Limitations of Contract Manufacturing

Contract manufacturing is the process of having an external company handle part or most of the manufacturing process of a manufacturing company. Many manufacturing companies prefer to have their manufacturing processes outsourced to a different company to reduce on their costs of production and to focus more on distribution and marketing. The trend has really grown with many manufacturer taking their product manufacturing to countries in the far east such as China, India and Malaysia. There are huge cost benefits reaped by manufactures who use this model. However, there are also many limitations that come with outsourcing and especially with overseas outsourcing.

Communication barriers with contract manufacturing

A major limitation of contract manufacturing is miss-communication between the contracted company and the contracting company. At times, the contractor misses out on important aspects of the production and this leads to losses. Further more, when outsourcing to countries like china, you will need a translator to communicate and cultural differences may make the contracting process complicated. This limitation can be better bridged by having a well experienced contracting agent to act as a go between. They will take time to understand your product requirement. They will help you in identifying the best contract manufacturing company and in case of language differences, they can act as the translator.

Quality risks with contract manufacturing

In most cases, the contracted company in contract manufacturing will not be consumer minded while making the products. These producers are known to reduce the quality of products for opportunistic purposes. Some producers may lack the technology or expertise to keep the expected standards of quality. This may compromise the products and by extension the brand reputation. A company can overcome this limitation by having quality standard level agreements (SLA), identifying a contract manufacturing company with the right technology and expertise and by having an experienced contracting agent.

Economic Quantities with contract manufacturing

For it to make economic sense to contract your manufacturing services especially to overseas companies, you may require a minimum number of units. This means that companies with quantity limitations will either produce locally with high uncompetitive costs or make large volume products that affect cash-flow and capitalization. With large contracts for production, companies find it hard to adjust fast to economic changes. To overcome this limitation, small companies must unite and outsource together to take advantages of the economies of scale.

Staffing problems with contract manufacturing

One of the major issues with contract manufacturing is poor staffing conditions with the contracted company. Many of these companies reduce costs by having poor payment structures and poor working conditions for their employees. This leads to a high staff turn over that affects the work flow of the contract manufacturing company.