Contract manufacturer
From Wikipedia, the free encyclopedia
A contract manufacturer ("CM") is a firm that manufactures components or products for another "hiring" firm. It is a form of outsourcing.
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[edit] Economy of Scale
The practice of utilizing contract manufacturing relies on the manufacturer's ability to drive down the cost of production through economies of scale. It also allows the hiring company to obtain the needed components or products without needing to own and operate a factory.
[edit] Business Model
In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding process is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm.
[edit] Industries that Utilize the Practice
Many industries utilize this process, especially the aerospace, defense, computer, semiconductor, energy, medical, food manufacturing, personal care, and automotive fields. Some types of contract manufacturing include CNC machining, complex assembly, aluminum die casting, grinding, broaching, gears, and forging.
[edit] Protectionism
In an international context, establishing a foreign subsidiary as a contract manufacturer can have favorable tax benefits for the parent company, allowing them to reduce overall tax liabilities and increase profits, depending upon the activities of the contract manufacturer. This is a form of protectionism.
[edit] See also
- Interactive Contract Manufacturing
- Electronic Contract Manufacturing
- Electronics Manufacturing Services
- Original Design Manufacturer
- Private label
- American Engineering Group - supplier and contract manufacturer of engineering components
- Bill of materials
