June 26, 2015 2:29 pm

Are you an entrepreneur with a new product idea you would like to bring to market? Perhaps you don’t have the production equipment needed to produce your product yourself, or maybe you are hoping to sell or license your idea to a company, but need some initial stock to show sales potential, value, and usefulness. In these situations, a contract manufacturer may suit your needs. But what is a contract manufacturer and what can you expect from contract manufacturing?

contract manufacturer is a for-hire firm that will produce a specific quantity of your product for a set fee based on agreed-upon specification. The price of the service is based on an estimation of the processes, labor, tooling, and materials costs. This option may make sense to start-up businesses and self-made entrepreneurs because it takes the lengthy process of contract manufacturing off their shoulders and entrusts it to a product creation team that has experience in the industry. It may also save money because it prevents the inventor from having to purchase manufacturing equipment. Some contract manufacturers may even inventory and ship the product, which are both labor-intensive and cost-prohibitive.

There are always risks associated with outsourcing, and contract manufacturing is not an exception. Consider speaking to an attorney to go over the business arrangement and ensure you have an understanding of the services you are paying for and their extents and limitations. Generally, keep these words of advice in mind when considering a contract manufacturer.

  • Don’t Be a Cheapskate: A lower price tag may not always be the best option. This price may just include the bare minimum of necessities for your product, and you will be stuck paying for expensive and necessary add-ons for your invention to be like you imagined. It is also possible the low price can be associated with sub-standard materials or less-than-stellar craftsmanship. Although this is not always the case, be wary when considering an offer which is much lower in price than competitors. Be sure you are familiar with the specifications and know exactly what you are getting for the cost.
  • Bigger Isn’t Always Better: On the other hand, a higher cost may not always be indicative of a higher quality product. Additionally a big name contract manufacturing company may not always be the best option for you. Research many different manufacturers on consumer sites and ask for references from customers who produce products similar to yours. Always compare specifications throughout your top choices to ensure each company is offering comparable materials and labor. If a small, yet reputable company can provide you with the same service and quality materials as a big-name competitor for a better cost, it is worth considering the less expensive, but also lesser-known company.
  • Quality Over Quantity: A simple law in contract manufacturing is the more product you purchase, the less each will cost to produce. This is because the production phase of manufacturing is the most costly since it involves expensive and time consuming processes and preparation work. Once the machines start to run, the only difference between producing 500 or 5,000 of your product is the raw materials. It may sound appealing to get 10 times more product for only double the cost, but don’t just buy because the price per unit is less. Think about it like this: when you shop at a bulk-buying club, such as Sam’s Club or Costco, you could buy 20 pounds of ground beef at a cheaper cost per ounce than if you bought it at a local grocer. However, if you don’t use all of the ground beef, you have wasted money and resources. If you buy 5,000 of your product, but only need 500, you’re going to be wasting space in your garage with an overflow of stock and wasting money which could be used on another aspect of your business.
  • Specify, Specify, Specify: In manufacturing, your job costs are based on a set of agreed-upon specifications; that is, a listing of the materials of which your product will be created as well as its dimensions and other physical boundaries. These specifications are incredibly important. If there is a communication issue regarding size, color, type of plastic, etc., you may be out thousands of dollars and stuck with useless product, just to go back to square one. It is possible this may be the manufacturer’s mistake, causing them to redo the work and potentially for the relationship between you and the manufacturer to be harmed. For the sake of both parties’ budgets and sanity, go over the specifications in precise detail before signing on the dotted line. Discuss what is to be produced, how it will be created, what materials are to be used (with brand names and weights, if applicable), the timeframe from start to finish, who pays for shipping and delivery, and any other aspect in the production of your product. There is nothing worse than finding out halfway through production the wrong plastic was used or the dimensions are incorrect and having to start over.

Contract manufacturing can be an excellent way to make your invention into a reality without having to do all the labor yourself, but be wary as with signing any legally-binding document. When considering contract manufacturing, ensure you’re not paying too little for your chosen services, consider lesser-known as well as big-time manufacturers, avoid paying a lower cost per unit for an excessive amount of product, and review your specifications in painstaking detail to set yourself and your company on the right path.

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