The truth is that many businesses tend to overcomplicate their supply chains. Unless they are taking in hundreds of millions of dollars in revenue, most don’t make it a top priority to simplify their global supply chain, especially if most of their products fall within the same industry or product category.

Many, if not most businesses also don’t invest enough in a supply chain team dedicated exclusively to sourcing product parts and components, planning production and arranging assembly.

Their reasoning? It takes resources away from the principal goal, which is generating sales. More companies are beginning to realize the added benefits of partnering with a contract manufacturer (CM) that can improve the efficiency of managing their supply chains.

Why do companies complicate their global supply chain in the first place?

Budgeting alone is not to blame. There are other culprits, such as misconceptions about how best to handle supply chains, which can end up by having real impacts to the bottom line.

4 Reasons to maintain a complex supply chain – Debunked

1. The best way to protect your IP (Intellectual Property)

• Many companies complicate their supply chain by employing multiple suppliers for the same product. The reasoning being to prevent one manufacturer from acquiring all the information required to reproduce their product.
• Rather than consolidating their supply chain, some companies choose to source each part using multiple suppliers to keep their suppliers in the dark. This method is adopted to reduce the risk of their IP leaking.
• While it makes sense to protect your IP, the question is, why work with a supplier you cannot trust? Would you continue to work with a distributor that steals your IP? Probably not.
• Many contract manufacturers have IP protection policies in place to prevent IP from leaking. Ask your supplier about their IP policy and ask if they work with any companies similar to yours. Are they an elite CM responsible for assembling products for industry-leading companies? If so, that’s a good indicator that they are trustworthy.
• If the answer is no, you may question if they are the right supplier for you and your project.

2. It’s more cost-effective to do it yourself

• Many believe it’s cost-effective to source products, subcomponents and parts on their own rather than having a CM do it.
• Good CM’s have a list of pre-approved vendors they have worked with for years. Building an excellent relationship with a supplier can take years to develop, more so if you are starting with lower MOQs (Minimum Order Quantities).
• One useful approach is to provide a prospective CM with a full BOM (Bill of Material) and ask them to provide you with your target costs. A good CM will give you quotes for both in-house production and quotes using their list of pre-approved vendors. The goal is for them to match you on the price.
• Some companies may have a limited amount of resources. Rather than using a costly sourcing team to manage your supply chain, it may be more beneficial to allocate your resources to departments that can generate revenue such as sales & marketing, product engineering & development to boost sales. You may want to consider identifying a CM who can hold their weight and provide full support to allow you to allocate resources to more critical departments.

3. Contract manufacturers are not project managers

• Manufacturing a unique or customized product requires full attention from a project manager. Many companies believe a third party cannot provide such care and decide not to work with them.
• CMs run production projects to stay in business, so proper project management should be embedded within their organizational structure. A CM can effectively track the entire process of the project and work with other departments heads (supply chain, production, quality and engineering).
• A CM can provide you with a project manager to be your point of contact and provide you with updates on new developments.

4. Contract manufacturers lack vendors for my project

• Another common misconception is that CMs cannot vet or provide vendors that align with your organizations’ goals. However, one of the greatest assets of working with a reputable CM is to take advantage of their roster of pre-approved vendors. Validating a vendor is no simple matter and does not take one or two projects to develop, but years of collaboration to build trust.
• Sometimes companies are content to use existing vendors and can request their CM to use designated suppliers. In this case, the CM is accountable for using only your list of suppliers, and thus both parties accept the price and quality, especially with projects using electronics (e.g. hardware, Internet of Things (IoT), robotics, etc.).

Consider the benefits of consolidating your supply chain

Consolidating your supply chain into one centralized location can expand your budget needed to increase sales, product development, and engineering.

There are many reasons why companies choose to consolidate their supply chain. The initial process of validating the right CM might seem complicated at first, but it can provide a substantial positive impact on your company and profits, in the future.

1. Allocation of resources

• Allocate more resources to sales and marketing, rather than taking resources away from it to focus on sourcing.

2. Cost effectiveness

• CM’s prefer to handle a more significant chunk of the project, than a small portion of the project like parts or subcomponents. The broader your engagement with a CM, the better your prices. When you leverage their full capabilities, your efficiency will improve, and costs will likely be more economical.

3. Better lead time

• Your CM has a number of pre-approved vendors that include a number of materials. Consolidating your supply chain with them will give you access to those pre-approved vendors.
• Rather than sourcing suppliers from all around the country or world, and driving your logistics insane, you can allow your CM to take the brunt of the pressure and take the lead.

4. Stronger development support

• Provide your CM with a more substantial mass of your project, will encourage them to be more inclined to allocate more resources to your project as well such as engineering and technical support.

Leverage professional supply chain management

As a business owner, you need to focus on growing your business rather than the management complexities of sourcing, manufacturing, assembly scheduling and shipping coordination. Consider delegating your supply chain management responsibilities to a team dedicated to managing all the moving parts to allow you to allocate resources to more vital aspects of your business such as generating revenue via sales and marketing – the lifeblood of any business.

