{"id":273,"date":"2014-09-05T17:18:52","date_gmt":"2014-09-05T17:18:52","guid":{"rendered":"https:\/\/courses.candelalearning.com\/internationalbusiness1xmaster\/?post_type=chapter&#038;p=273"},"modified":"2015-02-17T21:54:38","modified_gmt":"2015-02-17T21:54:38","slug":"reading-contract-manufacturing","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-internationalbusiness\/chapter\/reading-contract-manufacturing\/","title":{"raw":"Reading: Contract Manufacturing","rendered":"Reading: Contract Manufacturing"},"content":{"raw":"<div>\r\n<div>\r\n<h2>In contract manufacturing, a hiring firm makes an agreement with the contract manufacturer to produce and ship the hiring firm's goods.<\/h2>\r\n<\/div>\r\n<div>\r\n<div class=\"bcc-box bcc-success\">\r\n<h3>KEY\u00a0Points<\/h3>\r\n<section>\r\n<div data-type=\"note\">\r\n<ul>\r\n\t<li>A hiring firm may enter a contract with a contract manufacturer (CM) to produce components or final products on behalf of the hiring firm for some agreed-upon\u00a0price.<\/li>\r\n\t<li>There are many\u00a0benefits\u00a0to\u00a0contract manufacturing, and companies are finding many reasons why they should be\u00a0outsourcing\u00a0their production to other companies.<\/li>\r\n\t<li>Production outside of the company does come with many risks attached. Companies must first identify their core competencies before deciding about contract\u00a0manufacture.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/section><\/div>\r\n<h3 class=\"im_title\"><\/h3>\r\n<\/div>\r\n<\/div>\r\n<h4><strong>Terms<\/strong><\/h4>\r\n<div>\r\n<div>\r\n<ul>\r\n\t<li><em>Contract manufacturing:<\/em>\u00a0 Business model\u00a0in which a firm hires a contract manufacturer to produce components or final products based on the hiring firm's\u00a0design. A\u00a0business model where a firm hires another firm to produce components or products.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<div><\/div>\r\n<div>\r\n\r\nA contract manufacturer (\"CM\") is a manufacturer that enters into a contract with a firm to produce\u00a0components or products for that firm . It is a form of outsourcing. In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding\u00a0process\u00a0is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm's factory, producing and shipping units of the design on behalf of the hiring firm.\r\n\r\n<figure id=\"fe895\">\r\n<div><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/213\/2015\/02\/20094800\/Electronic_Printed_Circuit_Board.jpg\"><img class=\"wp-image-930 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/213\/2015\/02\/20094800\/Electronic_Printed_Circuit_Board-300x199.jpg\" alt=\"Circuit Boards\" width=\"419\" height=\"278\" \/><\/a><\/div>\r\n<\/figure><figure><\/figure>\r\n<div><\/div>\r\n<div>\r\n<div>\r\n<div><\/div>\r\n<h4><strong>Benefits<\/strong><\/h4>\r\n<\/div>\r\nContract manufacturing offers a number of benefits:\r\n<ul>\r\n\t<li><strong>Cost Savings:<\/strong> Companies save on their\u00a0capital\u00a0costs because they do not have to pay for a\u00a0facility\u00a0and the equipment needed for production. They can also save on labor costs such as\u00a0wages, training, and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.<\/li>\r\n\t<li><strong>Mutual Benefit to Contract Site:<\/strong> A contract between the manufacturer and the company it is producing for may last several years. The manufacturer will know that it will have a steady flow of business at least until that contract expires.<\/li>\r\n\t<li><strong>Advanced Skills:<\/strong> Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods ofefficiency\u00a0within their production.<\/li>\r\n\t<li><strong>Quality:<\/strong> Contract Manufacturers are likely to have their own methods of\u00a0quality control\u00a0in place that help them to detect counterfeit or damaged materials early.<\/li>\r\n\t<li><strong>Focus:<\/strong> Companies can focus on their core competencies better if they can hand off base production to an outside company.<\/li>\r\n\t<li><strong>Economies of Scale:<\/strong> Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring\u00a0raw materials\u00a0by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.<\/li>\r\n<\/ul>\r\n<h4><strong>Risks<\/strong><\/h4>\r\nBalanced against the above benefits of contract manufacturing are a number of risks:\r\n<ul>\r\n\t<li><strong>Lack of Control:<\/strong> When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest\u00a0strategies\u00a0to the contract manufacturer; they cannot force them to implement those strategies.<\/li>\r\n\t<li><strong>Relationships:<\/strong> It is imperative that the company forms a\u00a0good\u00a0relationship with its contract manufacturer. The company must keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor's. Most companies mitigate this risk by working cohesively with the manufacturer and awarding good\u00a0performance\u00a0with additional business.<\/li>\r\n\t<li><strong>Quality:<\/strong> When entering into a contract, companies must make sure that the manufacturer's\u00a0standards\u00a0are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality. The company has to ensure the contract manufacturer has suppliers that also meet these standards.