What is Contract Manufacturing?

Contract manufacturing is a broad term with many different meanings. Depending on your project type, industry and role, it varies a lot. Basically, it’s a means of hiring a third-party manufacturer to produce goods on behalf of a company. Check out this definition on Wikipedia if you’re looking for details.

It allows businesses and project managers to focus on their work. A contract manufacturing company provides expertise, and time-saving resources. 

The concept originated as companies sought ways to optimize production processes and respond to fluctuating market demands efficiently. Today, contract manufacturing is a normal function of business. Global business, technological advancements, supply chain demands, quality standards, and more, all add to the demand for contract manufacturing.

Inspections and processes for quality management is one of the many cost-saving benefits of contract manufacturing.

How Did Contract Manufacturing Start?

Contract manufacturing became popular in the late 20th century. Recent advancements in travel and communication technology are making it easier for companies to expand globally. Initially prominent in industries such as electronics and textiles, contract manufacturing has since expanded to cover various sectors.

Who Uses Contract Manufacturers?

Companies of all sizes use contracting parties, from entrepreneurs within startups to multinational corporations. Diverse industries including electronics, pharmaceuticals, cosmetics, food and beverage, automotive, consumer goods, and more, use this service. 

Types of Contract Manufacturing Services

Commonly known as contract manufacturing, this practice also has different names. Custom manufacturing, outsourcing production, third-party manufacturing, private-label manufacturing, or white-label manufacturing are some of the similar terms.

Industry Terms and Meanings

Contract Manufacturing: This is the broad term for practice of hiring a manufacturer. Their role is to produce goods based on the specifications provided by the hiring company. Both parties sign a agreement. 

“Contracting party” is the alternate term for the manufacturer. The “brand owner” is often the term for the hiring company. 

Third-Party Manufacturing: This term involves a third-party manufacturer making goods for another company. In this case, the brand owner and end consumer don’t own the third-party manufacturer. 

Private-Label Manufacturing: In this case, the contracting party makes products under the brand name of the brand owner. The brand owner takes the custom manufactured product and sells it as their own.

White-Label Manufacturing: Similar to private-label manufacturing, white-label manufacturing typically involves generic or unbranded products. The hiring company buys goods from the manufacturer and sells them under its brand name. The contracting party does not connect their brand to the product’s brand.

Types of Contract Manufacturing Companies

This service encompasses various models, including full-service manufacturing, component assembly, and private label manufacturing.

Depending on the business, services can involve custom fabrication, turnkey solutions, or assembly of off-the-shelf components.

Different industries may require specialized manufacturing services tailored to their unique requirements. Examples of this include precision machining for aerospace or sterile production environments for pharmaceuticals

Hankscraft offers full-service contract manufacturing services, serving customers at whatever point they are in for their product manufacturing journey.

Manufacturing Industry Acronyms

You might see various acronyms and terms used alongside or in place of contract manufacturing.

Here’s a breakdown of what different manufacturing industry acronyms mean:

What’s OEM (Original Equipment Manufacturer)?

An OEM designs and makes products based on its own specifications or designs. The OEM then sells these manufactured parts or products under their own brand name. OEMs usually hire contract manufacturers or production facilities to make components or whole products. The OEM controls the design, branding, marketing, and distribution of the product.

Examples of OEM products include smartphones, computers, automotive parts, consumer electronics, and many more products and industries.

What’s ODM (Original Design Manufacturer)?

An ODM designs and makes products based on the brand owner’s specifications. ODMs handle both the design and manufacturing of the product. Similar to OEMs, The brand owner sells these products under their own brand name, with no connection to the ODM’s brand. 

ODMs often focus on specific product categories or industries and offer various design and manufacturing services to their clients. Companies who have little expertise or few resources to design and make products in-house often use ODMs.

Examples of ODM products include white-label electronics, consumer goods, and private-label products sold by retailers.

What’s EMS (Electronic Manufacturing Services)?

EMS providers offer a range of manufacturing services tailored to the electronics industry. These services can include design, engineering, prototyping, assembly, testing, and supply chain management for electronic products.

What’s a CEM (Contract Electronics Manufacturer)?

A CEM is another term used for companies that provide manufacturing services for electronic products. These companies specialize in making electronic components and devices based on their clients’ specifications.

What’s a CMO (Contract Manufacturing Organization)?

A CMO is a broader term covering companies that offer manufacturing services. These services can span across various industries, including pharmaceuticals, biotechnology, cosmetics, and consumer goods. 

CMOs provide manufacturing, packaging, and other services to clients looking to outsource production.

Personnel Titles in the Contract Manufacturing Industry

Services and industries in manufacturing are broad, and so are the people and job titles in those organizations. Duties within these titles can vary, but some items remain the same. 

Some common titles include the following:

• Manufacturing Broker: This term describes a broker who specializes in connecting clients with contract manufacturers. Manufacturing brokers may have expertise in specific industries or types of manufacturing processes.

• Sourcing Agent: Sourcing agents specialize in finding suppliers, including contract manufacturers, for their clients. They often have a global network of manufacturing partners. The agents help clients with sourcing, contract negotiation, and managing supplier relationships.

• Manufacturing Consultant: Manufacturing consultants provide expertise and guidance to clients seeking manufacturing services. They may offer advice on sourcing, supplier selection, process optimization, and supply chain management.

