Production of products by one company, under the name or brand of another firm. Contract manufacturers make such services available to numerous (even competing) firms based on their own or the customers’ designs, formulas, and/or specifications. Also known as private label manufacturing.
The challenges of the contract manufacturing industry
Contract manufacturers rely on the contractor to a great extent. The contract manufacturer’s s price is more or less decided, after submitting his quotation. Accordingly, also the maximum profitability that could be attained for this order is fixed and it seldom turns out the goods can be produced cheaper than expected. However, the real cost to arise arent completely determined yet as the production often continues for several years, so you have to account for several risks during that period.
Some of these business risks include:
- Production process risks
- Procurement of raw materials, components, and production facilities
- Risks associated with outsourced production
- Market fluctuations
- Fluctuations in foreign exchange and interest rates
- Competition
- Rapid technological evolutions
Overcoming the challenges to increase profitability
