Could You Benefit from Contract Manufacturing Services?
Reducing the costs of machined parts can be as easy as having a conversation: always communicate with a shop about your purchasing intentions.
If you plan to place a particular order on a recurring basis, the right contract manufacturing services partner can talk to you about opportunities to obtain the best costs over time with a long-term contract.
Here, we’ll review key considerations to get the most from contract manufacturing services and what to look for in a partner.
Considerations for Long-Term Manufacturing Contracts
Cost and delivery schedule
Costs vary depending on the buyer’s preferred delivery schedule. In the simplest terms, shops think about costs in three tiers:
Highest price = a low quantity of parts delivered immediately
Mid-range price = a high quantity of parts delivered in multiple shipments over a fixed period of time (e.g., quarterly)
Lowest price = a high quantity of parts delivered immediately
In other words, even if you can’t justify option #3, you can talk to your shop about option #2 and save money compared to option #1.
Potential for revisions
Some orders are a better fit for long-term contract manufacturing services agreements than others. An essential factor to consider before entering a contract is the potential for part revisions.
For example, suppose you agree to order 10 parts per month over six months with the understanding that the shop will machine all 60 parts at once and ship them from inventory. What happens if there is a revision change in that time? Who is liable for the parts that can’t be used: the shop or the customer? Most shops will clarify in their contracts that they can’t be held liable for engineering changes, leaving you to pay for parts you don’t actually need.
To avoid this risk, we recommend long-term contract manufacturing services for mature parts unlikely to undergo revisions.
But wait—if a part you plan to order on a recurring basis may undergo revisions, you still have options! In these situations, consider a blanket PO. When you submit a blanket PO to Focused on Machining, you agree to purchase X parts per month over Y months, but we won’t machine the parts all at once, giving you the opportunity to make minor revisions.
Blanket POs allow us to plan for the best (i.e., most cost-effective) path forward. For instance, we might design tooling and fixturing to improve efficiency or negotiate lower prices with material suppliers, leading to cost savings that we can pass on directly to you.
Assembly needs
Entering a long-term contract manufacturing services agreement is a perfect time to discuss your assembly needs. If we agree to deliver three unique parts in quantities of 10 every month, and those parts go together, talk to us about assembling the parts for you and shipping the complete assemblies.
What to Look for in a Contract Manufacturing Services Partner
As with any manufacturing engagement, vetting a shop before entering a contract manufacturing services agreement is important. Here’s what to look for in a partner:
Robust ERP system
A robust ERP system is essential to a shop delivering on its promises. At Focused on Machining, we schedule every job in our ERP system as soon as we receive a PO or enter a contract. When we tell you we can make X parts for you every month, it’s because we’re looking at our schedule and can confirm we have the machine capacity and resources to support that workload.
Regarding assembly work, our ERP system has excellent BOM capabilities to ensure we have every material, component, and more when we need it for even the most complex assemblies. That’s just one of the ways we maintain such a high on-time delivery rating.
In-depth contract review process
Big problems occur when shops don’t review contracts as thoroughly as they should. We’ve seen buyers burned by shops that take on contracts only to realize they can’t actually satisfy all the terms. The shops walk away from the contracts, and the buyers are left scrambling.
At Focused on Machining, we take the time to carefully review each contract to ensure we can deliver on all terms.
Superb inventory management
If you’re trusting a shop to hold inventory for you, you need assurance that their inventory management system is top-notch. The shop should be able to walk you through its approach to tracking and organizing inventory so you always know precisely what you’re getting.
One of the best ways to assess a shop’s inventory management capabilities, as well as other critical factors that make for a good contract manufacturing services partner, is to schedule a shop visit. Focused on Machining is happy to welcome you to our shop in person or via a virtual tour.
Contact us to discuss your contract manufacturing needs.