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Contract Manufacturing Guide

Interior of empty factory

A BIT confused as to what contract manufacturing is all about? No problem. As the ‘helpful manufacturing people’ we at Grotech Production Ltd have pulled together this comprehensive guide to contract manufacturing to demystify, inform and point you in the right direction.

Whether you are a seasoned industry professional or just starting out, our guide will provide you with the essential information needed to understand and navigate the world of contract manufacturing.

Starting with the basics of what contract manufacturing is and moving through to a checklist of what to look for when choosing the right contract manufacturer for you, our guide has got you covered. Intrigued? Why not dive straight in and find out what benefits contract manufacturing can bring to you and your business…

What is Contract Manufacturing?

PUT simply, contract manufacturing is where one company asks and pays another to make something on its behalf. This ‘something’ could be part of a product that the hiring company is making, or it could be the whole product itself that the first company then brands and markets.

Also known as ‘outsourcing’, ‘subcontracting’ and ‘toll manufacturing’, contract manufacturing is a key part of the modern landscape of manufacturing in today’s world of business.

Strategic business solution
Contract manufacturing offers businesses a strategic solution to optimising their operations, improving efficiency and enabling them to expand their market reach. Making use of a contract manufacturer is an alternative option to investing in, and maintaining, in-house production facilities and capabilities. Avoiding these upfront costs enables other areas of potential business growth to be prioritised and invested in both financially and with other resources.

Manufacturing specialism
Contract manufacturers tend to specialise in manufacturing processes and / or work in certain industries. Working in collaboration with specialist contract manufacturers in a specific sector gives access to in-depth knowledge, experience and expertise; customers may not have this in-house or welcome the prospect of fresh input and perspective into this aspect of their business.

Likewise, the production facilities and capabilities could far exceed any they could have internally. The contract manufacturer’s advanced equipment and technology could add value in terms of production providing manufacturing services more efficiently and with greater scope than could be affordably achieved in-house.

item on conveyor belt in factory

Delivering what is needed
Flexibility is key to the business of a contract manufacturer. They often offer a range of services and manufacturing processes that can be adapted to the needs of their clients. Some may provide an End-to-End Supply Chain service from product development and other technical formulation support through manufacturing and processing, filling and packaging to labelling and despatch. This may suit some customers while others would rather commission the contract manufacturer to focus on specific elements of the Supply Chain such as blending and filling and carry out other stages themselves. Either way contract manufacturing offers the flexibility to buy in the support customers need when it’s needed.

Organisational flexibility is another advantage. Contract manufacturers are well versed in managing their production schedules, adapting their production capability to the changing needs of their customers. It could be that one customer requires a small volume or trial batches for product development, market testing or Quality Control purposes while another is looking to ramp up production as demand increases. Contract manufacturers have the ability to respond accordingly.

Contract manufacturing services can be found in almost all sectors where production is a factor, catering to the vast needs of potential customers. They can increase efficiency by helping to streamline their customer’s internal operations. They also enable customers to focus on their own particular strengths – maybe marketing and sales as opposed to product development and manufacturing – and could ultimately lead to cost savings. Equally importantly, bringing a contract manufacturer on board can help customers remain agile, competitive and responsive in an ever changing and demanding marketplace which is a must for any growing business.

What to look for
Finding the right contract manufacturer for you is essential and key to a successful relationship and outcome for you both. So, what are you looking out for? Expertise and experience in manufacturing the type of goods or parts that you want making is a good place to start. Their equipment, technology and skills of their workforce are also valuable indicators as are their operational practices or ways of working when it comes to production processes, Quality Control and health and safety. For instance, what is their approach to cleanliness / hygiene when it comes to switching between customer orders? Is all manufacturing equipment stripped down and thoroughly cleaned? Is finished product appropriately stored in segregated areas? Both factors are key to avoiding cross contamination.

Their approach to customer service and how it reflects your own is also important. Do they pride themselves on delivering On Time In Full (OTIF) ie delivering what is needed when it is needed? Are they open and honest, clear about what to expect and will they provide regular progress updates? What’s their reputation like? Do they tell a good tale or live up to their word? What do their existing customers say about them? All these questions are key to finding the contract manufacturer that is right for you.

What Does Contract Manufacturing Involve?

So, having found the right contract manufacturer, what’s next?

Agreements and discussions
Before any sharing of information and detail goes ahead, there generally needs to be a non-disclosure agreement (NDA) drawn up and signed to protect the interests of both parties.

This means more detailed discussions can now take place. The customer can share their exact requirements with the contract manufacture safe in the knowledge that their ideas, intellectual property (IP), formulas and processes will remain confidential.

