How to Choose a Contract Manufacturer

It happens time and time again in the world of manufacturing: A business finds itself exceeding in-house production capacities. Resources get tied up, equipment and employees grow overworked and orders sit in backlog. When viewed from another angle, these situations can quickly become an opportunity. One for your business to reach new levels of potential without biting off more than it can chew — or fall victim to messy, unaddressed production consequences.

In comes contract manufacturing. These companies work as third-party partners, a solution in the form of outsourced providers of individual parts or complete product fabrication for your production needs. Yet choosing a contract manufacturer and choosing the right contract manufacture are two separate matters, with entirely different outcomes if done wrong. The best contract manufacturing companies are more than a supply chain vendor. They recognize and treat your products as if they were their own, are thorough in their operations and diligent about quality and capital. Ensure you know how to find the right contract manufacturer by working through the following guidelines. Along the way, you’ll read about contract risk mitigation, costs, services and industry expectations, all to help you make an informed contract manufacturing decision.

Why Choose A Contract Manufacturer?

There are a number of reasons businesses turn to contract manufacturing partners. Across rationales, the right outsourced manufacturing operation delivers many substantial benefits.

1. Save Money — Lots Of It

Full-service contract manufacturing companies have a sharp advantage over many other manufacturing operations: their reduced cost.

In fact, these outsourced manufacturers save certain industries 30 to 35 percent in overall production costs, on average.

The money-saving secret lies in already available equipment and infrastructure. Because these fabrication facilities have fully operating metal-working and welding functions, machinery, technology, plus trained staff and automated production processes, you eliminate the need for these in-house. This, in turn, saves a tremendous amount in early manufacturing overhead costs, as well as labor, utility and maintenance expenses down the road.

Contract manufacturing partnerships provide premium materials, cutting-edge machinery and technology, and innovative product solutions in shorter lead times, and they can do so under one roof. All this is imperative to a budget-friendly bottom line for your business.

2. Increase Production

Increasing product fabrication and unit outputs while decreasing lead time is the dream of many manufacturers. How to balance that equation, though, can quickly become a nightmare if mishandled or ignored.

When choosing a contract manufacturing partner, you shift production into the hands of highly efficient, specialized facilities and individuals fully optimized to increase material production. They can assemble more products in shorter times using advanced equipment, experienced project management and fabrication services tailored to your exact needs.

This boost in capacity simply might not be possible in your current business or facilities. Stymied by space, a stretched budget or overworked production areas, it can be impossible to keep up with increasing production demands at certain stages of a business. Whether you need an entire product outsourced or only a few tailored parts, contract manufacturing businesses will fundamentally boost your production.

3. Bolster Quality Control

Outsourced manufacturing means you have extra “eyes” on your products — and hands and minds, all there to deliver a top-quality good. This extra attention goes above and beyond simple quality inspections or checks-and-balances. You already employ in-house, safeguarding your brand’s reputation that much more.

Some contract manufacturing companies will even offer multi-service, design-for-manufacturing (DFM) consulting. Using their own team of engineers, welders, machine operators and project managers, you’ll get valuable insight and improvements on the design and manufacturing proficiencies of your products from the actual folks helping to produce them.

4. Sharpen Risk Management

Your contract manufacturing business should see the success of your products and its streamlined production as if it were their own. The care and attention they place in its risk management should reflect this. Outsourced manufacturing cultivates a leaner philosophy within your manufacturing production pipeline. There are flexible yet specialized roles with increased attention to things like product testing, regulations and compliance. You also have less chance of running into net losses after investing in your own manufacturing capacities. With the proper balance of collaboration and oversight, these partnerships can decrease the likelihood of product malfunctions and company mishaps.

5. Better Manage Resources

Outsourcing components of your material production, quite simply, means you can focus time and money elsewhere.

Prefer to direct operations toward product research and development? Want to focus on rebranding and marketing initiatives? Looking to improve in-house administrative, front and back-office departments in a more consolidated and communal effort? With actual product fabrication outsourced to a premium place, you can.

This doesn’t mean once you’ve contracted a manufacturer, you can sit back and relax, though. Proper communication, organization and product management is still needed, as these contracts are a two-way street. The best partnerships see simple yet routine product oversight and documentation, with streamlined channels of correspondence and personnel dedicated to supervising it.

Signs You May Need A Contract Manufacturing Partner

Reducing costs while scaling up production remains the fundamental reason many businesses look for the best contract manufacturing companies. However, it’s not the only reason on the market:

1. You’re A Startup Or Small Business.

Companies in the small to mid-size range see particular advantages to outsourcing their material production. These businesses simply don’t have the infrastructure, tools or labor required to scale up internally, yet do have enough resources in place to outline contracts and manage them remotely. When numbers get crunched, it doesn’t make sense for them to do otherwise.

Likewise, companies in their early start-up phase will face the reality that their current size and age limit them from the sorts of operations contract manufacturers perform. Market research and feasibility studies often support this, with start-ups facing considerable investment costs and financial pressures other businesses do not. Choosing the right contract business can eliminate this problem while still keeping production costs in line and sales and distribution on target.

2. You Need The External Labor.

The price tag associated with employing additional, relevant manufacturing workers might simply be too steep. Labor is consistently one of the largest and most inflexible areas in American manufacturing budgets, once variables like wages, overtime, health and life insurance, vacation, sick days, taxes, employee regulatory compliance and more have been taken into account.