<\/li>\r\n\t<li><strong>Intellectual Property Loss:<\/strong> When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it. The recent increase in intellectual property loss has\u00a0corporate\u00a0and government officials struggling to improve\u00a0security. Usually, it comes down to the integrity of the employees.<\/li>\r\n\t<li><strong>Outsourcing Risks:<\/strong> Although outsourcing to low-cost countries has become very popular, it does bring along risks such as\u00a0language barriers, cultural differences, and long\u00a0lead\u00a0times. This could make the\u00a0management\u00a0of contract manufacturers more difficult, expensive, and time-consuming.<\/li>\r\n\t<li><strong>Capacity\u00a0Constraints:<\/strong> If a company does not make up a large portion of the contract manufacturer's business, they may find that they are de-prioritized over other companies during high production periods. Thus, they may not obtain the product they need when they need it.<\/li>\r\n\t<li><strong>Loss of Flexibility and Responsiveness:<\/strong> Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand\u00a0fluctuations, risking their customer\u00a0service\u00a0levels.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n<div>\r\n<h3><\/h3>\r\n<div class=\"bcc-box bcc-success\"><section id=\"glossary\">\r\n<h3>GLOSSARY<\/h3>\r\n<div data-type=\"definition\">\r\n<div>\r\n\r\n<strong>Benefit<\/strong>\r\n\r\nAn advantage, help or aid from something\u00a0Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.\u00a0An advantage, help, or aid from something.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Business model<\/strong>\r\n\r\nThe particular way in which a business organization ensures that it generates income, one that includes the choice of offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Capacity<\/strong>\r\n\r\nThe maximum that can be produced on a machine or in a facility or group.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Capital<\/strong>\r\n\r\nMoney and wealth. The means to acquire goods and services, especially in a non-barter system.The uppermost part of a column.\u00a0Money and wealth; the means to acquire goods and services, especially in a non-barter system.\u00a0Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Corporate<\/strong>\r\n\r\nAn incorporated entity is a separate legal entity that has been incorporated through a legislative or registration process established through legislation.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Demand<\/strong>\r\n\r\nThe desire to purchase goods or services, coupled with the power to do so, at a particular price.\u00a0The desire to purchase goods and services.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Design<\/strong>\r\n\r\nTo plan and carry out (a picture, work of art, construction etc. ).\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Economies of scale<\/strong>\r\n\r\nA process where an increase in quantity will result in a decrease of average cost of production (per unit).\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run, average cost of each unit.\u00a0The cost advantages that an enterprise obtains due to expansion. As the scale of output is increased, factors such as facility size and usage levels of inputs cause the producer's average cost per unit to fall.\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit.\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long-run average cost of each unit.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Economy<\/strong>\r\n\r\nCollective focus of the study of money, currency and trade, and the efficient use of resources. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.\u00a0The system of production and distribution and consumption. The overall measure of a currency system.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Efficiency<\/strong>\r\n\r\nThe extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.\u00a0The extent to which time is well used for the intended task. Improved efficiency was a principle goal of progressives, one they thought attainable by the application of scientific and rational thought to social problems.\u00a0The extent to which time is well used for the intended task.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Facility<\/strong>\r\n\r\nThe physical means or contrivances to make something (especially a service) possible; the required equipment, infrastructure, location etc.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Flexibility<\/strong>\r\n\r\nThe quality of being flexible; suppleness; pliability.fluctuation\u00a0A motion like that of waves; a moving in this and that direction.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Good<\/strong>\r\n\r\nAn object produced for market.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Intellectual property<\/strong>\r\n\r\nAny product of someone's intellect that has commercial value: copyrights, patents, trademarks, and trade secrets.