| In every industry today, organizations succeed by | | | | suppliers since the original manufacturers often select |
| focusing on what they do best and leaving the rest | | | | the partners from the very beginning. This lack of |
| to their partners, agencies or outsourced vendors. | | | | influence is a key driver for an increase in costs from |
| Contract manufacturing, while it can be difficult from | | | | the contract manufacturer. Also, flexibility can be |
| a supply chain perspective, seems to fit neatly into | | | | compromised by the contract manufacturer's focus |
| this scenario. In addition to allowing global | | | | (or lack thereof) on low costs and low inventory. |
| organizations to focus more on their core | | | | And, although using contract manufacturers often |
| competencies, value proposition, and engineering; | | | | ties up less capital, the dollars need to compensate |
| contract manufacturers provide several other | | | | against the inventory holding costs included in |
| advantages over manufacturing products internally to | | | | contract manufacturers' charges. |
| include: lower costs, flexibility, access to external | | | | Even with clear assumptions on the objectives and |
| expertise and reduced capital expenditures. | | | | expectations, it may be a challenge to realize the |
| However, the question remains and must be | | | | benefits. That's largely because it's difficult to manage |
| addressed: with so much potential and cost savings | | | | relationships with vendors and suppliers; especially |
| that contract manufacturing can offer to their | | | | when those suppliers were not selected by the |
| partners, why do so many of these relationships fall | | | | contract manufacturer. Essentially, the parties should |
| short of expectations? Perhaps one reason is that | | | | create clear objectives and expectations from the |
| many of those expectations are flawed from the | | | | beginning that would make it possible to manage the |
| very beginning. | | | | relationship through service level agreements linked to |
| For example, let's take the first example of cost | | | | a set of key performance indicators. However, these |
| savings. The fact of the matter is that many of the | | | | challenges may tempt businesses to keep |
| cost savings that should be passed on to the | | | | manufacturing in house, at the sacrifice of increased |
| customers may go to the contract manufacturer's | | | | costs. Instead, organizations need to take a strategic |
| bottom line instead. This happens more than you | | | | approach to contract manufacturing relationships; one |
| think. Additionally, many contract manufacturers don't | | | | that will benefit all in the supply chain. |
| always have the supposed influence with their | | | | |