Contract manufacturing is one of the most popular business practices today. It is enabling businesses to reduce manufacturing costs and time-to-market of the products. Apart from the reduced overhead costs and time-to-market, it also offers many other benefits to businesses such as innovation, improved marketing strategies, scalability, etc. So, a lot of companies, irrespective of size and industry, are embracing contract manufacturing.
At the same time, it also presents some challenges before business owners insisting them to reconsider the contract manufacturing process before moving ahead.
Here is the list of some of the top contract manufacturing challenges:
Supply Chain Management
Supply chain management is one of the major issues associated with contract manufacturing. When a company outsources its manufacturing activities to a third-party contract manufacturing firm, it doesn’t have better control over the manufacturing operations. Many times, it leads to challenges in supply chain management, finally impacting business outcomes.
A lot of external factors come into play in contract manufacturing. So, extra care must be taken about the supply chain capabilities of the third-party from firm while outsourcing the manufacturing activities.
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In contract manufacturing, as the production takes place outside the company’s facilities, the chances for the company to consistently monitor the product quality are less. There, it may impact the quality of the product.
Contract manufacturing, for sure, helps to reduce manufacturing costs. But, it may also impact the quality of the products, which will hamper the company’s brand image in the market. So, ensuring better quality products through effective quality control measures should be the top priority of third party manufacturers. Only then the contract manufacturing will serve the purpose.
Poor communication is another significant and most common problem in contract manufacturing. Most of the times, there exists a huge communication gap between the parties involved in the contract manufacturing.
When a company outsources manufacturing activities to more than one third-party contract manufacturing firms, it is quite hard to maintain time to time communication with all the contract firms involved. Poor communication results in improper communication of the requirements. This eventually leads to lower productivity and less output. So, when outsourcing manufacturing activities, a company must first establish proper communication channels for better exchange of information.
Intellectual Property Risks
Intellectual property protection is the most important aspect of contract manufacturing. A company has to share the complete details of its patent-product with the contract manufacturer in order to allow it to manufacture the product. It involves the risk of using knowledge in an unlawful manner and duplicating the products.
Honest relationship between parties, ensuring the protection of the intellectual property is very important in contract manufacturing.
Risk of Non-compliance of Regulations
Compliance to all the regulations is very important in the manufacturing industry. A third-party firm that is actually manufacturing the products may not be aware of all the regulatory compliances which must be followed. Though the products are manufactured by a third-party firm, they are sold under the brand name of a company. Also, the brand is accountable to the products sold and not the contract manufacturing firm. If the products cause any ill effects in the customers, then it will be a problem for the brand. So, the brand should make sure that the contract manufacturing firm follows all the regulations put forth by legal authorities.
That being said, contract manufacturing remains a preferred choice for the majority of companies across the world and India. This fact is testified by the tremendous growth of the contract manufacturing market across the world. According to a report by BCC Research, the global contract manufacturing market will grow from USD 2.0 trillion in 2018 to USD 2.7 trillion in 2023, with a CAGR of 6.6%.
Therefore, before outsourcing the manufacturing activities, the company should consider few things such as establishing proper communication channels, clearly conveying the requirements, terms and conditions of intellectual property, etc.
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