\u00a0Intellectual property (IP) is a juridical concept that refers to creations of the mind for which exclusive rights are recognized.\u00a0Any product of someone's knowledge that has commercial value: copyrights, patents, trademarks and trade secrets.\r\n<div><\/div>\r\n<\/div>\r\n<div><strong>Language barrier<\/strong><\/div>\r\n<div>A figurative phrase for the difficulties faced when people who have no language in common attempt to communicate with each other.<\/div>\r\n<div><\/div>\r\n<div>\r\n\r\n<strong>Lead<\/strong>\r\n\r\nPotential opportunity for a sale or transaction, a potential customer.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Lead time<\/strong>\r\n\r\nThe amount of time between the initiation of some process and its completion, e.g. the time required to manufacture or procure a product; the time required before something can be provided or delivered.\r\n<div><\/div>\r\n<\/div>\r\n<div><strong>Loss<\/strong><\/div>\r\n<div>The negative difference between revenue and expense.<\/div>\r\n<div><\/div>\r\n<div>\r\n\r\n<strong>Management<\/strong>\r\n\r\nThe act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively.\u00a0administration; the process or practice of managing.administration; the process or practice of managing\u00a0Administration; the process or practice of managing.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Manufacture<\/strong>\r\n\r\nThe action or process of making goods systematically or on a large scale.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Outsourcing<\/strong>\r\n\r\nThe transfer of a business function to an external service provider\u00a0The transfer of a business function to an external service provider.\u00a0The transfer of a business function to an external service provider.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Performance<\/strong>\r\n\r\nThe act of performing; carrying into execution or action; execution; achievement; accomplishment; representation by action; as, the performance of an undertaking of a duty.\u00a0The act of performing; carrying into execution or action; achievement; accomplishment; representation by action, as the performance of undertaking a duty.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Price<\/strong>\r\n\r\nThe price is the amount a customer pays for the product.\u00a0The quantity of payment or compensation given by one party to another in return for goods or services.\u00a0The cost required to gain possession of something.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Process<\/strong>\r\n\r\nA series of events to produce a result, especially as contrasted to product.\u00a0in reference to capabilities, a process is how the capability is executed.\u00a0An outgrowth of tissue or cell.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Product<\/strong>\r\n\r\nAny tangible or intangible good or service that is a result of a process and that is intended for delivery to a customer or end user.\u00a0a chemical substance formed as a result of a chemical reaction. Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; goods or a service that meets the requirements of the various governing offices or society.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Quality control<\/strong>\r\n\r\nQuality control (QC) is a procedure or set of procedures intended to ensure that a manufactured product or performed service adheres to a defined set of quality criteria or meets the requirements of the client or customer.\u00a0A control, such as inspection or testing, introduced into an industrial or business process to ensure quality.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Raw materials<\/strong>\r\n\r\nA raw material or feedstock is the basic material from which a good product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state; e.g., raw latex, iron ore, logs, crude oil or seawater.\u00a0A raw material is the basic material from which a product is manufactured or made.\u00a0Materials and components scheduled for use in making a product.\u00a0A raw material is the basic material from which a good product is manufactured or made, frequently used with an extended meaning.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Risk<\/strong>\r\n\r\nThe potential (conventionally negative) impact of an event, determined by combining the likelihood of the event occurring with the impact, should it occur.\u00a0The potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).\u00a0To incur risk [of something].\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Security<\/strong>\r\n\r\nThe condition of not being threatened, especially physically, psychologically, emotionally, or financially.\u00a0proof of ownership of stocks, bonds, or other investment instruments.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Services<\/strong>\r\n\r\nThat which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Standard<\/strong>\r\n\r\nSomething used as a measure for comparative evaluations. A level of quality or attainment.\r\n<div><\/div>\r\n<\/div>\r\n<div><strong>Strategy<\/strong><\/div>\r\n<div>A plan of action intended to accomplish a specific goal.