A contract manufacturing unit is a manufacturer which contracts with an organization for products or components. It's also a sort of outsourcing. Basically, it's the provider of ready-to-use or 'raw' components - that is, those things that the organization needs to purchase and assemble themselves. Typically, this is where the organization buys raw materials from the supplier at a discount and then uses those raw materials in producing a product. A contract manufacturing unit often carries out packaging functions, too, although they may contract for full packaging as well.
Nowadays, contract manufacturing has become an integral part of almost all organizations. It can be found in everything from consumer goods to sophisticated electronic equipment. It's especially popular in automobiles, where sometimes an automobile manufacturer or supplier must choose between either producing the automobile on their own (or, more commonly, using a sub-contract manufacturer) or having someone else do the manufacturing. When choosing between these options, the manufacturer must weigh the advantages of each, looking particularly at costs, quality of manufacture, durability of components, availability, etc., and determine whether each option offers something the other lacks.
In other words, contract manufacturing contracts provide a third party (another company) with the capability of completing a production line or complex process for a manufacturer without having to do the work themselves. Obviously, there are many advantages to using a contract manufacturer aside from these few examples. If you're a manufacturing company with hundreds, even thousands, of items needing to be manufactured in-house, using a contract manufacturer allows you to quickly scale up or down a production line according to demand. The contract manufacturer can also help reduce your operation costs by not requiring you to purchase materials in bulk or labor to complete the job yourself.
But, on the other hand, this type of arrangement is also susceptible to some risks. The biggest risk of all, of course, is that a contract manufacturer might take too long to complete your project. If it takes significantly longer than anticipated, you run the risk of losing money as the new product doesn't arrive on time, or in sufficient quantity to meet your customers' needs. Contract manufacturers are very busy and must meet tight deadlines. Additionally, they don't have the same kind of "wear and tear" protection afforded to an in-house manufacturer, which means that mistakes during manufacturing can lead to significant financial losses.
One of the best ways to ensure that contract manufacturers meet your high-quality standards is to work with a contract manufacturing company that already has a track record of delivering quality products on schedule and within the amount of time required. Ask questions about the background and success of each of the manufacturers that you consider for use as your raw materials provider. If the company is relatively new, check to see if they've previously completed projects of similar size and complexity as yours - a good indication that they will be able to handle your high-volume production process and provide you with high-quality finished products on schedule and at the right price point. Finally, ask the contract manufacturing manufacturer about its production capacity and how much raw material it uses on a regular basis to maintain the quality of its finished goods.
By hiring a contract manufacturing company to execute your production process, you ensure that your business can process large volumes of orders and that your quality control standards are consistently monitored and maintained. However, hiring a contract manufacturer doesn't mean you must have a contract manufacturing company implement your entire supply chain management solution. There are many providers out there who can help you effectively execute all aspects of your production process and who can reduce your lead time through their agility and rapid delivery. By outsourcing your entire supply chain management solution, you get even more value added from your contract manufacturer, while getting the assistance and support you need to stay ahead of the curve.