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Everything You Should Know About Contract Manufacturing

Inno manufacturing is a professional contract manufacturing company in Shenzhen China, with over 20 years of experience at contract manufacturing service for global clients. We accumulated rich experience in diverse kind of product manufacturing and development. We would like to share our board knowledge about contract manufacturing. Hope it’s helpful for anyone who are interested in this topic.

What is Contract Manufacturing?

image of contract manufacturingContract manufacturing is kind of custom manufacturing service that happens between hiring company and manufacturer based on an agreed manufacturing contract, the manufacturing contract mainly includes manufacturing cost, quality, lead-time, and IP protection . In the contract manufacturing business, the contract manufacturers produce parts, components, or full products for their hiring companies, and the hiring company pay for the manufacturing cost to the contract manufacturer. but the copyright and ownership of product belongs to the hiring company. For instance, if Apple company hires Foxconn to manufacture Iphone, so Foxconn is a contract manufacturer of Apple.

Prior to a contract manufacturing services, the hiring company would require to sign a NDA agreement with the potential contract manufacturer, so as to protect their intellectual property of the products. Meanwhile, the hiring company provides product presentation and detail specification(2D, 3D drawing, BOM, and order quantity), the contract manufacturer would provide an manufacturing offer to the hiring company based on material, mold tooling, labor, fixture, and process. Once the hiring company accept the offer from contract manufacturer, they will sign a manufacturing contract immediately so as to initiate their cooperation anytime.

During the process, the hiring company would set up a quality inspection standard that would be used for quality acceptance of finished products. On the other hand, the hiring company will also outline guarantees and compensation terms in case either of them break contracts. Once the required production is finished, the contract manufacturer would send the goods to the destination that the hiring company specified.

 

Benefits of Using Contract Manufacturing Service:

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  • Energy Focus:The hiring companies can focus on their energy on their core competencies better, instead of spending lots of time on organizing, training, and managing manufacturing employees. The companies might focus on marketing, branding, and sales while working contract manufacturing partners.
  • Cost Savings: By using a contract manufacturing service, the hiring company can save lots of money on affording manufacturing operators, paying for facility and other running cost. Meanwhile the hiring company can also save cost on management of manufacturing system and supply chain. This is why many Western and US companies prefer to work with some low cost manufacturing regions and countries, like China, India, Vietnam, Thailand, Indonesia…
  • Time Savings and Risk-avoided:As you know, most of contract manufacturers have lots of years, even longer experience and expertise in manufacturing field. They accumulated rich experience in diverse kind of products manufacturing, because experience is the most practical way to accelerate the lead-time and avoid project risk. Therefore when you choose a potential contract manufacturer, you must be aware of their experience of making any similar projects as what you are doing. Most of time, the hiring company would require for reference project or reference customers. Otherwise you might take your project on high risk.

When to use contract manufacturing?

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  • If you are startup business, and want to focus more on marketing and other matter. It’s very difficult to survive for many startup companies. They need to face a lot of different matters on product design and manufacturing, marketing, team management, financial, social relationship, etc. Most of startup companies only have few people, in this case, to outsource a contract manufacturing service is a good choice.
  • If your forecasting of product is not anticipatable. Perhaps you are startup company or you just developed a type of product. And you are not sure how many product you should produce for the moment, it’s also a smart choice to work with contract manufacturer. Since you don’t need to prepare workers, material, and facility for product manufacturing. If not, you might waste lot of capital and energy for manufacturing.
  • If your team has less background on product knowledge. In case, your team member are not a specialist for product design and manufacturing, but your company has strong capability at marketing. In this way, you are strongly suggested to find a high quality contract manufacturing company for cooperation. Since it will greatly fasten your project time and avoid project risks.
  • If you want to save your time and energy. You might know, nowadays running a business is not easy. You have to work hours from early morning until late night. You might need to handle with sales, finance, team management, and other issues. If you attempted to set up a small manufacturing facility, you will waste most of your daily time to manage it. So working with a contract manufacturing will be time-saving and energy-saving.

How to Choose a Good Contract Manufacturer?

  1. Search some manufacturer information from internet or visit fairs, and collect business information( capability, location, company size, contacts…)
  2. Sort out 2~5 contract manufacturers, If possible, visit them one by one, and try to learn out their capabilities, experience, reference customers, similar projects…
  3. Request a RFQ from those potential manufacturers.
  4. Talk to 2~3 contract manufacturers who can meet your budget, quality, and lead-time, communicate details cooperation process.
  5. After full evaluation, figure out the most suitable manufacturer to continue your project

Reasons Why Work With Chinese Contract Manufacturing Companies?

  • Lower Cost: China is the world factory, has the most advantage at lobar cost in the past 40 years, even the salary of labor is going higher right now, but it’s lobar cost is still much lower than Europe and US countries.(approximately 3 times cheaper)
  • Hard-working Employee : If you have even been in China, you might know a little big about Chinese workers, they really work hard with lots of overtime. Because Chinese workers would like to earn more money for themselves as well for their family. The longest time they work for 14 hours a day without Sunday holiday. It greatly improve the manufacturing efficiency if your order is sometimes urgent.
  • Rich Manufacturing Experience: Since 1978, China has opened the doors to play the role of world manufacturer. Chinese workers has accumulated rich experience in various kind of industries. Even thought 40 years is a short time compared to US and Europe countries.(over 300 years of industrialization time), however Chinese workers has learnt enough knowledge and expertise for ordinate technologies, like metal manufacturing, plastic parts, and electronic products. Most of time, their capability can quickly make any traditional projects.
  • Matured Supply China: After 40 years of industry development, China has developed a diversity of suppliers, you can quickly find any products or services you needed. Those supply chain are mainly located in Southern China and Eastern China. Whatever your sourcing is about electronic, metal, or plastic, there are lots of choice for you.
  • Convenient Logistic Service: China has lots of international ports for ocean shipping and air shipping, they are very convenient for global logistic services. It takes only 3 days by air, and 10~15 days by ocean from China to anywhere in the world.