<\/div>\r\n<div><\/div>\r\n<div>\r\n\r\n<strong>Supplier<\/strong>\r\n\r\nOne who supplies; a provider.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Supply\u00a0provisions<\/strong>\r\n\r\nThe amount of some product that producers are willing and able to sell at a given price, all other factors being held constant.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Supply chain<\/strong>\r\n\r\nA supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.\u00a0A supply chain is a system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. A system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer.\u00a0A system of organizations, people, technology, activities, information, and resources involved in moving a product or service from supplier to customer.\u00a0A system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.\u00a0is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from suppliers to consumers.\u00a0A system of organizations, people, technology, activities, information. and resources involved in moving a product or service from supplier to customer.\r\n<div><\/div>\r\n<\/div>\r\n<div>\r\n\r\n<strong>Wage<\/strong>\r\n\r\nAn amount of money paid to a worker for a specified quantity of work, usually expressed on an hourly basis.\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><\/div>\r\n<\/div>\r\n<\/div>","rendered":"<div>\n<div>\n<h2>In contract manufacturing, a hiring firm makes an agreement with the contract manufacturer to produce and ship the hiring firm&#8217;s goods.<\/h2>\n<\/div>\n<div>\n<div class=\"bcc-box bcc-success\">\n<h3>KEY\u00a0Points<\/h3>\n<section>\n<div data-type=\"note\">\n<ul>\n<li>A hiring firm may enter a contract with a contract manufacturer (CM) to produce components or final products on behalf of the hiring firm for some agreed-upon\u00a0price.<\/li>\n<li>There are many\u00a0benefits\u00a0to\u00a0contract manufacturing, and companies are finding many reasons why they should be\u00a0outsourcing\u00a0their production to other companies.<\/li>\n<li>Production outside of the company does come with many risks attached. Companies must first identify their core competencies before deciding about contract\u00a0manufacture.<\/li>\n<\/ul>\n<\/div>\n<\/section>\n<\/div>\n<h3 class=\"im_title\"><\/h3>\n<\/div>\n<\/div>\n<h4><strong>Terms<\/strong><\/h4>\n<div>\n<div>\n<ul>\n<li><em>Contract manufacturing:<\/em>\u00a0 Business model\u00a0in which a firm hires a contract manufacturer to produce components or final products based on the hiring firm&#8217;s\u00a0design. A\u00a0business model where a firm hires another firm to produce components or products.<\/li>\n<\/ul>\n<\/div>\n<div><\/div>\n<div>\n<p>A contract manufacturer (&#8220;CM&#8221;) is a manufacturer that enters into a contract with a firm to produce\u00a0components or products for that firm . It is a form of outsourcing. In a contract manufacturing business model, the hiring firm approaches the contract manufacturer with a design or formula. The contract manufacturer will quote the parts based on processes, labor, tooling, and material costs. Typically a hiring firm will request quotes from multiple CMs. After the bidding\u00a0process\u00a0is complete, the hiring firm will select a source, and then, for the agreed-upon price, the CM acts as the hiring firm&#8217;s factory, producing and shipping units of the design on behalf of the hiring firm.<\/p>\n<figure id=\"fe895\">\n<div><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/213\/2015\/02\/20094800\/Electronic_Printed_Circuit_Board.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-930 aligncenter\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/213\/2015\/02\/20094800\/Electronic_Printed_Circuit_Board-300x199.jpg\" alt=\"Circuit Boards\" width=\"419\" height=\"278\" \/><\/a><\/div>\n<\/figure>\n<figure><\/figure>\n<div><\/div>\n<div>\n<div>\n<div><\/div>\n<h4><strong>Benefits<\/strong><\/h4>\n<\/div>\n<p>Contract manufacturing offers a number of benefits:<\/p>\n<ul>\n<li><strong>Cost Savings:<\/strong> Companies save on their\u00a0capital\u00a0costs because they do not have to pay for a\u00a0facility\u00a0and the equipment needed for production. They can also save on labor costs such as\u00a0wages, training, and benefits. Some companies may look to contract manufacture in low-cost countries, such as China, to benefit from the low cost of labor.<\/li>\n<li><strong>Mutual Benefit to Contract Site:<\/strong> A contract between the manufacturer and the company it is producing for may last several years. The manufacturer will know that it will have a steady flow of business at least until that contract expires.<\/li>\n<li><strong>Advanced Skills:<\/strong> Companies can take advantage of skills that they may not possess, but the contract manufacturer does. The contract manufacturer is likely to have relationships formed with raw material suppliers or methods ofefficiency\u00a0within their production.<\/li>\n<li><strong>Quality:<\/strong> Contract Manufacturers are likely to have their own methods of\u00a0quality control\u00a0in place that help them to detect counterfeit or damaged materials early.<\/li>\n<li><strong>Focus:<\/strong> Companies can focus on their core competencies better if they can hand off base production to an outside company.<\/li>\n<li><strong>Economies of Scale:<\/strong> Contract Manufacturers have multiple customers that they produce for. Because they are servicing multiple customers, they can offer reduced costs in acquiring\u00a0raw materials\u00a0by benefiting from economies of scale. The more units there are in one shipment, the less expensive the price per unit will be.<\/li>\n<\/ul>\n<h4><strong>Risks<\/strong><\/h4>\n<p>Balanced against the above benefits of contract manufacturing are a number of risks:<\/p>\n<ul>\n<li><strong>Lack of Control:<\/strong> When a company signs the contract allowing another company to produce their product, they lose a significant amount of control over that product. They can only suggest\u00a0strategies\u00a0to the contract manufacturer; they cannot force them to implement those strategies.<\/li>\n<li><strong>Relationships:<\/strong> It is imperative that the company forms a\u00a0good\u00a0relationship with its contract manufacturer. The company must keep in mind that the manufacturer has other customers. They cannot force them to produce their product before a competitor&#8217;s. Most companies mitigate this risk by working cohesively with the manufacturer and awarding good\u00a0performance\u00a0with additional business.<\/li>\n<li><strong>Quality:<\/strong> When entering into a contract, companies must make sure that the manufacturer&#8217;s\u00a0standards\u00a0are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality. The company has to ensure the contract manufacturer has suppliers that also meet these standards.<\/li>\n<li><strong>Intellectual Property Loss:<\/strong> When entering into a contract, a company is divulging their formulas or technologies. This is why it is important that a company not give out any of its core competencies to contract manufacturers. It is very easy for an employee to download such information from a computer and steal it. The recent increase in intellectual property loss has\u00a0corporate\u00a0and government officials struggling to improve\u00a0security. Usually, it comes down to the integrity of the employees.<\/li>\n<li><strong>Outsourcing Risks:<\/strong> Although outsourcing to low-cost countries has become very popular, it does bring along risks such as\u00a0language barriers, cultural differences, and long\u00a0lead\u00a0times. This could make the\u00a0management\u00a0of contract manufacturers more difficult, expensive, and time-consuming.<\/li>\n<li><strong>Capacity\u00a0Constraints:<\/strong> If a company does not make up a large portion of the contract manufacturer&#8217;s business, they may find that they are de-prioritized over other companies during high production periods. Thus, they may not obtain the product they need when they need it.<\/li>\n<li><strong>Loss of Flexibility and Responsiveness:<\/strong> Without direct control over the manufacturing facility, the company will lose some of its ability to respond to disruptions in the supply chain. It may also hurt their ability to respond to demand\u00a0fluctuations, risking their customer\u00a0service\u00a0levels.<\/li>\n<\/ul>\n<\/div>\n<\/div>\n<div>\n<h3><\/h3>\n<div class=\"bcc-box bcc-success\">\n<section id=\"glossary\">\n<h3>GLOSSARY<\/h3>\n<div data-type=\"definition\">\n<div>\n<p><strong>Benefit<\/strong><\/p>\n<p>An advantage, help or aid from something\u00a0Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.\u00a0An advantage, help, or aid from something.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Business model<\/strong><\/p>\n<p>The particular way in which a business organization ensures that it generates income, one that includes the choice of offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Capacity<\/strong><\/p>\n<p>The maximum that can be produced on a machine or in a facility or group.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Capital<\/strong><\/p>\n<p>Money and wealth. The means to acquire goods and services, especially in a non-barter system.The uppermost part of a column.\u00a0Money and wealth; the means to acquire goods and services, especially in a non-barter system.\u00a0Already-produced durable goods available for use as a factor of production, such as steam shovels (equipment) and office buildings (structures).<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Corporate<\/strong><\/p>\n<p>An incorporated entity is a separate legal entity that has been incorporated through a legislative or registration process established through legislation.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Demand<\/strong><\/p>\n<p>The desire to purchase goods or services, coupled with the power to do so, at a particular price.\u00a0The desire to purchase goods and services.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Design<\/strong><\/p>\n<p>To plan and carry out (a picture, work of art, construction etc. ).