Resources

Contract manufacturing guide

Resources

Contract manufacturing guide

A contract manufacturer (CM) is a company that takes over parts of the production process of another company, operating under a mutually beneficial service agreement. In today’s global business landscape, selecting a CM can be an involved and lengthy process. It is not only about selecting the best price offer or the most helpful crew of people to delegate manufacturing tasks to; many factors need to be taken into account in order to make a strategic choice.

This article provides an outline of what needs to be taken into account when choosing a contract manufacturer and a handy spreadsheet template for comparing both pricing and qualitative factors.

How contract manufacturing works

A contract manufacturing business model is based on an agreement called the Manufacturing Services Agreement (MSA). The hiring firm selects a number of candidate production companies and approaches them with a request for quotation (RFQ) on their product. Manufacturers then provide their price offers for all components involved, and a fixed price is negotiated for a set quantity of produced goods.

This is based on the CM’s available personnel, equipment, materials, tooling, and shipping options. If agreed upon, the CM may also outsource the manufacturing of some parts of the bill of materials (BOM) to subcontractors. In essence, working with a contract manufacturer is a way to hire an off-site factory.

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