While we believe the benefits of contract manufacturing far outweigh any possible disadvantages, we wanted to directly address some common misconceptions about contract manufacturing services and to discuss ways to reduce or eliminate the associated risks.
Explaining Contract Manufacturing
In a recent blog, titled “Understanding Contract Manufacturing,” we clarified the term “contract manufacturing” as it applies to what we do here at Axenics. The article goes into detail about the different terms associated with contract manufacturing, as well as some of the benefits.
In “Advantages of Contract Manufacturing,” we covered the various benefits of partnering with a contract manufacturing company. Some of the benefits discussed include: cost savings due to bulk purchasing and reduced overhead, access to a skilled labor force, ability to utilize high tech equipment and technology, access to additional facility space for storage and production, and more.
Simply put, contract manufacturing is a business model where one organization hires or partners with a third-party manufacturing organization to perform part or all of a specific manufacturing process. The contract manufacturing firm is then tasked with producing the requested items, and in many cases, they will handle all shipping transactions as well. When an organization has been working with a contract manufacturer for a while and established a high level of trust in that organization, they may choose to utilize the third party for additional parts of the production process, or even the entire process.
Eliminating Potential Contract Manufacturing Risks
While there are many benefits to contract manufacturing, it’s important to understand the potential risks as well. These risks, however, can be entirely avoided with the right systems and communication in place. Let’s talk about some commonly referenced risks associated with contract manufacturing, and how these risks can effectively be eliminated.
Loss of Control
By moving production processes outside of your own organization, you lose some of the control over your production by default. There’s no way around that; however, your involvement in the process can and should be whatever you need it to be. While you are limited in your ability to monitor every step of the manufacturing process, you can suggest strategies and create requirements around specific processes. The clearer and more frequently you communicate with your contract manufacturing partner, the more likely your strategies and processes are to be aligned throughout the duration of your partnership.
Some companies worry that they will be treated as one of many customers, and therefore their projects may not be made a top priority at all times. However, it is the nature of a good contract manufacturing company to meet and/or exceed customer needs and expectations. As long as your organization is willing and able to form a strong relationship with the contract manufacturer, and to maintain regular communication about fulfillment expectations, there shouldn’t be any issues. By working closely with your contract manufacturer and using additional business as an incentive for satisfactory production levels, you can greatly reduce the potential for this risk.
Many organizations worry that the products manufactured by another organization may not match their standards of quality. Again, a good contract manufacturer should be able to exceed your quality expectations at all times. Still, it’s best to discuss the manufacturer’s existing processes and standards to ensure that they meet your expectations before you begin working with them. Another aspect of producing high quality products depends on the suppliers of materials and equipment to meet quality standards as well, so you’ll want to confirm the integrity of those organizations as well.
Loss of Intellectual Property
While this a viable concern for any business entering into a contract with another organization, it’s also a risk that many contract manufacturers are aware of and therefore have measures in place to prevent this loss from occurring. It is still advisable, however, to be thoughtful about what type of information you provide to the third party. Additionally, by having your contract manufacturer sign an NDA (Non-Disclosure Agreement), you can avoid the risk of having important information end up in the hands of the wrong person.
These are just a few of the misconceptions about risks that are often associated with contract manufacturing. When a strong working relationship is developed and maintained by both parties, the risks involved in working with a contract manufacturer can be minimized, or eliminated altogether.