The evolution in online business has opened up new opportunities and new business models that are becoming increasingly popular. And for a reason. If you’ve been considering scaling up your business to take on global online sales, you may be wondering about the best way to source, manage and distribute products. What if you could produce and sell products “without having to invest in machinery, equipment or specialized product knowledge”? Contract manufacturing may be an option for you to grow your business.

Entrepreneurs and businesses of all sizes are leveraging the power of contract manufacturing to get their own custom products manufactured quickly and sell into global markets. Now may be the perfect time to get to know more about the many benefits of contract manufacturing for companies of any size, even for those with limited resources.

Product design, production and distribution

Contract manufacturing (CM) is a form of outsourcing between a manufacturing firm (known as contract manufacturer) and the hiring company to produce a finished product or parts. Usually, a company has two options. They can invest and purchase the machinery and factory to make the product themselves or hire an outside company (i.e. a CM) with already-established production lines to make it for them.

Contract manufacturers can handle many aspects of product development, production and distribution:

• Manufacturing and assembly of your product
• Design and engineering of your product
• Quality Control
• Management of your orders
• Management or consolidation of the supply chain
• Planning and coordinating shipping and logistics

The benefits of contract manufacturing

• Cost savings
  • Outsourcing your product to a CM means not having to waste capital on any maintenance and operational costs of tools, machinery, and equipment.
  • A CM lifts the burden of hiring, salaries, wages, HR, and benefits for the operators.
• Allocation of resources
  • The costs one can shave off can be allocated to other vital areas such as your marketing budget.
• Shorter lead time
  • Hiring a CM will allow you to leverage a CM’s existing supply chain network and expertise to provide you with faster lead times.
• Quality
  • Reputable CM’s will have quality control processes in place throughout the production process to improve your product’s production quality.
• Advanced skill sets
  • Companies can supplement their lack of manufacturing knowledge by working with a CM. A good CM will have established connections with raw material suppliers and have a better understanding of producing your product.
  • Experience can include different types of materials and properties, tooling, production lines, quality and testing required to create your product as efficiently and cost-effectively as possible.
• Engineering & development support
  • Depending on the scope and size of the CM, a CM may be able to provide you with development and engineering support to get your project off the ground.

Who needs a contract manufacturer?

While it’s true that large business partnerships seem to get all the attention, contract manufacturers can work with a business of almost any size. As long as you have a product, working with a CM is an option worth considering.

Large companies have the capital to invest in their very own production lines, so why do they often avoid this option? Simply put, setting up a factory requires a huge investment of time, money, resources and unnecessary risk. When billions of dollars are on the line, larger companies know they should be focused on activities that generate revenue.

It’s no coincidence companies like Apple, Nike, Black & Decker and are marketing powerhouses, and they allocate their resources on branding, innovation, and the constant churning of new innovative products and designs. They recognize that their core strength rests on innovating the next big thing.

Who can benefit from a contract manufacturer?

• Startups
  • Most businesses can benefit from working with a CM, including startups, which can take advantage of leveraging the resources of CMs without over-straining their own sometimes limited resources.
  • Developing an early partnership with a CM is a great resource considering they can act as an extension of your team from the development side of your business.
  • A CM can help develop and build a product more efficiently and economically and supply the extra boost that will allow you to launch your product quicker to the market.
• Companies looking to improve quality
  • Good CMs will have time-tested quality systems in place. If you have quality issues then you may want to consider switching to a CM.
• Companies looking to improve overall efficiency
  • Contract manufacturers have the resources, knowledge, and services that can improve your overall supply chain.
• Companies looking to improve their profitability
  • Factories work on economies of scale and are not set up to produce small quantities – a problematic situation for companies looking to launch a few products to test the market. For a company to achieve economies of scale, it is necessary to work with a CM who has the existing clients and vendors using the same or similar materials.
• Companies looking to scale up production
  • A company that is growing quickly will need a CM that is able to absorb higher quantities. A CM should be set up in order to scale up production during peak times or during a time of growth from the client.

The contract manufacturing process

After vetting and selecting the appropriate CM, the hiring company and CM will sign a contract to have the CM purchase and manufacture the products for the hiring company. Some of the details that should be covered in the agreement include:

• Manufacturing the product
  • The CM carries the responsibility to produce the hiring company’s product as well as coordinating any subcontractors of subcomponents and raw materials.
• Volume
  • The number of units purchased by the company from the contract manufacturer.
• Pricing
  • The price per unit based on the agreed upon volume.
• Quality
  • The quality conditions agreed upon between the company and the CM.
  • The CM supports the quality specifications established by the hiring company. The CM will utilize its quality procedures to carry out the requirements set and agreed upon between both parties.
• Lead time
  • A time mutually agreed upon to complete the order. A schedule should be included detailing the time the order is placed to the time the order is ready for shipment.

