What’s Contract Manufacturing?
Contract Manufacturing as the name imply, is a contractual agreement between a service provider and the hiring firm, whereby the service provider is to manufacture merchandise on behalf of the hiring firm, the original equipment manufacture (OEM). The contract manufacturing service provider is committed to deliver the manufactured product with the same quality as it is manufactured by the OEM themselves The contract manufacturing provider is to follow strictly to the good manufacturing practice of the OEM, purchase and use only raw material from the approved vendor list and use the same tooling as the OEM company.
Is Contract Manufacturing A Common Practice?
Contract manufacturing is fast becoming a norm for many industries, such as medical, electronic, semiconductor, personal care, automotive, energy, aerospace , marine, and many more. The list just keep going on. In todays contacts, contact manufacturing is becoming a necessity in nearly any trade. The OEM company will source for a contract manufacturing provider to undertake the mass production process while they focus on their key competence, which may be in the area of product research and development (R&D), sales and marketing, advertising and channel distribution, logistic and warehousing and etc. Once the OEM decided to outsource their production to a contract manufacturing provider, a plan will probably be set up to document the scope of supply, role and responsibility of the contract manufacturing provider. Quality and delivery expectation and many other requirement. Such as availability of production floor area, skill work force, tooling, global material sourcing expectation and etc will also be spell out in the contract agreement.
In most cases, there will be multiple contract manufacturing service provider bidding for the undertaking. Sometime the OEM can be given multiple contracts to difference contract manufacturing companies so as to maintain competition amang various contract manufacturing service providers. Once the OEM has selected a contract manufacturer, the contract manufacturing firm will be the OEM factory, leaving the OEM to focus on what they do best.
Who Use Contract Manufacturing?
Contract manufacturing can be utilized in just about any companies and products. From a sub-assembly process to the complete assembly, testing and packing of the merchandise, both large and small OEM are outsourcing their production process to the contract manufacturing company.
Plenty of huge corporations are using the contract manufacturing as an alternative choice to stay competitive and lean in their operation. A few product examples are CNC machine, Vision inspection machine, control panel wiring, power-line communication system and etc.