<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Economies of scale<\/strong><\/p>\n<p>A process where an increase in quantity will result in a decrease of average cost of production (per unit).\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run, average cost of each unit.\u00a0The cost advantages that an enterprise obtains due to expansion. As the scale of output is increased, factors such as facility size and usage levels of inputs cause the producer&#8217;s average cost per unit to fall.\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit.\u00a0The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long-run average cost of each unit.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Economy<\/strong><\/p>\n<p>Collective focus of the study of money, currency and trade, and the efficient use of resources. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.\u00a0The system of production and distribution and consumption. The overall measure of a currency system.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Efficiency<\/strong><\/p>\n<p>The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.\u00a0The extent to which time is well used for the intended task. Improved efficiency was a principle goal of progressives, one they thought attainable by the application of scientific and rational thought to social problems.\u00a0The extent to which time is well used for the intended task.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Facility<\/strong><\/p>\n<p>The physical means or contrivances to make something (especially a service) possible; the required equipment, infrastructure, location etc.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Flexibility<\/strong><\/p>\n<p>The quality of being flexible; suppleness; pliability.fluctuation\u00a0A motion like that of waves; a moving in this and that direction.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Good<\/strong><\/p>\n<p>An object produced for market.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Intellectual property<\/strong><\/p>\n<p>Any product of someone&#8217;s intellect that has commercial value: copyrights, patents, trademarks, and trade secrets.\u00a0Intellectual property (IP) is a juridical concept that refers to creations of the mind for which exclusive rights are recognized.\u00a0Any product of someone&#8217;s knowledge that has commercial value: copyrights, patents, trademarks and trade secrets.<\/p>\n<div><\/div>\n<\/div>\n<div><strong>Language barrier<\/strong><\/div>\n<div>A figurative phrase for the difficulties faced when people who have no language in common attempt to communicate with each other.<\/div>\n<div><\/div>\n<div>\n<p><strong>Lead<\/strong><\/p>\n<p>Potential opportunity for a sale or transaction, a potential customer.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Lead time<\/strong><\/p>\n<p>The amount of time between the initiation of some process and its completion, e.g. the time required to manufacture or procure a product; the time required before something can be provided or delivered.<\/p>\n<div><\/div>\n<\/div>\n<div><strong>Loss<\/strong><\/div>\n<div>The negative difference between revenue and expense.<\/div>\n<div><\/div>\n<div>\n<p><strong>Management<\/strong><\/p>\n<p>The act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively.\u00a0administration; the process or practice of managing.administration; the process or practice of managing\u00a0Administration; the process or practice of managing.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Manufacture<\/strong><\/p>\n<p>The action or process of making goods systematically or on a large scale.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Outsourcing<\/strong><\/p>\n<p>The transfer of a business function to an external service provider\u00a0The transfer of a business function to an external service provider.\u00a0The transfer of a business function to an external service provider.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Performance<\/strong><\/p>\n<p>The act of performing; carrying into execution or action; execution; achievement; accomplishment; representation by action; as, the performance of an undertaking of a duty.\u00a0The act of performing; carrying into execution or action; achievement; accomplishment; representation by action, as the performance of undertaking a duty.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Price<\/strong><\/p>\n<p>The price is the amount a customer pays for the product.\u00a0The quantity of payment or compensation given by one party to another in return for goods or services.\u00a0The cost required to gain possession of something.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Process<\/strong><\/p>\n<p>A series of events to produce a result, especially as contrasted to product.\u00a0in reference to capabilities, a process is how the capability is executed.\u00a0An outgrowth of tissue or cell.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Product<\/strong><\/p>\n<p>Any tangible or intangible good or service that is a result of a process and that is intended for delivery to a customer or end user.