What is Contract Manufacturing?

Contact manufacturing is manufacturing of a product by a job shop on behalf of an external customer. Normally, the customer supplies the drawings and specifications as well as the quality control criteria. For most effective, error-free contract manufacturing, it is imperative that the customer involve the vendor in the quality planning process and provide well-documented instructions, drawings and specifications, so the vendor understands expectations of the customer. Both the customer and the vendor should approach contract manufacturing in the spirit of partnership with the objective of producing Zero Defects quality.
This is the age of core competencies and global alliances. Those companies that concentrate on their core competencies and outsource non-core work to others grow quickly and make more money. For example, a company who invents radar equipment is good in the design and software parts, but may not be good in the manufacture of PC Boards or plastic case. These are the products it will normally outsource. Before the world became flat due to various technological innovations including but not limited to the Internet, outsourcing was happening across town or state or across the nation. In the flat world, geography has become history. So outsourcing across oceans is not a major task. This phenomenon has contributed to the growth of so-called “off-shoring”.
Although cost (i.e. price) is an important consideration in contract manufacturing, it would not be wise to make it the only consideration in selecting a contract manufacturer. The customer should consider a “value proposition” at the top of which comes error-free quality and then price, protection of intellectual property, timely delivery, technical expertise, strong work ethic, professional service and ethical handling of the account. In case of offshore procurement, the additional consideration is that of the supplying country’s judicial system, so impartial and fair justice is available in case of a dispute.
Since the customer would be sharing his drawings and specifications with the vendor, protection of the customer’s intellectual property becomes a very serious consideration. If your product design requires protection from unauthorized copying, you should consider avoiding a country like China where the Government openly encourages infringement of intellectual property rights.
In a nutshell, off-shoring is not just sub-contracting. It is more about forming global alliances. It is an alliance of several parties such as the supplier, customer, freight forwarder, interpreters, quality verification agencies, legal service providers, banks, and so on. Once again, if managing a global alliance is not your core competency, you should outsource that too by letting a company which specializes in managing such alliances handle your off-shoring activity.