Contract manufacturing is as attractive today as it was five decades ago

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Posted on: 31 January 2019 by Daniel Mattei

Companies that are inclined to focus more on their core competencies are the ones that are most likely to avail the services of contract manufacturers. The ambition of companies to go global is providing great impetus to contract manufacturing companies.

Launching a freshly developed new product entails a lot of investment right from the time of conceptualization to manufacturing with the latter constituting the bulk. Entrepreneurs who want to manufacture and market new products aggressively are taking the contract manufacturing route to limit capital investment before they test the market. The availability of contract manufacturing facilities has given entrepreneurs a shot in the arm and encouraged them to dream big about anything new that they want to launch and market. Just like contract manufacturing, the opening of new marketing channels like Amazon and eBay has ensured the availability of established marketing channels to try out new products.

A viable alternative

If you are planning to test and develop any new product with high commitment and low investment then availing Elcan Industries toll manufacturing services is a feasible option. And not only for launching new products that manufacturers are keen to explore contract manufacturing. Original equipment manufacturers are looking to enhance margins and profitability by reducing cost and capital spending by choosing to offload their products to contract manufacturers. Maintaining a lean organization with a rich portfolio of products is only possible when you stop investing in manufacturing infrastructure and start using someone else’s manufacturing facility.

The beginning

Millions of PCBs or printed circuit boards were manufactured during the mid-1970s that resulted in mushrooming of numerous manufacturers ready to handle the increased demand, and it signaled the beginning of contract manufacturing. Since then the electronic manufacturing services industry has extended its capabilities and offers services of other kinds like building boards and boxes, product design, repair service, supply chain management, and global distribution and logistics.

Cost crunching measure

The advent of contract manufacturing posed new opportunities for business growth for companies by cutting down costs drastically. Telecommunication equipment makers reaped the benefits of contract manufacturing during the period 1997 to 2001as they aggressively used the facility to bring down their supply chain costs sharply to 6.1% of revenue from 11.6%. The extent of using contract manufacturing has gone so far that it is not surprising to see some organizations doing away completely in creating any establishment for manufacturing at all. A case in point in Cisco Systems that grew into a giant without having any manufacturing set-up of its own.

Replicate or improve

The hiring company provides all manufacturing guidelines and formula to the contract manufacturing company and if needed provides technical guidance to help them produce goods according to the desired quality standards. While the basic responsibility of the contract manufacturer is to replicate the original manufacturer’s template of manufacturing, if required the hiring company can also guide them to make necessary improvements. The responsibility of the contract manufacturer only to produce the goods because marketing and selling the products is usually the responsibility of the hiring company unless there is some other arrangement.

Companies that are inclined to focus more on their core competencies are the ones that are most likely to avail the services of contract manufacturers. The ambition of companies to go global is providing great impetus to contract manufacturing companies.

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