Contract manufacturer

A contract manufacturer ("CM") is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. In the food business a contract manufacturer is called copacker.

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.

Job production 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, rather than just outsourcing parts of it.

Many industries use 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. The pharmaceutical industry use this process with CMs called Contract manufacturing organizations.

There are many benefits as well as risks to contract manufacturing. Companies are finding many reasons why they should outsource their production to other companies. However, production outside of the company has many risks attached. Companies must first identify their core competencies before deciding about contract manufacturers. A company's competencies are what make them competitive in the marketplace. If a company allows another company to take control of them, it loses that advantage.

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