3. You Want To Simplify The Supply Chain.

Supply chains can be complicated. From the bottom-up, they can include multiple raw material suppliers, various distributors, shipping centers, warehouses and fabrication facilities — all the build just one product. When you pick a seasoned contract manufacturer, they’ll take care of this for you.

4. Product Demand Is Variable.

For physical goods that see a lot of variability in demand, it can be safer and more cost-effective to outsource manufacturing. When managed properly, they allow for seasonal fluctuation and less risk-intensive production flow, compared to businesses that are producing exclusively on their own year-round.

5. You Would Rather Focus Internal Resources Elsewhere.

Many businesses simply want to cut through the noise and focus on strengths. This means funneling current time, capital and other resources into non-manufacturing core competencies, such as research, engineering and design or marketing.

They must also take into account the collective branding or mission of their company. How contract manufacturing fits into current organizational structures and company values is a question each business must ask for themselves, but will often find positive and functional results.

How To Choose A Contract Manufacturer

There is no single path to choosing the right contract manufacturing company. There is, however, a lot of research and up-front work necessary to make a quality decision — work that pays for itself in the end.

And while it’s certainly no small endeavor to perform, your business’ profitability could depend upon it. Ensure you’re considering all variables and angles for potential outsourced manufacturing partners, and keep in mind that in the end, you’re picking what works best for you.

1. Complete A Feasibility Study

Assess the short and long-term practicality of an outsource contractor. Use the expertise of data and project managers to account for all variables, including timeline, budget, legal and human elements involved in the conversion. Weigh pros and cons, and consider all time and money saved and invested.

2. Research Company Reputation

The FDA, Better Business Bureau and other regulatory agency ratings should be top of mind when enacting initial research on contract manufacturer vendors. There are dozens of websites and digital resources you can use to study reputation, from governmental to commercial to nonprofit websites that cater to the legal and compliance history of many manufacturers.

3. Look Into Relevant Product Experience

Just as you would search for job candidates with relevant professional experience, you want to seek a contract manufacturing company that specializes in the kinds of goods and materials you need. Likewise, you may look into choosing the right contract manufacturing company based on specialty application or technology affordances they uniquely provide.

This seems intuitive, yet specialized experience and relevant capabilities should never be undersold in the search for the best third-party contractor.

4. Assess Scalability

Can the companies you’re vetting scale up production themselves if you should need it? Do they have fluid and proactive resources and production management capabilities themselves, or are there signs they’re already at their limit? The last thing you need is to chain yourself with a contract manufacturer that can’t keep pace with successful and in-demand products — the thing you were trying to solve in the first place.

5. Determine Outsourcing Expenses

Both as part of your initial feasibility reports and subsequent analyses, consider the natural costs that come along with contract manufacturers. These include expenses like shipping costs, added regulations and compliance, tariffs, contract fees, packaging and more. If at the end of the day, these costs remain lower than scaling up labor, utilities and in-house equipment, then a contract manufacturer is the way to go.

6. Document And Communicate

Communication between your chosen outsourced manufacturer and yourself is paramount. This means clear planning, instructions and initiatives completed during every step, from early screening and confidentiality agreements to finalized product shipment. What’s more, all this must be executed in formal, written documentation for all parties to reference.

The best contract manufacturing companies will set up sufficient touch points, maintain honest processes and adhere to all your written documents and manufacturing requirements. They are clear and proactive about any disruptions in the supply chain or changes you might need preparation for.

7. Consider Amount Of Oversight

How much autonomy are you comfortable lending to a third-party, outsourced operation? How much communication will you want with them — and how frequently can you feasibly fit it into an operational day? Who will be in charge of maintaining this vendor relationship, and who is involved in final contract decisions? Consider these questions internally, and discuss them with all contract manufacturing businesses you screen.

8. Put Expectations In Writing

All service expectations and requirements with contract manufacturers need to be communicated in writing. Since trust and follow-through are critical to these sorts of business relationships, you need to guarantee yours are fully noted.

Include objectives for the partnership, product formulation process, turn-around timelines, raw materials, shipping and material transfers and party responsibilities to begin, as well as any extra service scopes or final deliverable needs.

9. Make Calls And Schedule Visits

Set up screening phone calls with a representative from each contract manufacturing business you’re considering. Relay all your desired services, products and manufacturing expectations. Let the representative take you through the initial contract partnership process and ask you questions on their end. This is a partnership, after all. If possible, schedule a follow-up, on-site visit. This is highly recommended to get the full professional scope, functionality and feel of each facility.

10. Score All Companies In The Running

Review and evaluate each of the steps above. Come up with a numerical rating for primary services, as well as note impressions and additional vendor details. Allow project managers and other key production stakeholders to give their scores as well for the best overall team buy-in.

11. Select The Best Contract Manufacturing Company For You

How to choose a contract manufacturer becomes a much easier decision — and a more confident one — once you’ve undergone these steps.

Lean heavily on the measurable variables from above, but don’t forgo the intangibles. Elements like reputation and experience sometimes come through best in on and off-paper interactions. Remain clear and thorough with your own expectations and manufacturing needs, and translate those effectively across all screening interactions. In the end, pick a contractor that ticks all imperative boxes while going above and beyond for your brand.