Interactive contract manufacturing, or ICM, is a relatively new phrase that’s used to describe a business model in which a company designs, builds, and delivers a complete suite of interactive resources for its clients.
These interactive assets may include websites, online campaigns, promotional materials, and technology-based business solutions, such as automation and Software as a Service (SaaS). Although ICM companies do most of the work, they operate in the background and don’t normally have direct contact with their business partner’s customers. The assets they provide are usually delivered under the brand name of the company that’s hired them.
ICM is a subset of contract manufacturing, which, as we explain in this post, is a broader term that applies to outsourced manufacturing services in general. Read on to learn more about contract manufacturing, how it works, and the potential benefits of outsourcing.
In this post:
How does contract manufacturing work?
Contract manufacturing is essentially an outsourcing service – a business hires a third-party manufacturing company to produce components or finished goods on its behalf. This might be part of an exclusive and long-term arrangement or a one-off short-term deal.
A company that hires a contract manufacturer provides the designs and specifications of the components and products that need to be manufactured. In many cases, this might be generic or non-patented components or products that could be manufactured elsewhere.
There are five main types of manufacturing processes, as summarised below:
- Repetitive manufacturing – this kind of manufacturing has a dedicated production line that usually runs 24/7 to produce the same or similar components. The setup is simple and does not require frequent changeovers
- Discrete manufacturing – this is similar to repetitive manufacturing in that it uses assembly lines. However, the process tends to be used to produce more diverse products and requires various setups and more frequent changeovers
- Job shop manufacturing – this type of manufacturing uses production areas as opposed to assembly lines and production lines. The process is typically used to produce smaller batches of customised products for made-to-order or made-to-stock purposes
- Process manufacturing (continuous) – this is also similar to repetitive manufacturing but the raw materials are usually in slurry, gases, powder, or liquid form. Businesses that use this process include food manufacturing companies, plastic manufacturing companies, and metal smelting companies
- Process manufacturing (batch) – this process combines job shop and discrete processes. It’s based on batch manufacturing depending on the customer demand.
What is an example of contract manufacturing?
Contract manufacturing, especially interactive contract manufacturing, is not limited to industrial production. One example of contract manufacturing is in the marketing sector.
A marketing company often outsources aspects of their campaign materials like websites, billboards, and content, to dedicated specialists. In this case, contract manufacturers might include freelance video producers, web designers, copywriters, and graphic designers.
What is a contract manufacturing agreement?
A contract manufacturing agreement is a legally binding document between a client and a manufacturing company. It includes specific provisions that define the various terms and conditions, which generally cover the following:
- The products or components that need to be manufactured
- The quantity of the items required
- Delivery schedules and quotas
- Quality standards that need to be met
- Intellectual property rights
- Confidentiality clause
- The price, either per item or per batch
- The duration of the contract
- The liabilities and obligations of both parties
- Insurance and indemnification
These are just some of the aspects covered in a contract manufacturing agreement; there may be more specific provisions depending on the type of products that need to be produced. Upon agreement, the document is signed by representatives from both companies and duly certified by a notary public.
What are the benefits of outsourcing?
One of outsourcing’s key benefits is that it can help reduce overhead costs. Outsourcing means there’s no need to buy land or rent a building, purchase and set up expensive equipment, or hire permanent employees. This can save a considerable sum of money and thereby increase profitability.
The second most important advantage is flexibility. Rather than maintaining a complete operation, outsourcing allows companies to commission manufacturing services on a short-term basis as the need arises. There’s also the benefit of scalability, as contract manufacturing companies can offer the best prices for large-scale production.
Outsourcing can work well for both established companies and start-up businesses. By putting production in the hands of a specialist contractor with the right expertise and tools, companies can benefit from faster production and delivery times. It also enables start-ups to free up valuable time which they can use to focus on innovating and growing their business.
How to find a contract manufacturer
The easiest and most reliable way to find contract manufacturers is to reach out to contacts within your industry. Speak to past colleagues or parts suppliers and ask for recommendations – referrals usually have a much higher chance of success.
You may also want to attend trade shows, search online platforms or hire a consultancy firm to find the best contract manufacturers on your behalf, although this will inevitably incur more cost.
Summary
Contract manufacturing is when a business hires another company to produce components or completed products on its behalf. An interactive contract manufacturing company also operates on this basis by providing businesses with interactive assets like websites and software solutions. Whether you’re an established company or a start-up business, contract manufacturing can reduce your overheads and give you a competitive advantage.
