Electronic contract manufacturing services is a form of outsourcing that provides wide range of core manufacturing capabilities. Electronic contract manufacturing services providing companies are basically manufacturers that contracts with the organizations to manufacture electronic products on behalf of them. In contract manufacturing business, the hiring firm approaches the electronic contract manufacturers with design and specification requirements. The contract manufactures would quote material costs, tooling, labor, and other processes according to the companies design and specification requirements. Typically the hiring firm would approach multiple contract manufacturing firms for the best quotations.
After completion of selection and legal formalities, the electronic contract manufacturer can now start the factory production of electronic components and devices on behalf of the hirer. There are many other industries that uses this type outsourcing manufacturing practices including semiconductor, aerospace, defense, medical, food manufacturing and others. This outsourcing practice is not suitable for small organization but it very useful for large organization who have global presence across many regions.
One of the major advantage of using electronic contract manufacturing services is designing and assembling of PCB’s can be time consuming, challenging and costly to electronic operations with finite resources and also companies can focus on their core competencies better, rather than utilizing resources for manufacturing activities.
The key drivers for the growth of electronics contract manufacturing services market includes economies of scale, advanced skills and focus on core competencies. Contract companies take multiple contracts from multiple customers. Servicing multiple customers at the same time helps them to procure large quantity of raw materials at lower prices. Furthermore, companies can take advantages of the skills possessed by the contract manufacturers that the hirer companies do not have, to manufacture the electronic goods.
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Contract manufacturing also helps expansion of businesses in new markets. Despite several advantages of contract manufacturing there are certain major challenges faced by the hirer organization. This challenges include intellectual property loss, quality concerns and lack of control over production.
While entering into contract, a company reveals their formulas or technologies to the contract manufacturers that can lead to loss of pivotal information. Moreover the company has to rely on contract manufacturer’s suppliers for quality raw materials as well as the company lose their significant control over their product.