CONTRACT MANUFACTURING
CONTRACT MANUFACTURING
CONTRACT MANUFACTURING
Set of flashcards Details
| Flashcards | 9 |
|---|---|
| Language | English |
| Category | Micro-Economics |
| Level | University |
| Created / Updated | 28.05.2016 / 01.06.2016 |
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What are other options beside Contract Manufacturing for private labels?
- Migros: own production facilities
- Home improvement stores: often buy pre-designed products from manufacturers who brand them as private label products
- Retailers may design their own private label products and use a CM to produce them on their behalf
Outsourcing vs. Contract Manufacturing
Model of cooperation between OEM and Contract Manufacturer
Production of sophisticated goods: OEMs and CM
- Mostly carried out directly by the OEM
- Contract manufacturer --> production of components
BUT, contract manufacturers are expanding their proportion of value creation
Development of CMs in the production
• Product design
• Supplier management
• Distribution logistics
• Maintenance services
• Customer services
• R&D
Two different types of contract manufacturers
• Contract manufacturers with production focus
• Contract manufacturers with focus on R&D and design --> Original Design Manufacturers (ODM)
CMs: Factors influencing the choice of location
• Proximity to customers
• Proximity to the markets of the final customers
• Level of manufacturing costs
Advantages of Outsourcing to CM
- Concentration on core competences possible
- Contract manufacturers have core competence in operations
- Reduced time-to-market for innovations
- Risk reduction because contract manufacturers do investments in new production capacity
- Possibility to get rid of own production facilities
- Cost reducing strategy
Disadvantages of Outsourcing to CM
- Decision very difficult to reverse
- Cost advantages of contract manufacturing might be over-estimated
- More outsourcing (R&D, service, distribution) might aggravate problems (Customer relationships might be outsourced and lost.)
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