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Is a Contract Manufacturing Company a Worthy Investment?

By Edited Apr 8, 2016 0 0

A lot of up and coming companies are often handed the option of a contract manufacturing partnership without a clue as to whether or not the idea will be advantageous for their business endeavors. Putting up a business requires a lot of capital, and divesting funds to an external entity doesn’t seem like the most self-preserving move to make. However, before jumping to such conclusion, one should first look into what a contract manufacturing is and what it has to offer. If a lot of big and small enterprises prefer acquiring the services of these manufacturers, then there must certainly be something worthwhile about them that you could be missing out on.

A contract manufacturing company, first of all, is an outsourcer of products and services. It is a business dedicated to assist another business in realizing their desired processes, designs and formulas without having to ask them to establish the required facilities. The business model involves hiring an experienced and well suited external entity to take over the production or operations for an established fee. And with a contract highlighting specific roles, the hiring firm can just walk away from that aspect of the business and focus on other matters aside from manufacturing and production concerns. The arrangement could involve multiple contract manufacturers working on small parts or a product-line-owning company entrusting the entire production to a contractor. In either case, you will see the benefits offered by these services.


  • Cost minimization. With the intervention of a contract manufacturing company, you actually do not have to put up fixed assets in order to produce your products or services. You could just have someone else who has the right equipment and infrastructure take care of that part, on the condition that they get an incentive of the sales that you will be getting. If that does not spell cost savings for you, then the fact that you’d be spared from all the maintenance work and expenses should.


  • Convenience. No more rigorous and lengthy hiring and training processes, especially if you are serving a critical and complicated industry like aerospace or medicine. No more dealing with employee turnovers or production backlogs. In some cases, you don’t even have to worry about quality assurance. Instead of worrying over the production and manufacturing aspect of the business, you can have more time for other crucial concerns and be rid of the burdens that would be otherwise unnecessary.


  • Instant access to expertise. Basically, with a contract manufacturer, you do not have to be conscious about your tenure as a company affecting your capacity to deliver superb and world class products. You can have the same skilled employees work on your job order as those high profile companies and deliver the same, if not a better product or service to your consumer base.


  • Stability. A contract manufacturer partnership should last a few years and is renewable so you do not have to worry about people leaving the company and causing major shifts in the production scheme. This is something that most small and medium enterprises usually have a problem with since they entrust their small scale operation process in the hands of a few individuals, who could decide to quit any day and take with them company-related knowledge.


  • Flexibility. Now, given the fact that the relationship between a hiring firm and a contract manufacturing company is paper based, with legal breadth and limitations, you could easily sever ties with them and adapt to change, given the right conditions are met. There would be no need to worry about retrenchment backlashes as well as uprooting physical properties. You could just change location or business concept without incurring too many losses.



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