What is contract manufacturing?
In the past, it was common practice that only goods held in stock could be sold to customers. However, goods are now being sold that have not even been produced. This is called contract manufacturing or production to order. This means that a product, a car for example, is only manufactured when a customer orders it.
Contract manufacturing places additional demands on logistics. The majority of manufacturing companies no longer maintain their own warehouses, as these tie up a lot of capital and are usually not part of their core business. The task of delivering the parts required for production promptly is therefore placed in the hands of logistics service providers.
Advantages of contract manufacturing:
- Individual customer wishes can be taken into account
- No need to maintain a warehouse with prefabricated goods
Disadvantages of contract manufacturing:
- Production is quickly jeopardized by vulnerable supply chains
- No precise planning possible
- Very good communication network required between parts manufacturers
