Is It Time To Use A Contract Manufacturer?

Contract Manufacturer Capabilities An experienced contract manufacturer can help with small packaging efforts for large chemical producers. Contract manufacturers are geared for flexibility and provide quick turnarounds while employing lower cost structures. Contract Manufacturer. Contract Manufacturer (CM) refers to a firm that manufactures parts or products for a different company on a contract. CM is a form of outsourcing in which the hiring firm provides the contract manufacturer with a design and the contract manufacturer produces the products as a contractor. There are some benefits of. Contract manufacturing occurs when a business arranges to have another company make all or part of a product. Usually, the hiring company gives a design or formulation to the contract manufacturer to duplicate or enhance. The promotion and advertising of the product are left to the hiring firm unless other arrangements have been made.

The best contract manufacturing partner for you will have whatever you need, whenever you need it. To help you decide whether or not outsourcing to a contract manufacturing partner would help your bottom line, use our quick-reference infographic To Build or Not to Build. Click the button below to access your copy now.

You’ve completed the RFQ process and selected your Contract Manufacturer (CM). You feel great about your choice; you’ve done your homework, you’ve met the management team and familiarized yourself with the people who will now become your own extended manufacturing team. Now what?

Congratulations! You are officially on the path to getting your product made. Now you need to switch gears from picking the CM to managing them. Here are the next steps.

Part 1: The Contract

The contract, also known as the Manufacturing Services Agreement (MSA), is a legal document spelling out the details of the arrangement with your CM. It is broken out into the following sections:

Is It Time To Use A Contract Manufacturer?
  • Manufacturing Services:
    • Defines who is responsible for doing what
    • Material Operations: Vendors, procurement, consigned materials
    • Subcontractor agreement
  • Forecasts and Purchase Orders:
    • Forecast planning
    • PO procedures, lead times, cancellation
  • Fees and Payment:
    • Pricing (what’s included/not – VAT, taxes, fees, etc.)
    • Margins/Markup (standard vs. consigned vs. “special”)
  • Shipments, Samples, Quality Testing:
    • Shipping requirements, schedule
    • Samples: quantity, timing, who pays
    • Quality Testing: Who does it, who pays for it, how it is done
    • How Epidemic failures will be dealt with
    • Audit: Record keeping
    • Final Inspection Procedure
  • Product Acceptance & Warranty:
    • You can return product that doesn’t meet the specified warranty
    • Warranties: Professionally made, original work, tested as specified, manufactured as specified.
    • Clearly spell out that you’re allowed to visit and audit at any time
  • Representations & Covenants:
    • This is a legal document, no conflicts of interest
    • Manufacturing in a safe environment, no child labor, ethical, etc.
  • Intellectual Property Ownership:
    • Definitions
    • Who owns what
  • Confidentiality:
    • Mutual Non-Disclosure Agreement
  • Term & Termination:
    • Defines the term of the agreement
    • How you terminate the agreement
  • Indemnification & Liability Limitation:
    • General protection for everyone involved & related procedures
  • Miscellaneous:
    • Terms of agreement, use of name
    • Successors / assignment – new agreement
    • Controlling law, jurisdiction, venue

You should not be surprised if the CM pushes back on certain sections of the MSA as part of the negotiation process. All CMs are different and will have different requirements but in general, take into consideration their position and find an agreement that’s fair for everyone. The MSA process typically takes two to four weeks to complete. Finally, while MSAs are legal documents and considered quite common, there are many permutations so we strongly recommend having legal representation.

Questions or feedback? Let us know.

Struggling with CAD file management?

Unmanaged CAD data can lead to wasted time and expensive mistakes, but traditional PDM and PLM solutions are too costly for many companies. This guide, written by industry analyst Jim Brown, will help you find the solution that fits your needs.

Probable, you have realized there are 100s of contract manufacturing companies with being one of them. But, there is this million dollar question that seems to confuse many people, “when is the right time to seek contract manufacturing services?” You might have realized, the big boys like Microsoft, GMC, Apple, Samsung, Google and many others do also hire contract manufacturers. If you seem not to understand why and when to go for CMs; below is the explanation you need.


Seek contract manufacturing services while starting up a business under a strict budget

Is It Time To Use A Contract Manufacturer?

There are few instances when investors or newbie investors start their business with the full needed budget set aside. At times, many opt to get their business going and see it grow to a self-sustaining company. If you are starting your manufacturing business under a tight budget, it would be wise if you get into a contract manufacturing agreement with an already established CM company. Working with a contract manufacturer will help cut down manufacturing cost and employees’ wages until your business cash flow gets healthy.

Use Contract Manufacturing Services When Unveiling a New Product Brand

When planning to venture into new product brand manufacturing, no investor is 100% sure that his or her product will make it in the competitive market. Honestly, the establishment of a new product brand is accompanied by trial and error attempt in efforts to make that product relevant to customers. If you are a veteran or a newbie in the manufacturing industry, but you’re not ready to invest your money and time in trial and error manufacturing, outsourced manufacturing companies are the way to go. All you will need to do is choosing an experienced and reputable company with the right machinery.

Contract Manufacturing Services are Essential Will undergoing financial Crisis

In business, not all days are good. Sometimes your company might be passing over the severe financial crisis. In such times, you better seek contract manufacturing servicesto help you cut down manufacturing cost and save manufacturing time for other services, e.g. advertisements. You can opt to seek the help of a contract manufacturer until when your company will get back on to its financial feet.

Contract Manufacturing Services Can Fast Track Your Product Quality Improvement

Regardless of your product types, there are several types of contract manufacturing companies out there. Remember, most of the big contract manufacturers have worked with several clients. With their immense experience under their belts, if you hire them, there is no way you will suffer, trying different formulas to improve your products. These companies already understand what is needed of them to produce a quality product. Hire them, and they will save you the trial and error time and money.

Use Contract Manufacturing Services when product Demand is Unpredictable

In business, you must accept there are times of high tides and low tides. Sometimes, your product will be on high demand and other times the demand will decrease. In connection to that, contract manufacturing can help you save compared to when you’re manufacturing the products by yourself. Thus, during low demand seasons, consider hiring contract manufacturing companies, and you will cut some manufacturing cost.

Is It Time To Use A Contract Manufacturers


Although you have realized contract manufacturing Servicescan be of great help; not all companies are worth hiring. Take your time and study every company to know which one fits your needed manufacturing quality, the scale of production and one the one you can relate well with.

Is It Time To Use A Contract Manufacturer Agreement