Customers need not be concerned about sharing their confidential product information with a reputable contract manufacturer. Confidentiality is ‘in their blood’. They are the silent business partner of most of their customers to the extent that most product consumers don’t know they exist and assume the customer has manufactured their own product. NDAs are part and parcel of the process and contract manufacturers expect to sign one.

From the contract manufacturer’s point of view, the NDA also gives them the chance to weigh up the operational and cost implications of taking on the work: now they have access to the formulas, will they be able to manufacture the product satisfactorily? Do they have the facilities needed to handle the product and ingredients? Are they able to perform the necessary QC tests that ensure that they have made the product within the customers specification? What about the packaging? This should be agreed at the get-go. How does the customer want their product packing (into bottles, boxes, pallets?). Are there any requirements of the contract manufacturer to source such packaging materials or will they be provided by the customer ?

Overall, it allows both parties to understand each other better, giving the customer a fuller insight into the professionalism and capabilities of the contract manufacturer they could be working with and the contract manufacturer a fuller understanding of the customer’s requirements.

At the end of this initial process, the customer and contract manufacturer will agree what to expect for both parties in terms of what is to be made and how, quantity, quality, budget and lead-times. It is crucial to get this right as it sets the tone for what is to come.

Information transfer
With the framework of what to expect agreed, the process of sharing the precise detail can begin. This sees the customer providing the contract manufacturer with the information they need to produce the goods including design and formulation specifications, raw materials (where the contract manufacturer isn’t sourcing them directly) and any specific, perhaps even bespoke, production processes that may be required.

Where Intellectual Property like trademarks, utility models and patents are concerned, the customer will also license the contract manufacturer accordingly so that they are legally able to use them.

rollers and conveyor belts in a factory

Trial run
The best way to learn about the properties of the ingredients and manufacturing the product is to undertake a trial production run. A trial run facilitates the testing and validation stage ensuring the product can be successfully made as required and flagging up early on any potential problems.

While product specifications and formulations will have been provided upfront by the customer, making it work is the responsibility of the contract manufacturer. Quality control checks backed up by a stringent Quality Management System will be key to ensuring the product consistently meets the customer’s specifications.

Fulfilling the brief
That’s the formalities done and dusted plus the product and manufacturing processes tried and tested, so full production can begin. Here the product is not only made to the exact quantities and, in some cases, variations required, but it is also packaged and labelled as specified and duly despatched.

For some this may be the end of the line but often contract manufacturers and customers establish ongoing arrangements to their mutual benefit. Working together on a long-term basis means the contract manufacturer gains a thorough knowledge of both the product they are making and the customer they are making it for. This can strengthen and develop the relationship between the two parties with added value in terms of consistency of product, product development, manufacturing methodology and more of a partnership / greater collaborative relationship.

Product development
While trust and the spirit of collaboration are important where existing products are concerned, a good working relationship is fundamental when it comes to developing new products.

Not all contract manufacturing arrangements relate to products that are already in use in the marketplace. Many customers also turn to contract manufacturers with development briefs to explore the options for creating new products. Working with contract manufacturers specialising in the product range or sector the customer is interested in moving into means they can take advantage of specific expertise, technology and equipment they may not have available to them otherwise.

Bringing in this outside resource also provides space to develop, prototype, review and refine new products without having to take time out from and tie-up the customer’s in-house production plan and facilities.

Depending on the terms of the development brief, when it comes to collaborative working on new products, ownership and control of all Intellectual Property generally remains with the customer to do with what they wish.

Keeping lines of communication open
As with any partnership working, keeping those lines of communication open between those involved is essential. This is important not only at the beginning of the relationship when agreements are being made, but during the subsequent trial and production stages also.

Regular updates, quality control measures and adherence to the agreed timetable are fundamental to ensuring all expectations are successfully fulfilled. The contract manufacturer is your production department, communicate with them as you would your own team.

Effective communication is especially important where more than one contract manufacturer is working with the customer on the same product. For instance, one contract manufacturer could be producing the packaging while another is manufacturing the contents. All parties need to be communicating regularly to ensure the customer receives their finished product – filled and packaged – as specified.

Collaborative synergy of contract manufacturing allows customers to access professional external resources availing themselves of expertise and technology they might not have themselves or reducing production costs and enhancing operational efficiency without having to invest in or maintain extensive in-house manufacturing capabilities.

Its success however, hinges on a clear breakdown and allocation of responsibilities, effective communication and a shared commitment to quality and excellence.