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Manufacturing
Scope: Contract manufacturing is a mature industry. Manufacturers make products based on specifications in the purchaser’s “bill of materials” or specifications. Manufacturing comes in many flavors:
Technical Requirements: Outsourced manufacturing services depend on effective mutual planning and project management. Basic principles of outsourcing apply to manufacturing services. The customer organization is responsible for defining the scope of services (and the quality of the products), the performance standards and for identifying “show stoppers” that could put the customer out of business.
The manufacturer must be sensitive to the customer’s needs and communicate effectively on critical risks. Such risks include:
Benefits: Trade in goods is subject to bilateral and multilateral free trade agreements including the World Trade Organization agreements from the Uruguay Round. The benefits of outsourced manufacturing include cost savings (“build vs. buy” decision), obtaining advanced skills, getting process quality, a dedicated focus on manufacturing as a core competency, avoidance of capital expenditures and economies of scale. Contract manufacturers take certain risks. However, the benefits are reduced generally because manufacturers may refuse to absorb the full losses due to changes in product design, major shifts in currency values or raw materials costs.
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