Supply chain management involves overseeing a complex series of manufacturing and logistical activities. It covers everything from sourcing raw materials to production, assembly, quality control, packaging, and delivery.
Contract manufacturing plays an important part in the supply chain and, as we explain, has benefits for businesses of all sizes. Continue reading to learn more about the role of contract manufacturing and how it impacts supply chain management.
For more detail, read our comprehensive guide to contract manufacturing.
In this post:
What is the role of a contract manufacturer?
The main role of a contract manufacturer is to produce components or finished products on behalf of another business. They essentially provide an outsourcing service, which can either be for a fixed period (to cover seasonal peaks for instance), or on an ongoing basis. A contract manufacturer is legally bound to follow the client’s specifications. They’ll also have to meet the quality control and assurance standards set by the client and, of course, ensure the goods are delivered within the agreed time frame.
Contract manufacturers themselves may subcontract some aspects of the manufacturing process. For example, they’ll usually have contracts with raw material suppliers and, in some cases, specialist packing companies. Factors such as capacity, lead times, quality, and price will all be taken into account when selecting a suitable subcontractor.
There are lots of reasons why you might choose to use a contract manufacturer. For example, you may not have the technical expertise or right equipment to manufacture your products in-house. Alternatively, you might outsource production to keep up with high demand. Either way, working with a contract manufacturer can have many advantages.
Benefits of contract manufacturing for UK businesses
Contract manufacturing can benefit businesses of all sizes. Many start-ups and small businesses see it as an ideal way to get their products to market quickly without risking too much capital. Even larger businesses that can perform the job in-house often outsource their manufacturing because it’s a more cost-effective option.
Some of the benefits of contract manufacturing for UK businesses are summarised below:
- Cost savings – perhaps one of the most important benefits of contract manufacturing is that it can save you money in different areas of the business. For example, you won’t have to buy and maintain new machinery or hire extra employees to operate it. Facilities costs such as electricity bills will be significantly lower too.
- Scalability and flexibility – using a contract manufacturer can make it easier to scale up your business if market demand increases. Should the need arise, you’ll quickly be able to increase production while still benefiting from low manufacturing costs. This flexibility also means you can easily respond to seasonal fluctuations and explore new product lines.
- Access to specialised expertise and technologies – many contract manufacturing companies have high-tech, specialist machinery as well as a wealth of industry experience. Having access to this kind of equipment and knowledge means you’ll benefit from a higher-quality finished product. You can also utilise staff’s technical insight to improve your product and/or save costs in the future.
Read more about the advantages of contract manufacturing here.
Risks and challenges in contract manufacturing
There will always be risks and challenges in working with a contract manufacturer, especially if you haven’t screened prospective manufacturers properly. It’s possible that your chosen company won’t deliver what was agreed upon or you might encounter delays and quality issues.
Even if you’re confident you’ve found the right contract manufacturer for your needs, you won’t have direct control over their operations or choice of subcontractors. This means there will always be some level of risk, particularly when it comes to quality assurance and communication.
- Quality assurance – despite any specifications that may have originally been agreed upon, there’s still a chance the finished component or product won’t meet the required quality standards. You’ll need to be prepared to test random batches and, if necessary, work with the manufacturer to resolve any issues. You can minimise this risk by checking if the company has strong quality accreditations such as ISO 9001 before signing a contract manufacturing agreement.
- Communication barriers – language differences can also pose a challenge if you’re working with a contract manufacturer in another country. But even if they’re based in the UK, interpreting industry and company-specific terminology and specifications can still be difficult. To minimise the risk of errors occurring due to miscommunication, try to adhere to commonly accepted standards, terms and measurements wherever possible.
Refer to our article ‘How to manage risks in contract manufacturing’ for more information and advice.
The impact on supply chain management
Supply chain management is primarily concerned with ensuring the production process – from raw materials to finished products and distribution – is as efficient as possible. Outsourcing some or all of your production to a contract manufacturer can help with this.
A contract manufacturer can make the production process more efficient in the following ways:
- Streamlining operations – outsourcing can help to streamline your business operations by removing redundant or unnecessary steps. It also allows you to keep personnel to a minimum without overburdening your existing workers.
- Reducing lead times – specialist third-party contractors can usually manufacture goods much faster than you would be able to in-house. This reduces lead times and speeds up the entire production process, meaning you should see a quicker return on your investment.
- Enhancing competitiveness in the market – streamlined operations, faster lead times, access to better machinery, and lower costs can all give your business a competitive edge in the market.
However, as we’ve already discussed, outsourcing your production also has its risks – one of which is supply chain disruptions. While you won’t normally have direct control over your manufacturer’s choice of subcontractors, there’s nothing to stop you from doing your own research and finding out more about them. This will help you identify potential risks or weaknesses in the supply chain. You can then put plans in place to mitigate these risks and keep your supply chain flowing smoothly.
How UK-based chemical companies like ReAgent Chemicals navigate contract manufacturing
Many UK-based chemical companies, including ReAgent, provide contract manufacturing services to small and large businesses from various sectors. At ReAgent, for example, our services include ampoule filling, chemical manufacturing, chemical blending and chemical bottling.
We’re able to navigate the complexities of contract manufacturing by establishing strategic partnerships and implementing stringent quality control procedures.
- Strategic partnerships – we pride ourselves on building and maintaining trusted relationships with suppliers and clients. As a result, we’re able to provide clients with high-quality products and excellent service at a competitive price.
- Managing quality control and consistency – quality is at the heart of everything we do here at ReAgent; in fact, it’s one of the main reasons why we have such long-standing business relationships with our clients. Our ISO-accredited systems, attention to detail, and constant monitoring and testing ensure we meet the highest quality standards.
Conclusion
Contract manufacturers have a strategic and crucial role in supply chain management. A key business partner, they can help companies of all sizes streamline their operations, reduce costs and gain a competitive edge. Although contract manufacturing isn’t entirely risk-free, you can minimise the threat by doing your research and finding a company that has a good reputation and robust quality control systems.
