A straightforward contract manufacturing definition is where a maker or designer goes into an arrangement or, if done properly for legal protection, a formal agreement with another company who can manufacture their products.
When two businesses enter this agreement, the manufacturing business who creates, builds, or constructs the products for the other is referred to as the contract manufacturer (CM). The typical set-up with contract manufacturing is that a company has its products manufactured by a third-party contract manufacturer and incorporates those procured products into its own products or services. Thus, allowing the contractor to focus on marketing, sales, supply chain, and customer service.
Outsourcing and contract manufacturing are essentially one of the same, and so too are the reasons a business might take this approach. It is most appropriate for a firm to contract out manufacturing when they’re looking to:
Businesses using contract manufacturing as a strategy offer the firm the advantage of: