Contract manufacturing is the production of components or the assembly of a finished product that is initiated by a customer order. The production or assembly process therefore only begins once the customer order has been received. In practice, many companies describe themselves as contract manufacturers because they produce or assemble customer-specific parts. Whether production takes place in stock, e.g. in order to decouple from the customer’s fluctuating call-offs or orders, or is really only triggered by a specific customer order or delivery call-off, is disregarded.
Our tip:
If you see yourself as a customer order manufacturer, you should make a clear distinction between customer order-driven production and production to stock. It can make sense to use finished goods inventories to decouple yourself from fluctuating incoming customer orders, even if you produce customer-specific parts.
