What is a Contract Manufacturer?
A Contract Manufacturer is a someone that manufacturers items on behalf of someone else. This can either be single individual components such as machined drive shaft or different components and assemblies and ultimately complete product such as mobile phones or hairdryers.
Contract Manufacturers (CM) are the perfect answer to businesses that are looking or outsource their manufacturing requirements. This can happen for several reasons:
- There are no in-house capabilities
- There is a need for a specialist process
- Cost of in-house manufacturing is prohibitive
- Logistical or demographical constraints
A common scenario for a company using contract manufacturing would be something like this:
“AMEX Inc have designed an electronic product that consists of one PCB, one LED screen, some plastic moldings for the case, a keyboard, and a charger. AMEX Inc are just a design firm with no manufacturing capabilities, therefore need to outsource 100% of the manufacturing. They decide to use different contract manufacturers to produce different parts of their product.
- Molding Supplier to produce the case components
- Electronic Manufacturing Service (EMS) supplier to produce the PCB
- Charger manufacturing supplier
- LED screen supplier
- Keyboard supplier
Now they have identified all the supply chain, they still need assembly. This is where the EMS supplier would pick up more responsibility. The EMS would purchase directly from AMEX Inc’s approved suppliers the case molding, the charger, the LED screen and the keyboard. The EMS supplier would then assemble the product and ship to AMEX Inc.”
So in a nutshell, a Contract Manufacturer can be anyone who is providing a service for someone else who is looking to outsource their work.
You can read more about an CM’s role in NPI in The New Product Introduction Process Guide for Hardware Startups.
You may also enjoy this blog post: OEM, ODM, Contract Manufacturers: Choose your China Supplier Wisely