A CM can manage the supply chain for your products

• Managing the order
  • The CM will bear the burden from the day the order is placed to track, manage, and provide the hiring company with project updates.
• Orchestrating the supply chain
  • The CM will be responsible for coordinating the production and final assembly of the project along with all the vendors.
• Logistics
  • The CM may be contracted to take on the distribution and shipping plan and coordinate the logistics for the hiring company. This includes arranging everything from the freight of the product to the nearest port, warehousing, and shipping delivering the goods to end customers.

Entrusting the drawn-out process of manufacturing to a CM helps free up the hiring company’s resources and budgeting. This means more resources can be allocated to the most crucial part of any business – sales and marketing.

Weigh the risks, but consider the benefits too

The decision to hire a contract manufacturer may seem a little daunting as it transfers responsibility away from the company, however, the rewards can outweigh the risks, if it’s done correctly.

Carefully vet and perform due diligence on all possible contract manufacturers prior to making the switch. Perhaps most importantly, the best results come from forming a relationship based on trust and a long-term approach.

Alibaba, China’s e-commerce giant, is synonymous with delivering affordable products with little uniqueness, leading to a market saturated with products that offer little innovation and low margins.

Offering low product costs might be tempting, but it may not be the best choice when brands are operating in a fast-paced, dynamic consumer market and consumer behavior is steadily shifting towards personalization and customization.

Stay ahead of the pack with product evolution

To stay ahead of the fray, many consumer goods companies know they need to do things differently. One of the best ways is by creating new products. Here are a few reasons why:

1.  Allows you to differentiate yourself from the competition
   • Only you can sell that product.
2. Higher margins
   • You can charge a premium because your product is unique to your brand.
3. Keeps your company and brand alive
   • Launching new products is the lifeblood of any consumer goods company.
   • Avoid succumbing to your competitors by delivering upgraded or better performance products that can compete more effectively in the market.
4. Market opportunity, value, and customer loyalty
   • New products provide consumer goods companies the opportunity to offer more value to new or existing customers while opening new market opportunities.
   • Developing new product lines help increase customer loyalty. Adding new products or iterations of existing products allows companies to sell more to existing customers.

Successful product development is a multi-step process that requires a product development plan and expertise ranging from market experts to engineers and manufacturing professionals.

6 major steps are required to bring your product idea to life

Step 1: Product design and engineering

Product engineering is the first and most critical step in the development process. A product will only be as good as it is functional. This step sets the course for the following phases. Contracting the work to a product design company, industrial engineer or contract manufacturer is suggested to stay lean. The critical elements of your search should include:

• Have they designed similar products before?
• Is their lead time acceptable?
• Can they make the prototype or does a different company do that?
• Are they reasonably priced?

Step 2: Proof of concept

Proof of Concept (PoC) checks the functional aspects of your product and ensures your product works as intended. Testing will be performed to emulate the product’s function in the real world.

Step 3: Product design and renderings

Renderings can be made before engineering to give a general idea of the product’s look. The design can be modified if it is not functional. Typically, product design begins after the functional elements of the product have been tested.

Step 4: Golden sample

The golden sample serves as the final sample to assess mass production and will be an exact copy in terms of material, finish, colour, and function to what will be produced during mass production.

A golden sample allows you to confirm the costs of your product, along with packaging and shipping. With costs in hand, you may refine your pricing strategy by marketing to distributors and retailers, crowdfunding your campaign, or creating marketing materials to start driving awareness and hype for your product. The feedback you gather should give you a ballpark on the number of units to produce.

You may use the samples for marketing purposes, however, don’t forget to provide your supplier with samples as well. These samples will be critical to develop and record product quality.

Step 5: Tooling

If you are developing a new product, you will likely need to invest in your tooling. You may speak with suppliers about tooling amortization and factoring tooling into your price. You may also ask if they offer an investment program.

Depending on the raw materials needed, tooling may be required to ensure product consistency. The main cost contributors to tooling are:

1. Production line
   • Plastic injection molding and die-cast are the two highest investments.
   • Other processes may require tooling but are not as expensive.
2. Type of steel used.
   • Different types of steel may affect the number of slots a tool may have, which can affect the overall life-expectancy of a tool.

Plan your lead times, including those for tooling. In general, plastic injection molding and die-cast tools take roughly 30 days to complete.

Step 6: Production

The first round of production will likely be longer due to tooling and raw materials testing, known as the pilot run. A small percentage of the first Purchase Order (PO) is made to ensure the production runs smoothly. The first production run is shipped to the customer for final approval. Once approved, mass production may begin.

Consider the services of a professional contract manufacturer

Making the choice to go into developing a new product might seem complex, and for good reason. There are many aspects to quality product development. The good news is that there are professional contract manufacturers who can partner with you on product development and guide you through the processes of launching and scaling up production of your product.