The YouTube video “What is contract manufacturing” discusses the basics of contract manufacturing. It provides insight into the term. Companies are becoming leaner. They’re shedding functions that don’t form part of their core operations. Companies do this to increase profits, save time and money, and improve productivity.
It’s known as outsourcing. Many functions can be outsourced.
Examples of Contract Manufacturers
When a company outsources a manufacturing job, it’s known as contract manufacturing. Let’s look at an automobile company. Their core operation is building cars. The auto manufacturer might outsource one component to another manufacturer. For example, the auto manufacturer outsources the production of catalytic converters. They need the catalytic converters for their vehicles. Producing these catalytic converters doesn’t form part of their core function. The auto manufacturer may use the services of the third party over a fixed period. Or for a fixed project. The third party then builds these components as part of an agreement. Large companies may outsource many of their manufacturing contracts. In many countries, this process aids in job creation. Many industries use this form of business. It creates more competition in the economy and boosts the economy. It also helps companies by allowing them to become leaner.