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is, in essence, manufacturing on a contract basis, and thus it forms a subset of the larger field of contract manufacturing. But the latter field also includes, in addition to jobbing, a higher level of outsourcing in which a product-line-owning company entrusts its entire production to a contractor,
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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
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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 true
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Relationships - It is imperative that the company forms a good relationship with its contract manufacturer. The company must keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor’s. Most companies mitigate this risk by working
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Loss of flexibility and responsiveness – Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand fluctuations, risking their customer service
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Lack of
Control – When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest strategies to the contract manufacturer; they cannot force them to implement
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Most turnkey suppliers specialize in simply manufacturing physical products, but some are also able to handle a significant part of the design and customization process if needed. Some turnkey suppliers specialize in one base component (ex.
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concerns – When entering into a contract, companies must make sure that the manufacturer’s standards are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good
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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.
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countries has become very popular, it does bring along risks such as language barriers, cultural differences and long lead times. This could make the management of contract manufacturers more difficult, expensive and
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Mutual benefit to contract site – A contract between the manufacturer and the company it’s producing for may last several years. The manufacturer will know that it will have a steady flow of business until
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Advanced skills – Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with
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Economies of scale – Contract manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring
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constraints – If a company does not make up a large portion of the contract manufacturer’s business, they may find that they are de-prioritized over other companies during high
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When deciding about contract manufacture, the company should weigh the benefits and associated risks. For small companies, contract manufacturing may not be a good
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loss – When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its
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to be achieved, adds in cost to the product. The impact is seen either in a higher selling price to the customer or in a reduced profit margin for the company.
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Vind, Ingeborg; Fold, Niels (January 2007). "Multi-level
Modularity vs. Hierarchy: Global Production Networks in Singapore's Electronics Industry".
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There are many benefits as well as risks to contract manufacturing. Companies are finding many reasons why they should outsource their
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to other companies. However, production outside of the company has many risks attached. Companies must first identify their
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176:, constituting a $ 14 billion business segment around 2022. In the semiconductor industry, this practice is called the
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to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it.
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379:. The company has to rely on the contract manufacturer for having good suppliers that also meet these standards.
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273:. For large companies that are trying to extend into new markets, contract manufacturing may be a good choice.
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before deciding about contract manufacturers. A company's competencies are what make them competitive in the
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cohesively with the manufacturer and awarding good performance with additional business.
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because they do not have to pay for a facility and the equipment needed for
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669:. United States: The McGraw-Hill Companies, Inc, 2005. ISBN 0-07-143217-5 .
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Strategic Supply Chain
Management: The Five Disciplines for Top Performance
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periods. Thus, they may not obtain the product they need when they need it.
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226:. Statements consisting only of original research should be removed.
46:. A contract manufacturer performing packaging operations is called
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countries, such as India, to benefit from the low cost of labor.
704:"Apple is exploring moving iPhone production to the US: Report"
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A contract manufacturer produced this knife with a protected
607:"2022 Outsourcing Trends In Biopharmaceutical Manufacturing"
681:"Inside One of the World's Most Secretive iPhone Factories"
462:. Apple may move some fraction of iPhone assembly into the
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The
Benefits and Disadvantages of Contract Manufacturing.
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An advertisement for contract manufacturing services, in
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Pricing – This addition of a second company and second
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fields. Some types of contract manufacturing include
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Company that manufactures items for other companies
557:Geografisk Tidsskrift-Danish Journal of Geography
124:Many industries use this process, especially the
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182:specially prevalent in the electronics industry
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66:) or a base process (e.g. plastic molding).
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458:. Some devices may also be manufactured by
323:control in place that helps them to detect
172:industry uses this process with CMs called
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242:Learn how and when to remove this message
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282:Cost savings – Companies save on their
657:Cohen, Soshanah, and Joseph Roussel.
330:Focus – Companies can focus on their
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174:contract manufacturing organizations
506:Contract Manufacturing Organization
494:Electronics Manufacturing Services
482:Interactive Contract Manufacturing
349:. The more units there are in one
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488:Electronic Contract Manufacturing
334:better if they can hand off base
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100:Industries that use the practice
54:. Brand name companies focus on
454:, are manufactured in China by
702:Kharpal, Arjun (18 Nov 2016).
679:Oster, Shai (April 24, 2016).
639:21 April 2010 version archived
605:Khanna, Smita (15 June 2022).
573:10.1080/00167223.2007.10801376
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500:Original Design Manufacturer
188:Purpose, benefits, and risks
180:. Contract manufacturing is
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327:or damaged materials early.
222:the claims made and adding
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661:(via Internet Archive)
594:(subscription required)
110:geographical indication
338:to an outside company.
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18:Contract manufacturing
665:registration required
611:Pharmaceutical Online
383:Intellectual property
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32:contract manufacturer
565:Taylor & Francis
466:in the near future.
112:for a brand outside
524:Supplier evaluation
345:by benefiting from
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42:). It is a form of
633:Knowdell, Jenny. "
347:economies of scale
207:possibly contains
150:food manufacturing
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529:Contract packager
518:Bill of materials
395:risks – Although
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264:marketplace
44:outsourcing
725:Categories
540:References
452:Apple Inc.
412:production
336:production
311:production
307:efficiency
288:production
256:production
216:improve it
162:automotive
589:140722530
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567:: 69–83.
220:verifying
158:packaging
126:aerospace
470:See also
460:Pegatron
408:Capacity
401:low-cost
351:shipment
292:low-cost
277:Benefits
134:computer
118:cookware
114:Solingen
48:copacker
710:17 June
687:17 June
616:17 June
534:Turnkey
456:Foxconn
418:levels.
377:quality
372:Quality
321:quality
317:Quality
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706:. CNBC
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160:, and
142:energy
84:, 1905
585:S2CID
563:(1).
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508:(CMO)
502:(ODM)
496:(EMS)
490:(ECM)
484:(ICM)
478:(SUB)
364:them.
358:Risks
298:then.
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577:ISSN
514:(PL)
446:and
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