Contract manufacturing is one of the most effective strategies companies can use to optimize their revenue streams. This process allows distributors to outsource their lubricant production needs while maintaining control over quality standards and product specifications. In a tough market, private-label products can significantly advance your brand identity among already interested customers. This article looks at contract manufacturing as an important step in building a brand, and how companies can get started.
What Is Contract Manufacturing?
Contract manufacturing involves outsourcing specific production processes to specialized third-party manufacturers (CMs), allowing distributors to cut costs and increase efficiency. This type of contracting allows hiring companies more time to focus on the core business activities that are essential for success in today’s competitive environment.
The process begins when the CM is contacted by an outsourcing distributor, who then provides the product specifications and requests a quotation for manufacturing from the CM. Some critical factors of the project, like developing lubricant types, equipment, and labor expenses, are usually discussed as part of the original agreement between the CM and the distributor. Outsourcing ultimately makes contract manufacturing an effective way for companies to develop products and optimize their revenues to stay competitive.
Types of Contract Manufacturing
Businesses that primarily focus on distribution often find it challenging to set up manufacturing processes. Activities such as sourcing raw materials, acquiring machinery, and identifying and hiring qualified personnel can be too much, which makes it essential to outsource specific production processes to experienced CMs.
In the following sections, we explain the major categories of contract manufacturing.
Private Label Manufacturing
Private label sourcing occurs when companies provide finished products based on the specifications provided by their client. This process allows the hiring company to have the finished product delivered directly to its own warehouse, which offers some form of autonomy.
However, with private label manufacturing, ensuring quality control for the products is difficult since the entire production is outsourced.
Individual Component Manufacturing
This process involves individual component fabrication—creating components for specific tasks or applications as requested by clients. Because the client maintains some level of in-house manufacturing capability, they can customize their equipment and products without sacrificing quality.
Labor or Service Contracting
Labor or service contracting enables subcontractors to work with larger contractors by focusing on one aspect of a larger process. Some associated advantages include reduced operating costs, faster turnaround times, increased flexibility, and reduced risk and liability.
Finally, with end-to-end manufacturing, the process is outsourced to a team of experts who can handle every aspect of production from start to finish. From design and engineering services to fabrication and installation, end-to-end contract manufacturers can provide everything needed for a project. The chief advantage of end-to-end contract manufacturing is that it ensures a company can outsource most of the production process and only focus on the core areas of their business.
Benefits of Contract Manufacturing
Contract manufacturing may provide the following benefits to business:
- The process provides access to high-quality products.
- There is a substantial reduction in costs, a faster time to market, and enhanced scalability.
- End-to-end services may be available.
- Contract manufacturing is a winning combination for startups and small businesses since the process provides a strategy to compete with larger competitors.
- Contract manufacturers are more likely to provide accurate cost estimates and deadlines.
How To Get Started With Contract Manufacturing
The first step toward implementation is to determine what type of contracting will work best for your business goals. This is typically a choice between either short-term or long-term contracting. The next step involves setting up an efficient process for evaluating potential contractors. This includes researching their qualifications and capabilities and verifying they have the proper certifications and licenses to do the job. Finally, understand the terms of any agreement and be prepared to negotiate pricing and other details in order to get the most out of your partnership.
This guide explains how contract manufacturing can help to hire companies maximize their revenue streams by providing access to high-quality components and offering high-value add-ons. At Allegheny Petroleum, we provide contract manufacturing and can customize these services to suit your needs. Contact us today to discuss your product questions and goals.