What Is Contract Manufacturing?

Table of Contents

When launching a new product, how it is brought to market significantly influences whether the endeavor succeeds or fails. Contract manufacturing is one solution that promises high product and process quality with minimal startup investment cost.

In a contract manufacturing relationship, a company outsources a portion of the manufacturing process to a third-party manufacturer. The contracting company may outline general product and production specifications—such as performance requirements or production quantities—so the third-party can determine the required part designs and manufacturing methods or provide detailed product and/or production specifications for the third-party to follow. With this information in hand, the third-party can then proceed with the fabrication stage. They may also provide other services depending on their expertise, such as design, assembly, and distribution.

The Importance of Contract Manufacturing

Contract manufacturers have had a significant impact on the manufacturing industry. As new production techniques and technologies have entered the industry, they have helped contract companies design, engineer, manufacture, and market new products.

While a contract manufacturer is in charge of the production of the desired products, the role they play in bringing them to market varies from company to company. For example, some contract manufacturers only provide manufacturing assistance, while others offer full-service solutions that include design, engineering, manufacturing, and post-production services. The companies from the latter group help simplify the supply chain for a contracting company by reducing the number of necessary contacts to one company.

When choosing a contract manufacturer for a project, it is important to look at their product and process capabilities. These companies often specialize in a particular set of products and processes, so it is essential that these meet the project requirements.

Benefits of Contract Manufacturing

(Click to Expand)Benefits of Contract Manufacturing

By partnering with a contract manufacturer for a product manufacturing project, contracting companies experience a number of benefits, such as:

Higher Cost Savings and Profits

As contract manufacturers already have the manufacturing equipment and expertise necessary to bring a product market, contracting companies do not need to spend time or money researching, developing, and sourcing them, making the process much faster and cheaper. Additionally, contract manufacturers are able to take advantage of economies of scale by running similar product manufacturing projects at the same time. Other cost savings may come from tax benefits and reductions in overhead, such as energy, labor, and raw material costs. All of the above translate to lower overall project costs and higher profits.

Greater Focus and Flexibility

By outsourcing a portion of their manufacturing needs to a contract manufacturer, the contracting company frees up their facility’s equipment for other projects, enabling them to expand their overall product and production capacities. Their employees are also free to focus on different aspects of bringing a product to market, such as marketing and distribution, or design and develop new products for future projects.

Easier Market Entry

Some markets are difficult to enter without existing relationships. Contract manufacturers often have a broad network of industry contacts that can facilitate distribution with specific geographic regions, depending on where the company is located.

Better Scalability

The demand for a specific product is often in flux. A relationship with a contract manufacturer allows a contracting company to scale production to meet changing consumer demand. As contract manufacturers already have the resources needed for production in place, they can easily and economically produce the quantities required.

Contract Manufacturing vs. Private-Label Manufacturing

On a surface level, private-label manufacturing resembles contract manufacturing. In both cases, a contracting company outsources production to an experienced third-party manufacturer. However, the contractual terms surrounding a private-label manufacturing relationship are substantially different than those governing a contracting manufacturing relationship.

Private-label manufacturers sell the rights to distribute their products. While companies who buy the distribution rights can market the products under their label, the manufacturing company maintains control over the product specifications. In contrast, contract manufacturers produce products to the contracting company’s specifications. The company retains the rights to the products and can make changes as needed.

Both private label manufacturing and contract manufacturing are viable options for bringing a new product to market. However, they are appropriate for different situations.

In a private label manufacturing relationship, the contracting company does not need to spend time or money designing and developing the product, packaging, and labeling. Instead, they can focus on other business aspects, such as marketing. For this reason, private label manufacturing is suitable for companies that are:

  • Small and have limited resources to enter the desired market
  • Well-established but prefer not to divert extensive resources toward developing the new configuration and packaging
  • Willing to give up control over the design and trust in the supplier’s existing quality control mechanisms

In a contract manufacturing relationship, the contracting company needs to provide input regarding manufacturing, packaging, and labeling. While this requires more thought, they can tailor the final product to meet their exact needs. For this reason, contract manufacturing is appropriate for companies that:

  • Want or need control over the product specifications
  • Have a specific idea that they want to see produced
  • Are willing to take on a greater share of responsibility for the product’s success

Contact the Contract Manufacturing Experts at Astro Machine Works Today

For companies who need help bringing a product concept to life, contract manufacturing is an ideal solution. It enables them to reduce investment costs without sacrificing product quality. If you are searching for a contract manufacturer for your next project, turn to the experts at Astro Machine Works.

At Astro Machine Works, we manufacture custom machinery and parts for customers across the globe. Equipped with over three decades of industry experience and more than 60,000 square feet of manufacturing space, our team has the knowledge, skills, and tools to meet the manufacturing needs of small startups to Fortune 500 companies.

Our products find application in a diverse set of industries, including pharmaceutical, medical, energy production, food processing, defense, government, and more. As an experienced ISO 9001-certified manufacturer, we are fully equipped to manage custom jobs of all types. Our capabilities include CNC machining, fabrication, welding, wire EDM, reverse engineering and more. No matter how complex your needs are, we have the resources to meet them.

For additional information about our manufacturing capabilities, visit our About Us page. To get pricing details, contact us today.

Categories: Contract Manufacturing