatible solutions. In addition, as it has prior experience developing similar products for other brands, it can give a hiring company an industry-specific solutions.

9.      Instant estimates of costs & deadlines

As a contract manufacturing company already has a skilled workforce and advanced tools, they can better estimate costs and deadlines. Obtaining the accurate estimated cost would make it easy for a hiring company to set aside the required amount of money. Moreover, a contract manufacturer can guide a business better about the time frame in which a product will be ready to market based on its prior experience.


Disadvantages of hiring a contract manufacturing company

1.      Lack of control

Hiring a contract manufacturing organization might reduce the control of the hiring company over the product being manufactured. The lack of control might vary depending upon the type of the contract manufacturing agreement. After the company agrees with a contract manufacturer, its product's quality and performance are bound to the performance of the manufacturing company.

2.     Outsourcing expenses

The hiring company shall be ready to bear the outsourcing expenses, including labor & shipping costs, contract fees, tax, tariffs, etc.

There are some other disadvantages to using a contract manufacturer, but most issues mainly depend upon whether you choose a right or wrong contract manufacturing company.

Most of the time, issues arise when a company uses a global contract manufacturer but, reading about potential risks of using global contract manufacturing companies and how to mitigate them would do all.


How to choose the best contract manufacturing company for your business?

To choose the best contract manufacturing company for your business, you need to consider these key factors.

1.      Equipment and capability examination

Examining a contract manufacturing organization's equipment and capabilities would help a hiring company better gauge the expected results. For example, if your product needs a specific type of equipment, the manufacturer must have it on the manufacturing site to produce the desired outcome. Moreover, if your product requires special handling, you need to ensure that the machinery and the staff can do it.

2.      Inquire about contractor’s reputation

Two resources can determine the reputation of the contract manufacturing organization. One, obtaining testimonial statements from the manufacturer’s existing clients. Second, looking for the recent certifications or ratings such as relevant ISO certifications, Better Business Bureau, FDA ratings.

3.      Relevant Prior-Experience

Look for a contract manufacturer that has prior experience of manufacturing products similar to yours. A manufacturing organization that specializes in producing the type of products your business needs would help both companies streamline all processes and launch the product in the market faster.

4.      Ability to Scale

Before choosing the best manufacturing organization for your business, you need to assess the company's capabilities for scaling up the business itself. Check whether the company has the required resources and management capabilities to produce in-demand and high-quality products or not.

5.      Outsourcing Cost

Before hiring a contract manufacturer, a business shall determine all of the outsourcing expenses. It might include the contract fee, additional compliance and regulations expenses, shipping expenses and packaging costs. If these costs are less than scaling up the business, it's good to hire a manufacturer.

6.      Communication

To choose a suitable contract manufacturing organization, clear communication between both parties is critical.  Good communication includes planning, instruction and required initiatives during all processes.  All of these vital points must be documented so that both parties can refer to them. A good manufacturer would address all possible situations, discuss and document all of your concerns.

7.      Control

Consider the number of operations you want the manufacturer to handle and how you will monitor those operations. Moreover, think about how you would communicate with your manufacturer and set the frequency and channel. Finally, discuss all of these points with the contract manufacturers you are screening.

8.      Contractual Agreement

Put everything you have discussed with your contract manufacturer in a contractual agreement. A manufacturing organization is located in another country; it is necessary to craft an agreement that addresses every situation.

9.      Schedule in-person visits

You must set up an on-site visit to the manufacturing site by calling the organization's representative. It will help you to examine the functionality and capability of every facility.

10.   Review all Organizations

After following every step mentioned above, it is time to review the results obtained for every company. Then, let all stakeholders of your company give a rating to every manufacturer in question to decide well.


How to know it’s time to hire a contract manufacturing organization for your business?

To exactly when your business needs a contract manufacturing organization, these are the key signals that will tell you to do so.

1.     Limited or no access to resources

Arranging the right and affordable components, raw materials and ingredients for your product might be difficult. If it is hard to find the right vendors and the arrangements you make are too costly, it's high time to consider hiring a contract manufacturing company.

Because a contract manufacturing organization have prior experience of working with vendors and might have a good relationship with them which boosts better sale and purchase between both parties. Ultimately, a contract manufacturing organization reduces your costs with its resources.

2.     Lack of technical experts and equipment

If your business is facing a lack of technical experts and owning the equipment to produce your product, it's time to hire a contract manufacturer. A contract manufacturing company has technical experts, the right equipment needed to manufacture your product and many other resources. They make it easy for you to eliminate the technical gap and launch your product in the market faster.

3.     You are planning to scale your business.

If you plan to scale up your business, you need more resources, time, effort, and money; a contract manufacturer helps you arrange and streamline all processes. The most significant advantage of using a contractor to scale up your business is that it has the capacity and experience to deal with bulk orders.

4.     Always busy in the manufacturing process

If you are always busy in the manufacturing process of your products and don't get time to focus on the core strength of your business, such as designing, marketing and sales, hire a contract manufacturer. Let the contract manufacturing company handle all the production processes and solely focus on the key strengths of your businesses.


Final Words

Hiring a contract manufacturing organization is beneficial for many reasons, but doing proper research before hiring a specific contract manufacturer would mitigate potential risks. The key to select the best company is always to remain clear about your requirements and expectations. This way, you and your company's stakeholders can make the right decision in less time.


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