Background
Contract Manufacturing is the most common method to move a product from the development/prototype phase to mass production. Most brand/product developers have neither the resources or the need to develop in-house manufacturing capability – and the right Contract Manufacturing (CM) partner can offer better service, lower costs and greater responsiveness than in-company facilities – because agility is their most basic function. This enables businesses to source product at prices that reflect the volumes of the CM rather than just their own product. In addition to cost benefits, it is easier to transfer to production, to schedule and to get reliable delivery from an established and flexible Contract Manufacturing partner. Though it is very much a standard practice across the manufacturing sector, many businesses fail to optimise their sourcing, forecasting and operational Contract Manufacturing processes and pay a premium, as a result.
This post aims to review the role and importance of each of the contract manufacturing stages in a fast moving supply chain environment, to help you get closer to optimal at the start, and stay that way. It will offer tangible steps to take to improve Production Management within your supply chain.
Before you manufacture…
This guide is based on our own experience of Production Management – hoping you can learn from our hard won knowledge. Let’s start with some basic must-do steps BEFORE you manufacture anything;
Choose your Contract Manufacturing partner early – the CM will improve your Design for Manufacture and very likely will offer cost reduction inputs. In early adoption of the product (during the latter design phases), the CM will be able to guide your documentation and process development to suit their environment, which will make the transfer to production easier and improve your timelines. In particular, setting your expectations to suit their lean manufacturing methods will result in a better built product with less friction in early production.
At the outset of the relationship, a clear Scope of Work is important in defining joint and separate responsibilities – and in preventing the workload from creeping up without firm intentions and real benefits. This scope will evolve – but it’s critical that it does so in a planned and controlled way. It answers questions such as;
Timeline? Key milestones? Equipment and facilities needs?
Division of responsibilities? Decision making processes?
Supply chain and Bill of Materials preparation and authority?
Too often, eagerness to get started prevents early action to identify requirements and the schedule for solutions/documents availability. Putting right what is wrong is much harder than planning and avoiding the errors – particularly in that it can disrupt timetable and the all-important time to market.
Carry out prototype and pilot test lines with your CMs production engineers to assess fitness for production BEFORE you involve the factory floor – this will help prove your readiness, in a less demanding and time pressured way. Freeze the design as soon as you can – based on real experience of readiness, not the hope of getting there in time for mass production.
Get your Contract Manufacturer involved early in defining sourcing requirements, they will simplify the supply chain in imaginative ways that are likely not accessible to you, because of their greater experience. Component end-of-life risks and contingency planning are very valuable, as is addressing long lead components early, to avoid shocks late in the process.
Despite an ealy and well thought through design freeze, later iterations are likely. Try to budget to allow for some corrections/changes relatively late in the process – PCBa, software, tooled parts and testing requirements are all subject to changes close to mass production – allow for the possibility and celebrate when you don’t need the allowance – the alternative is painful.
With more complex products and systems, don’t underestimate aspects such as packaging, testing and labelling. In particular, as you prepare for pilot build and again as you scale to mass production, understanding accessory, packaging, inspection and test needs early will assist in protecting your timeline.
Risks inherent to the design and manufacture should be discussed by all parties. An experienced Contract Manufacturing partner, particularly one who has relevant sector and product type experience, will contribute strongly to manufacturing, design, assembly, and testing requirements, making the process smoother and the product better.
It can be very challenging to determine the setup and trial costs resulting from pilot and mass production setup for manufacturing a new product. Although such work often challenges initial budget estimates, good planning is not minimalist, allowing for some degree of iteration and obstacles. A good CM will work with the customer to develop a realistic budget and drive changes early.
Documentation and Contract Integrity Issues
The significance of contracts and their supporting documents (specifications, BOMs, risk assessments, work instructions, test requirements and more) can lead to disorder and poor version control – leading to mismanagement of contractual matters. Consequences of errors in communicating needs and standards at the right moment, in the right version, to the right people, can have complex ramifications. You, as the customer, bear the risk of implicit financial and schedule disruptions, where the error originates in your system/Production Management.
