What is Contract Manufacturing?

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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
  • HR & Accounting

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.


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