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What is Contract Manufacturing?

What is Contract Manufacturing?

Contract manufacturing is often called private label manufacturing and refers to an agreement where a firm hires a third-party contract manufacturer to produce products components or a final product.

The Purpose of Contract Manufacturing

Contract manufacturing is a form of outsourcing that allows firms to have their products produced by specialist manufacturers. Third-party contract manufacturers typically specialize in one of the following:

  • Product assembly
  • Product design
  • Product distribution
  • Product component manufacturing

Contract marketing is a business model that is implemented by many industries over the world, including the technology, medical, pharmaceutical, food, and cosmetics industry.

Benefits of Contract Manufacturing

There are several benefits to contract manufacturing including:

Lower Input Costs per Unit

Since the hiring firm doesn’t produce their products, they don’t need factories and the necessary production equipment. Labour costs are also typically lower, especially if the contract manufacturer operates in a low-cost country like China.

Contract manufacturers are also better suited to benefit from economies of scale, especially if they purchase large quantities of raw materials for several clients. As a rule, the cost per unit decreases as the number of units in once shipment increases.

Mutual Long-term Benefits

Contracts between hiring companies and contract manufacturers that last for years are beneficial to contract manufacturers in that they represent a steady flow of business.

Long-term benefits are also beneficial to the hiring company since the contract manufacturers eventually gain extensive knowledge about the hiring company’s product requirements.

Quality

Established contract manufacturers have extensive quality control policies in place to detect defects or poor quality at an early stage.

Skills and Expertise

The hiring company may not necessarily have the skills and equipment to produce high-quality products from raw materials in a cost-effective manner. One of the most prominent benefits of a relationship with a contract manufacturer is that it allows the hiring firm to take advantage of these skills.

Emphasis on Core Competencies

By leaving production to specialists, hiring firms free their resources to focus on their core competencies and strengths.

Risks of Contract Manufacturing

Lack of Control

By entering into a contract manufacturing agreement, the hiring company forgoes a high degree of control over the production process. High-end contract manufacturers will, however, work with the hiring company to meet their requirements.

Inherent Risks

Outsourcing production or assembly can be risky, especially if the contract manufacturer is in another country. Working with local contract manufacturers may mitigate risks such as long lead times, language barriers, and cultural differences.

Lacking Flexibility

If a hiring company outsources the production of their goods, responding to fluctuations in demand can be a challenge. Lacking flexibility can be particularly problematic if the hiring firm does not constitute a large portion of the contract manufacturer’s business.

In Conclusion

Contract manufacturing is a valuable model for role players in the food industry. If you’re in the food industry, and you want to build on the strengths of your business and need a partner to take care of the production end, head over to Dure Foods to learn more.

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Brand Owners: Discovering Untapped Opportunities In Outsourcing

Outsourcing is recognized as an essential step in increasing market share and production capacity of a small to medium sized business. This is largely due to the variety of opportunities which become accessible to brand owners after they delegate a portion of business processes to an external agency.

While the most obvious example may be the reduction in costs associated with lower priced labor or materials, this is only one aspect of the complex commercial agreements which comprise the notion of outsourcing.

If properly orchestrated, outsourcing can portend a multi-stage evolution of business, centered on:

  • Opening New Markets
  • Increasing internal Resources, and
  • Product Development

Outsourcing New Markets

Outsourcing offers the unique opportunity of leveraging new points of production to interact with alternate markets. One key aspect of outsourcing is the possibility of partnering with an agency which can also assist in penetrating multiple markets.

Additionally, having a local, trusted organization behind your product will likely offer any distribution channels which that organization relies on. This means that a well-designed outsourcing agreement will ensure the Brand Owners products are being manufactured correctly, and effectively distributed in key, new markets.

Increase Brand Owner Resources

The resources associated with manufacturing can sometimes be staggering, associated with facility costs, direct labor, and indirect labor costs. Partnering with an expert manufacturer will remove the capital restrictions required to procure, operate, and maintain the manufacturing process.

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This does two important things. First, it offers brand owners the increased opportunity to spend time growing their business in other ways. Secondly, it reduces the burdens associated with these responsibilities.

Essentially, the risks and rewards are shared between the brand owners and the company outsourcing. This can prove to be essentially important for smaller businesses who would benefit greatly from a shift in expenditure from manufacturing to sales or advertising.

Outsourcing and Product Development

On the one hand, the goal of outsourcing is to find a manufacturer to produce your product as you have designed, but what if there is a better way? Outsourcing can offer some unique opportunities surrounding product development which can be associated with the expertise and experience of the outsourcing company.

In other words, part of a partnership with an external agency is that you get the benefits of their manufacturing skills. This may mean that a locally produced material in the manufacturers region, which is not accessible to brand owners, may be a better solution.

Likewise, costly production equipment which would have been out of a brand owners price range could become available. In many ways, choosing a high-quality outsourcing organization can lead to dramatic changes in product development.

Should I Outsource?

The question of outsourcing is a widely debated political topic, but in this increasingly globalized world, it is an essential step in the expansion of up and coming businesses.

Dure Foods is fully capable of not only helping you outsource your product, but also strengthen your brand presence with custom formulations aimed directly at your client profile.

Outsourcing offers brand owners a variety of opportunities which would be otherwise inaccessible, and will prove to benefit not only the bottom line, but also the satisfaction of their customers.


Choose Dure Foods’ certified highest quality products for your dietary fitness needs. For more information, contact us here.