contract manufacturer ("CM") is a manufacturer
that contracts with a firm for components or products. It
is a form of outsourcing.
are many benefits to contract manufacturing. Some of the
benefits are listed below.
Savings ¡V Companies save on their cost of capital
because they do not have to pay for a facility and the equipment
needed for production. They can also save on labor costs
such as wages, training and benefits. Some companies may
look to contract manufacture in low-cost countries, such
as China, to benefit from the low cost of labor.
Benefit to Contract Site ¡V A contract between
the manufacturer and the company it¡¦s producing for may
last several years. The manufacturer will know that it will
have a steady flow of business until then.
Skills ¡V Companies can take advantage of skills
that they may not possess, but the contract manufacturer
does. The contract manufacturer is likely to have relationships
formed with raw material suppliers or methods of efficiency
within their production.
¡V Contract Manufacturers are likely to have their
own methods of qualitycontrol in place that helps them to
detect counterfeit or damaged materials early.
¡V Companies can focus on their core competencies better
if they can hand off base production to an outside company.
of Scale ¡V Contract Manufacturers have multiple
customers that they produce for. Because they are servicing
multiple customers, they can offer reduced costs in acquiring
raw materials by benefiting from economies of scale. The
more units there are in one shipment, the less expensive
the price per unit will be.