• Supply Chain Broker: Supply chain brokers focus on improving supply chain processes and relationships, including sourcing and manufacturing. They help clients identify opportunities for improvement, reduce costs, and manage risks in their supply chains.

• Production Agent: Production agents oversee the production process on behalf of clients, ensuring that manufacturing partners meet quality standards, deadlines, and other requirements. They may handle communication between the client and the manufacturer and address any production issues.

• Contract Manufacturing Specialist: These professionals specialize in connecting clients with contract manufacturing partners. They may offer additional services such as contract negotiation, quality assurance, and project management.

Benefits of Contract Manufacturing

Businesses looking to scale production, reduce manufacturing costs, or access specialized expertise can benefit. Services include prototyping, design for manufacturability (DFM), sourcing, project management, and more.

Communication: It offers streamlined communication channels, ensuring efficient collaboration between all stakeholders throughout the production process.

Project Management: Experienced contract manufacturers excel in project management, overseeing every aspect of production to meet quality standards and delivery timelines.

Quality Assurance: Production industries require rigorous quality control measures. Professionals utilize advanced testing procedures to ensure products meet specified standards and regulatory requirements.

Seamless Procedures: By leveraging established processes and infrastructure, contract manufacturers ensure smooth production workflows.

Product Testing and Safety: Project managers conduct comprehensive product testing to verify safety, functionality, and compliance with industry regulations.

Regulatory Compliance: Manufacturers need to stay abreast of evolving regulatory requirements, ensuring that products meet all necessary certifications and standards. 

Cost Savings: Outsourcing production to contract manufacturers can result in significant cost savings by reducing overhead expenses associated with in-house manufacturing operations.

Why Doesn’t Everyone Choose Contract Manufacturing?

While manufacturing contracts offer numerous benefits, there are challenges associated with both global and local outsourcing arrangements.

Challenges of Global Contract Manufacturing

Sourcing: Identifying reliable suppliers and sourcing quality materials can be challenging, particularly when operating on a global scale.

Shipping: Logistics and transportation logistics may pose logistical challenges, including delays, customs issues, and supply chain disruptions.

Supplier Management: Managing relationships with multiple suppliers across different regions requires effective coordination and communication.

Finding One That Delivers: It’s a daunting task to find a contracting party that aligns with your values, standards, and needs. Consider your project goals, business culture, budget requirements, and communication style before making a selection.

Challenges of Local Contract Manufacturing

Limited Availability: In some regions, finding contract manufacturers with the required expertise and capacity may be challenging, leading to limited options for local outsourcing.

Cost Considerations: Local contract manufacturing may incur higher labor and overhead costs compared to offshore alternatives, impacting overall cost-effectiveness.

How do I Find a Contract Manufacturer?

Choosing the right custom manufacturer is crucial for businesses looking to outsource manufacturing. It can significantly impact your business’s success. Contract manufacturing can lower project costs and save time with streamlined production and project management support. However, not all manufacturers offer the same valuable resources.

Consider these points when selecting the best company for your project. Ensure their capabilities match your project’s needs. Hankscraft provides various services, including sourcing raw materials and managing logistics. We offer a wide range of capabilities such as wire harness assembly, PCB sourcing, and full assembly.

Assess quality control measures. Quality assurance is vital in manufacturing. Look for manufacturers with robust quality control measures in place. Hankscraft implements strict quality control measures at every production step, ensuring consistent, reliable products that meet industry standards.

Advocate for your preferred communication style. Effective communication is key to a successful partnership. Hankscraft simplifies projects by acting as an extension of your team. We ensure clear communication throughout the manufacturing process, resulting in seamless project management.

FAQs

What are the benefits of contract manufacturing for startups?

• Contract manufacturing for startups offers cost-effective production solutions without the need for extensive in-house manufacturing facilities.

How can contract manufacturing help with scaling production?

• Contract manufacturing enables startups to expand production quickly and efficiently to meet growing demand.

How do I choose the right contract manufacturer for my project?

• Choosing the right contract manufacturer involves assessing their capabilities, quality control measures, and communication processes to ensure they align with your project needs.

What are the differences between OEM and ODM contract manufacturing?

• OEM contract manufacturing involves designing and manufacturing products based on the specifications of the hiring company, while ODM contract manufacturing involves designing and manufacturing products based on the brand owner’s specifications.

What quality control measures should I look for in a contract manufacturer?

• Look for contract manufacturers with stringent quality control measures at every stage of the production process to ensure consistent and reliable products.  Documents that show proof of these measures would be ISO certification, working instructions, control plans and document control processes and procedures.

Can contract manufacturers help with product design and development?

• Many contract manufacturers offer product design and development services to assist clients in bringing their ideas to life.

What are the advantages of outsourcing production to contract manufacturers?

• Outsourcing production to contract manufacturers can lead to cost savings by reducing overhead expenses associated with in-house manufacturing operations.

What are the cost-saving opportunities with contract manufacturing?

• Contract manufacturing can provide cost-saving opportunities through economies of scale, efficient production processes, and reduced overhead costs.

Summary

Contract manufacturing is a versatile solution utilized by businesses across various industries, offering benefits such as cost savings, specialized expertise, and streamlined production processes. Whether you’re a startup or a multinational corporation, contract manufacturing can help scale production and access specialized resources. Hankscraft offers a wide range of contract manufacturing services, including wire harness assembly, PCB sourcing, and full assembly. With stringent quality control measures and production procedures in place, we ensure consistent, reliable products that meet industry standards.