Storing and updating contract documents; Contract Management Lifecycle (CLM) software helps in storing, auditing and version controlling all contract related documents. This can condense the management process, eliminate errors and improve responsiveness and professionalism of the contract management team.
Supply chain management is an often neglected but critical activity, heavy influencing both scheduling and costs. CRM software generally includes tools to manage the supply-chain process – although delegating responsibility for this process to the Contract Manufacturer, rather than to in house Production Management is often a wise choice – freeing in-house staff from minutiae and allowing them to manage at a higher level.
Ensuring compliance with the contract terms is a key responsibility of Production Management in-house, to ensure that the contract is being met and the process is on schedule and as required. It is good practice for Production Management to analyse and understand legislation, product certifications, quality standards, recycling and end of life regulations of relevant markets – and confirm that the product and manufacturing processes are compliant. Similarly, the trading and tax laws of the manufacturing and market jurisdictions can have unforeseen impacts – issues such as goods crossing into or out of Special Economic Zones for example. Every aspect of a contract must be thoroughly understood and approved by legal support, ensuring the terms of service are met with, by the entire supply chain.
In Production Processes
The productivity of the Contract Manufacturer and the Production Management process can deeply influence profitability, for good and ill. The Production Management and Contract Manufacturing team must be agile and responsive in contract developments and alterations (to cost, schedule, compliance etc.) to ensure the process of transfer to mass production, and the mass production itself operates effectively and without waste of schedule or budget.
Establishing compliant, flexible and cost appropriate sourcing for Contract Manufacturing puts the Production Management into a strong position to deliver on a reliably scheduled, cost controlled production process. By optimisation, you can convert your supply chains into a strong partnership group, offering competitive advantage over competitors.
Forecasting is the process whereby Production Management, Marketing/Sales and other team members project the manufactured product demand and costs, based on the predicted volume needs to meet market requirements. This is a fine balance between demand (from sales) and the supply chain capacity data, logistics issues and material/labour availability. The Contract Manufacturer will respond to the production demand forecast with a proposal, detailing their ability to supply. Forecasts are never precise, must allow for contingency and flexibility in both directions and require very careful consideration by Production Managers.
When the supply volumes are larger and there is product history, data analysis can identify trends, make increasingly accurate forecasts, and award contracts to suppliers. Incomplete information, typical in the early stages of a product release, must result in forecasts with high levels of uncertainty. The risks associated with this uncertainty must be managed by building in contingency in early production. When there is too little inventory, there’s no option but to pay the added costs associated with alternative and accelerated supply – or suffer the costs of missed delivery schedules. To illustrate, the need to use parallel/grey markets and traders to source electronic components that are “on allocation” (i.e. in restricted supply from the primary agent/manufacturer) can have severe cost implications – but this can recover severe scheduling problems that result from the shortages.
It’s equally important to reflect on the cost implications of over-supply of finished goods. While such security stock can help alleviate schedule issues, it carries cost implications in; work in progress/working capital costs; storage; insurance; product ageing, in some circumstances.
Production management and the Contract Manufacturing supplier should conduct daily, weekly, and monthly schedule and planning meetings/comms, to tightly control the procurement, supply chain and manufacturing challenges as (or ideally before) they arise. By gathering all of the supporting information that defines every aspect of the relationship and the Contract Manufacturing plan into a single repository of operational data, all parties can develop a common understanding of operational requirements.
Precision management and an effective forward view of the Contract Manufacturing process requires reliable suppliers and thorough and agile maintenance of relationships. With this approach, all parties will have the same understanding of the project, the process and the actions needed in the event of program deviations – which will occur.
Conclusion
Contract Manufacturing services are the best way to support your program management and Production Planning. They offer ready made support, with low to zero CAPEX outlay and a flexible partner to advance your product through the maze that is early production.
Relationships are at the centre of this equation – and they must be tuned and maintained. Visit your supplier, share your war stories and listen carefully to theirs – this will help you understand each other and enable increasingly integrated and prescient operations!