23 Oct Popular Contract Manufacturing Partner Selection Myths Debunked
As our global neighborhood continues to connect and evolve, the accessibility of finding the right contractor for your next project becomes that much easier. The choices are becoming increasing vast. How do you push through the options to select the right contract manufacturer for your business? Simple answer: a refined and discriminating selection process. Due diligence is key when sourcing the right contract manufacturer partner. Time spent in the beginning will be time saved in the end.
Sadly, there are many misconceptions and misplaced notions about what is really important in the selection criteria. Below are some insights that might help with your next decision process when choosing the best partner for the job.
Myth #1: The Perfect Partner
There is no perfect partner. There is, however, the perfect process. Contract manufacturing is a difficult, competitive, low-margin business – and it is one that needs to be actively managed. Businesses that express the highest level of satisfaction with their contract manufacturer are ones that structure their own operations organization to effectively manage their contractors. Effective communication and planning lead to a process that proves effective for both parties involved.
Myth #2: Cheap Wins Out
The lowest quote price can actually end up costing you more in lost revenue down the road. For many products and markets, the X-works per unit manufactured quote price captures just 70% to 80% of the total supply chain cost. It is not uncommon that a per unit quote price that was 2 points lower ended up costing an extra 5 points in other less visible costs – both internal and external. Look beyond core costs and seek a contract manufacturer with well-developed and institutionalized business processes.
Myth #3: Exclusivity Beats Competition
Why not choose a contract manufacturer that is already building for your competitor? Unless there are concerns with controlled or proprietary processes, seeking a partner who has proven experience in your niche can be a good thing. Businesses should find the most broadly capable and compatible contract manufacturers for their specific business and often times this means building with the same company as one of your competitors – which is just not the same as running your product down the same line using the same support staff.
Myth #4: Bigger is Better
Larger contract manufacturing companies can produce products for a lower Valued-Added Margin (VAM), and although this is true in many instances, in almost as many instances it is not true. For most contract manufacturers, one of the largest cost contributors to VAM is labor influenced costs which include direct labor, indirect labor and even facilities cost. Unlike raw material, the purchasing of local labor is not really impacted by some volume discount.
When selecting a contract manufacturer, or any new vendor for that matter, do your homework, do your reference checks and talk to the operations team. Spend time asking the hard questions and even touring the facility. You will be glad you did.