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Understanding Contract Manufacturing

by Last updated Oct 9, 2023 | Published on Jan 24, 2017Contract Manufacturing

Estimated Reading Time: 3 minutes

In the manufacturing industry, the term contract manufacturing is often used as another word for outsourcing. While it provides a variety of benefits for businesses across a wide range of industries, there are many misconceptions about what contracting manufacturing/outsourcing is. We’ll walk you through what contract manufacturing is (which is what we do), and explain the different terms associated with outsourcing.

Outsourcing vs. Offshoring

Because the term outsourcing is so often depicted in the news with regards to offshoring, it is easy to think that they are one and the same. However, outsourcing doesn’t necessarily mean that services are provided offshore. In fact, with outsourcing, the location of the services being provided isn’t important. Outsourcing refers to that act of having specific services and/or products manufactured or produced by a third party, which may be located either locally, nationally, or internationally.

Offshoring, on the other hand, describes the process of having products manufactured or services rendered by a third party located in another country. It can also refer to relocating specific parts of a business to another country. In this case, the products and services are all being handled by the same company, but certain processes are being performed in a different country.

Benefits to Contract Manufacturing

The benefits associated with outsourcing your manufacturing services to a contract manufacturing partner are extensive, but we’ll try to keep it simple for you. Here are just a few of the main benefits to working with a contract manufacturing partner.

1. Cost Savings

By working with a contract manufacturer, you can cut costs considerably for a couple of key reasons.

  • Products can generally be obtained/manufactured at a lower price due to bulk ordering components and existing vendor relationships that a professional contract manufacturer may already have in place.
  • The cost of having certain products manufactured by a third party vs. in house may be significantly lower due to the fact that the third party already has an established workforce in place. The cost of recruiting and training the necessary labor force to perform the manufacturing tasks may not be worth keeping the process in house.

2. Effective Space Utilization

In addition to cutting costs on products and on maintaining a labor force for a specific process, outsourcing also allows your business to better utilize facility space. Because products are manufactured offsite and delivered either as a whole or directly to the end user, a significant amount of facility space can be used for something other than storage. For example, maybe you use the empty storage space to set up training for your existing staff, or maybe it is used for another manufacturing project that you otherwise wouldn’t have the space to complete.

3. Access to Equipment & Expertise

One of the greatest advantages to working with a contract manufacturer to outsource part or all of your manufacturing processes is that you have instant access to state-of-the-art equipment and expertise that has been developed over a long period of time. While you could certainly spend the time and money to grow a team of experts and purchase the expensive equipment required to manufacture every product your business designs, outsourcing allows you to utilize existing skills and equipment, so that you don’t have to.


Let’s recap. Outsourcing doesn’t have to mean offshoring, and contract manufacturing is often referred to as outsourcing. There are a variety of benefits associated with outsourcing, which is why many businesses choose to work with a contract manufacturer. We hope this article cleared everything up for you, but if you have any additional questions about contract manufacturing, we’d love to hear from you.

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