3 Types of Contract Manufacturing and Why You Need to Understand the Difference

Hiring a contract manufacturer is an essential step if you want to get a high quality product on the market fast. However, to find the right manufacturing partner, you need to know what types of contract manufacturing are out there. The problem is that manufacturers offer a wide range of services that aren’t easy to categorize. There’s a lack of consensus over what contract manufacturing entails and what criteria you should look for in a trustworthy manufacturer. With so many options available, it’s no wonder why business owners often feel confused and overwhelmed.

Finding a contract manufacturer shouldn’t be stressful. In this detailed guide to the different types of contract manufacturing, we’ll clear up some common misconceptions about this process and give you all of the criteria you need to make an informed decision.

The 3 Types of Contract Manufacturing You Should Know 

Although every manufacturer provides different services, there are three primary ways to categorize all types of contract manufacturing:

• Contract structure: There are different types of contract manufacturing agreements to choose from. This category includes private label manufacturing, contracts for manufacturing individual components or parts, labor or service subcontracting, and end-to-end service contracts.
• Services, tools, and materials: Even if two contract manufacturers both provide private label manufacturing, their manufacturing process and types of tools or materials they use may be very different. This has an impact on the quality of the products and how quickly you can get products to market, so it’s an important category to consider.
• Supported industries: Some contract manufacturers specialize in certain industries. It’s important to choose a manufacturer that understands the needs of your customers as well as your industry’s market and regulations.

When you assess a contract manufacturer based on all three of these individual categories, you’ll find the most reliable manufacturing partner for your business. In the three detailed guides below, we’ll describe what criteria you should look for in each category based on your product, industry, and business structure.

#1: Types of Manufacturing Agreements 

A contract manufacturing agreement specifies exactly what the manufacturer provides. There are a number of different types of contract manufacturing agreements, however, the four most common types are:

• Private label manufacturing: The contract manufacturer produces a finished product according to your specifications and ships it to your inventory warehouse or a store of your choice. If there are multiple components involved, the manufacturer will typically assemble these parts prior to shipment. This is the best choice for businesses that want to manufacture products with minimal effort.
• Individual component manufacturing: The contract manufacturer is responsible for producing just one component or part of a more complex finished product. Once the parts are manufactured, it’s your responsibility to assemble the final product. This is the best choice for businesses that handle some aspects of manufacturing in-house but need help producing certain components that they lack the resources or expertise to produce. For example, if you need a complex metal part, it’s a good idea to hire a contract manufacturer that specializes in metalworking.
• Labor or service subcontracting: This is similar to individual component manufacturing in that the manufacturer only handles one aspect of the process, rather than providing a full range of services themselves. A general contractor will hire a specialist subcontractor to perform certain tasks that the contractor’s in-house resources or staff don’t support. This is a good option if you have an especially complex product or your contractor knows that you can manufacture a part faster or at a lower price via an outsourced subcontractor.
• End-to-end manufacturing: This is almost identical to private label manufacturing, but it differs in one very important way: the manufacturer provides more feedback on the product design. You’re not solely responsible for specifying how you want your product to look or operate. Instead, the manufacturer optimizes the product design for manufacturing and makes sure every aspect is as streamlined and cost-effective as possible. It’s the ideal choice for businesses that want to quickly create the highest quality products at the lowest possible cost. Everything is handled for you from design to assembly and shipping.

If you have relatively little experience with manufacturing, an end-to-end agreement is the best option. The manufacturer will provide you with a detailed estimate of services and their associated costs up front so you know exactly what to expect before you sign the contract.

#2: Types of Manufacturing Services, Tools, and Materials 

Once you decide what type of contract manufacturing agreement you’d like to sign, you should assess prospective manufacturers based on the in-house resources they have. It’s not essential that a manufacturer has every single tool, material, or expert on staff at all times. You simply need to make sure that the manufacturer has all of the tools, resources, and knowledge you need to produce a high quality version of your product without significant delays or unexpected costs. The following tools are some of the most advanced and versatile in the manufacturing industry:

• CAD software
• CNC machining
• 3D printers
• Laser scanners
• Die casting

Manufacturers that use these tools not only produce high-quality products but they also have more freedom to optimize the product design or manufacturing process so it is faster, more cost-effective, and less wasteful.

Materials also matter. Some manufacturers only work with a small number of materials, and this significantly limits your manufacturing options. Instead, look for a manufacturer that has experience with a wide range of materials, including:

• Silicons like elastomers, gels, and room-temperature-vulcanizing (RTV);
• Polyurethanes like elastomers, rigid foams, gels, and viscoelastic foams;
• Various types of wood and metal;
• And more.

Great manufacturers also hire a diverse and knowledgeable team of engineers, equipment operators, skilled metalworkers or woodworkers, and other experienced staff members to produce and test your product before it hits the market. This combination of a skilled labor force, diverse raw materials, and advanced manufacturing tools will give you more manufacturing options so you can reduce costs and get your products to market fast. Seek out manufacturers that offer as many types of contract manufacturing methods as possible.

#3: Types of Industries That Manufacturers Support 

Different types of contract manufacturers specialize in different industries. While some experienced manufacturers can produce products for multiple industries, it’s important to partner with a manufacturer that understands yours. The manufacturer should be able to prove that they:

• Have experience designing similar products to the one you’re proposing;
• Understand your customers’ expectations;
• Know your market, the current industry trends, and the latest best practices; and
• Are already familiar with your industry’s regulations or are willing to research this in detail to ensure your product meets those standards.

This is especially important if your products are complex or require a high level of detail. Some of the most demanding industries are:

• Telecommunications
• Oceanography
• Healthcare
• Electronics

If you work in any of these industries, you need to partner with a manufacturer that has experience in these fields already. Start by looking through the manufacturer’s portfolio. What types of contract manufacturing have they performed for other companies in your industry? For example, if you’re designing a new piece of oceanography research equipment, you might choose to work with a manufacturer with experience building parts for autonomous oceanographic vehicles. Likewise, if you work in the healthcare industry, partnering with a manufacturer that designs and builds medical devices or training materials is a wise decision, as they understand all of the strict regulations surrounding new healthcare products.

How to Select the Best Contract Manufacturer 

Now that you understand the three main types of contract manufacturing, you can use this information to vet different manufacturers. The two main qualities you should look for in a manufacturer are reliability and a willingness to collaborate with you on the design.

To be considered reliable, a contract manufacturer should provide you with a detailed contract proposal and cost estimate from the beginning. They should also be willing to show you around their workshop and explain the manufacturing methods, tools, and materials they’ll use to create your dream product. They should also be willing to share examples of their work while respecting the privacy and intellectual property of their past clients. If a manufacturer has glowing client testimonials from others in your industry, they will likely be a fantastic partner for your business as well.

However, the main quality that separates a good contract manufacturer from a great one is collaboration. When a contract manufacturer cares as much about the quality of your product as you do, you’ll create something that you both can be proud of and that contributes something meaningful to the world.