Contract Manufacturing

All companies that manufacture products must face the question “Make or buy?” There are advantages and disadvantages to both methods. When companies decide that “buy” is the right decision for them, they enter the world of contract manufacturing (CM).

Outsourcing is used extensively in many different industries. A few examples are:

  • Electronics Manufacturing Services (EMS)
  • Biotech & Pharmaceutical Manufacturing
  • Information technology

Here are some basic definitions of Contract Manufacturing:

  • Outsourcing; contracting a third party to manufacture some or all of a production line
  • The production of products/formulas on behalf of a client, in which the design and brand name belongs to the client.

While at one time original equipment manufacturers (OEMs) and drug development companies tried to be as vertically integrated as possible, many have decided that manufacturing (at least certain types of manufacturing) is not their core competency. Instead, many companies have turned to CMs whose core competencies are specific types of manufacturing.

Here is a definition of the term Contract Manufacturer:

A company that engages in product analysis, design and development, manufacturing, testing, order fulfillment and product distribution, for another company, on a contract basis.

Allowing a CM to manufacture some or all of a product frees the OEM to operate more price competitively and to focus on the development of their intellectual property (IP), which most feel is their core and distinctive competency. Eliminating the overhead of building and maintaining their own factory, OEMs and drug development firms can put their capital to work in more profitable areas. In addition to conservation of capital, contract manufacturing allows customers to scale their production rapidly. If the customer needed 10,000 units this month, but forecasts a need for 20,000 units next month, a new forecast is submitted to the CM which drives purchasing of the raw materials and components necessary to fulfill that new order. Conversely, if the forecast drops from 10,000 units to 5,000 units, the CM is notified through a new forecast. Employment scaling up and down is reserved for the CM to manage.

What about my IP and/or formulas? CMs sign confidentiality agreements (usually wrapped into the manufacturing contracts) that protect the customer’s IP and formulas. The CM has no claim on your products. They strictly serve as your outsourced factory. Any CM that engages in illegal or unethical activity destroys their reputation and pays a very high penalty for their actions.

There are thousands of CMs offering manufacturing services in both the EMS and Pharmasourcing fields. As an independent manufacturers’ rep, Baselodge Group represents some of the most capable CMs in the world. Let us match you up with our manufacturers to provide you with a quotation for the production of your products.