Contract manufacturing is the business practice done by a company, where they build products for a different company that gives them a contract for manufacturing these products. This is also known as private label manufacturing. There are a lot of companies involved in these contracts at the same time, as every band tries to use multiple resources to increase manufacturing needs, sometimes these different contract manufacturing companies can turn out to be competitors of each other.
Contract manufacturing is a process where a company gives out a contract to a third-party manufacturer who’ll take part in some steps of the manufacturing process of that product which will, in turn, increase their production operations significantly.
Instead of manufacturing the complete product by themselves, these companies assign contract development and manufacturing organization the task of finish certain steps of the manufacturing process, so that the time required to produce a single product decreases, which will result in higher production rate.
There are times when the contract manufactures can provide their very own products to the prime companies, who can sell these products under their brand by taking their rights from them. Since the competition is high for taking the contracts, most of the time there are rate drops from these companies in order to grab the opportunity to produce for a company since there are no customers interactions involved in these deals, all competitors are focused on each other’s businesses.
Types Of Industries That Use Contract Manufacturers:
- Food Industries
When it comes to pharma industries, most contract manufacturers take contracts to produce raw materials for the companies, Chemicals to be exact. There are a lot of big companies involved in taking these contracts like Tergus Pharma & Monsanto, both these contract companies are actively known for producing materials that are used by other pharmaceutical companies to produce their products.
Most of the food industries have heavily relied on contract manufacturing. These companies take contracts from producing complete food items to the packaging of the product. For example, most of the items that come in bottles are mostly done by contract manufacturers.
For this industry, contract manufacturing is not a new concept. For a long time companies have been outsourcing manufacturing to multiple companies. According to studies, almost 50 per cent of vehicle manufacturing is done by contract manufacturers.
Most of these companies never build certain parts like suspension, car electronics or gearboxes, all of these items are outsourced. At this moment though, there is no car manufacturer who completely outsources the whole manufacturing process of a car, only in parts.
Its no secret here that most of the parts are made by contract manufacturers when it comes to the electronics industry. Take Foxconn for example, they are known for producing parts for huge brands like Apple, Microsoft & Amazon.
Foxconn is the main contractor that deals with manufacturing the iPhone from Apple. They are based out of Taiwan, but most people believe that iPhones are manufactured in China which is wrong. They are Apple’s one of the 200 contract manufacturers that produce parts of the iPhone.
Recently the growth of robotic products for consumers has grown exponentially, like drones. This is one area where the robotics industry needs contract manufacturing for producing parts and whole products in mass volume for the consumers, due to high demand.
Not just that contract manufacturers also produce industrial machines that are used in lots of factories for manufacturing other products. This is why experts believe this to be the fastest-growing industry.