\u00a0a chemical substance formed as a result of a chemical reaction. Anything, either tangible or intangible, offered by the firm as a solution to the needs and wants of the consumer; something that is profitable or potentially profitable; goods or a service that meets the requirements of the various governing offices or society.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Quality control<\/strong><\/p>\n<p>Quality control (QC) is a procedure or set of procedures intended to ensure that a manufactured product or performed service adheres to a defined set of quality criteria or meets the requirements of the client or customer.\u00a0A control, such as inspection or testing, introduced into an industrial or business process to ensure quality.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Raw materials<\/strong><\/p>\n<p>A raw material or feedstock is the basic material from which a good product is manufactured or made, frequently used with an extended meaning. For example, the term is used to denote material that came from nature and is in an unprocessed or minimally processed state; e.g., raw latex, iron ore, logs, crude oil or seawater.\u00a0A raw material is the basic material from which a product is manufactured or made.\u00a0Materials and components scheduled for use in making a product.\u00a0A raw material is the basic material from which a good product is manufactured or made, frequently used with an extended meaning.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Risk<\/strong><\/p>\n<p>The potential (conventionally negative) impact of an event, determined by combining the likelihood of the event occurring with the impact, should it occur.\u00a0The potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome).\u00a0To incur risk [of something].<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Security<\/strong><\/p>\n<p>The condition of not being threatened, especially physically, psychologically, emotionally, or financially.\u00a0proof of ownership of stocks, bonds, or other investment instruments.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Services<\/strong><\/p>\n<p>That which is produced, then traded, bought or sold, then finally consumed and consists of an action or work.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Standard<\/strong><\/p>\n<p>Something used as a measure for comparative evaluations. A level of quality or attainment.<\/p>\n<div><\/div>\n<\/div>\n<div><strong>Strategy<\/strong><\/div>\n<div>A plan of action intended to accomplish a specific goal.<\/div>\n<div><\/div>\n<div>\n<p><strong>Supplier<\/strong><\/p>\n<p>One who supplies; a provider.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Supply\u00a0provisions<\/strong><\/p>\n<p>The amount of some product that producers are willing and able to sell at a given price, all other factors being held constant.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Supply chain<\/strong><\/p>\n<p>A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.\u00a0A supply chain is a system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer. Supply chain activities transform natural resources, raw materials, and components into a finished product that is delivered to the end customer. A system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer.\u00a0A system of organizations, people, technology, activities, information, and resources involved in moving a product or service from supplier to customer.\u00a0A system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer.\u00a0is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from suppliers to consumers.\u00a0A system of organizations, people, technology, activities, information. and resources involved in moving a product or service from supplier to customer.<\/p>\n<div><\/div>\n<\/div>\n<div>\n<p><strong>Wage<\/strong><\/p>\n<p>An amount of money paid to a worker for a specified quantity of work, usually expressed on an hourly basis.<\/p>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-273\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Boundless Business. <strong>Authored by<\/strong>: Boundless. <strong>Provided by<\/strong>: Boundless. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.boundless.com\/business\/\">https:\/\/www.boundless.com\/business\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li>Image of Circuit Boards. <strong>Authored by<\/strong>: JayHand. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/en.wikipedia.org\/wiki\/Electronics_manufacturing_services#mediaviewer\/File:Electronic_Printed_Circuit_Board.jpg\">https:\/\/en.wikipedia.org\/wiki\/Electronics_manufacturing_services#mediaviewer\/File:Electronic_Printed_Circuit_Board.jpg<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":9,"menu_order":4,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Boundless Business\",\"author\":\"Boundless\",\"organization\":\"Boundless\",\"url\":\"https:\/\/www.boundless.com\/business\/\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Image of Circuit 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