Choosing the Right Contract Manufacturer

When in-house production grows strained and employees are overworked, choosing a contract manufacturer is a great option to fall back on. But a trusted contract manufacturing partner can also be an essential part of your usual business model.

But how do you know when it’s time to work with one? And how do you choose the right contract manufacturer for your unique needs?

These third-party partners can allow your smaller business to scale up rapidly or your larger business to absorb sharp fluctuations in demand. They adopt your products as their own for the duration of the contract. But if the situation changes, they won’t still be on the payroll or balance sheet.

So, when do you know it’s time to choose a contract manufacturer? How do you know such a move would benefit your company at this point in time?

When Choosing a Contract Manufacturer Makes Sense

• Your Company is Small

  Contract manufacturing is particularly advantageous for small companies and start-ups. They tend to have limited equipment and personnel – and more financial pressures. Producing through short-term solutions like contract manufacturing allows more incremental steps toward long-term success goals.

• You Need Simplicity

  If your operations are stretched thin and you are looking for opportunities to streamline and simplify, it makes sense to work with a contract manufacturer. This combines all the various aspects of the value chain – from vendors to raw materials to warehousing – into just one outsource partner.

• Your Product Demand Varies

  If demand for your product changes often, maintaining the right inventory levels can be a daunting task. Storage and transportation costs are needlessly inefficient. You may be in a perfect situation to benefit from the cost savings and market responsiveness of contract manufacturing services.

The Pros and Cons

Before shopping around for the right provider, it helps to first get a solid grasp of the pros and cons of contract manufacturing.

• Efficiency: greater economy of scale through combined purchasing power is possible with contract manufacturing.
• Increased IP Risk: Of course, anytime you outsource proprietary processes, there is an increased risk to your intellectual property. This is why it’s important to choose the right contract manufacturer – especially in a country with strong IP protections like Mexico.
• Minimum or No Regulatory Risk: US firms outsourcing to contract manufacturers in Mexico or other foreign countries forego risk exposure relating to import/export compliance. The outsource partner bears virtually all this risk and responsibility.
• Maximum Scalability: Changing market demand is not a factor, because you can place an order whenever needed for whatever quantity needed.
• Short Term Savings Over Long Term: Choosing to work with a contract manufacturer produces immediate cost savings, but reduces the long-term savings of owning the equipment and capacity for in-house production.
• Rapid Startup: While opening a new product line requires months to finalize in house, a contract manufacturer can often be in production in a matter of weeks.

Steps for Choosing the Best Contract Manufacturer

Step 1: Go to the Source

Your first stop to selecting the right provider is to consult a directory of contract manufacturers. These contains hundreds of providers to chose from. But don’t merely pick someone at random. The wrong contract manufacturer can easily offset any benefits of choosing this production route.

Step 2: Compare Capabilities

Compile a list of all capabilities your product will need. Compare this with capabilities you find in the directory to create a short list of providers.

Step 3: Consider Qualifications

Narrow down your list further by choosing only providers with experience in your industry and who already possess the equipment and certifications for your processes. Favor those with the most years in your niche and best track record. Don’t forget to ask about regulatory compliance – especially when dealing in multiple countries.

Step 4: Check Capacity

By now, you’re probably on the phone with a select few contract manufacturers. Ask them if they can handle your capacity expectations. What if the market goes up? Can they exceed your current levels if needed?

Step 5: Examine Personnel Compatibility

As you go through the vetting process, consider the capability and competency of your preferred contract provider’s personnel. It’s important your team will mesh well with theirs and that you have confidence in the expertise of their workforce.

Step 6: Discuss Location

Contract manufacturers typically work in foreign countries to maximize cost savings. But will your team be able to properly manage a process on the other side of the world? Discuss possible locations that will suit your company’s goals and access preferences.

Step 7: Choose Stability

Above all, choosing the right contract manufacturer is about partnering with a stable and trustworthy provider who will be there when circumstances are in flux. It’s important to know the provider who has your back is well-established in their location, well-connected with vendors and suppliers, and experienced handling unexpected challenges like equipment failure, shortages, market fluctuations, and delays.

If your company is in a situation to benefit from contract manufacturing, take your time to choose the best provider for your needs. A proven contract manufacturer with years of experience in your industry will be happy to answer your questions one by one and help you consider all these aspects.

Making the right choice will allow you to bolster quality, cut costs, speed up time to market, and better manage your resources for a leaner, more competitive edge.