What is Contract Manufacturing? The pros and cons of outsourcing

What is Contract Manufacturing? The pros and cons of outsourcing

Imagine your team has just created an incredible new product that customers love. How will you turn your idea from digital sketches into a physical product for your business?

You might need the whole product made or just a part. You might consider contracting a manufacturer, no matter what the situation.

Let’s talk about contract manufacturing, its pros and cons, and the risks that contract manufacturing can present to your company.

What is contract manufacturing?

Contract manufacturing refers to the outsourcing of the production of goods for companies that are unable to produce them in-house. Contract manufacturing is a type of outsourcing that allows businesses to manufacture their goods and products.

What are the pros and disadvantages of contract manufacturing?

There’s a reason why an increasing number of companies across a variety of industries are turning to contract manufacturers to help them get the job done (full research available to clients).

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Businesses have many benefits from contract manufacturing, including:

  • Lower costs
  • Access to individuals with certain skill sets
  • To catch errors, you need more eyes looking at your product
  • Easier-to-scale production
  • Focus on core competencies of your company

Businesses can save time and money by outsourcing manufacturing to contract manufacturers.

However, this comes at a price.

You lose some control when you outsource a portion of your business. There are many risks associated with contract manufacturing.

  • It is not possible to control the quality of products.
  • Dependence on the schedule of the contract manufacturer
  • There is a possibility that your product could be sold or poached by other companies
  • Language and cultural differences can create communication barriers
  • If the product quality drops or if the contract manufacturer treats its employees poorly, it can damage your business’s reputation.

The final product that you hire a contract manufacturer to produce is a reflection on your company and not the company that you hired.

It is important to carefully choose your contract manufacturer and ensure that they meet your company’s quality standards.

What are some ways I can reduce the risk of hiring a contract manufacturer?

You can manage and mitigate the risks associated with hiring a contract maker, even before you actually seek out a contract manufacturing service.

Do your research before outsourcing. You should also know your business’s requirements. How will you outsource this process? How will this affect your overall business? The processes you choose to outsource should not be core to your business–generally speaking, these essential processes should be kept within your direct control, which may mean keeping them in house.







If you are looking to hire a contract manufacturer make sure that:

  • From the beginning, communicate your expectations about quality, supply chain, security, and include these elements in the contract. You shouldn’t be matched with a company’s standards for quality.
  • Perform on-site audits to check the contract manufacturer’s quality system maturity level at every stage in the manufacturing process (full research available to clients).
  • Establish a working partnership with the contract maker through a clearly-described contract manufacturing agreement. This agreement sets out quality expectations right from the beginning.
  • Hire only a manufacturer that you trust. Make sure to do your research and sign a contract. If the company looks suspicious, it is probably not the right match for your business.

While outsourcing via a contract manufacturer is possible to manage and minimize risks, these cannot be eliminated completely. While outsourcing a business process can provide significant benefits, such as lower costs and the ability of scaling production, it is still a loss of control.

Software can be used to manage your relationships with contract manufacturers

Software can be a great tool for improving your manufacturing processes if you are ready to outsource. Software platforms can improve your in-house production and increase safety compliance.

Manufacturing software, for example, can help you manage your relationship with outsourced manufacturers to ensure things continuously run smoothly. Another thing you can do is to confirm that the contractor has a quality management system in place that aligns with your own quality standards. The quality of products made by contract manufacturers is still an indication of your company.

You can read reviews from businesses such as yours, or connect with one of Software Advice’s advisors for free to see which systems might be a good fit.