Overview of Contract Manufacturing
Contract manufacturing is a business process in which an organization, known as the original equipment manufacturer (OEM), outsources manufacturing to another organization, known as the Contract Manufacturer, to manufacture a specific part or a full product. The contract manufacturer manufactures the product to exact specifications of the original equipment manufacturer's label. The original equipment manufacturer may supply some or all components to the contract manufacturer. Contract manufacturing enables the original equipment manufacturer to completely outsource their manufacturing process to the contract manufacturer.
The following figure illustrates the solution overview of contract manufacturing:
In the following image, the business flow for contract manufacturing is explained. Manufacturing, Logistics, Procurement, Order Management, Supply Chain Planning, and Supply Chain Orchestration all form different parts of a single enterprise which deal with the various aspects of fulfilling a business flow for production of a work order which is used to complete a sales order for a customer. The contract manufacturer is an entity outside the enterprise who manufactures only a part of the production and returns it to the enterprise.
The solution supports outsourcing of manufacturing jobs in a build to plan or build to order manufacturing strategies. The OEMs can track and monitor the manufacturing process in the contract manufacturer's facility in real time, and also track the inventories at the contract manufacturer's facility that are owned by them, whether they're components or finished goods.