5 CONTRACT MANUFACTURING: THE VALUE OF A NETWORK BASED APPROACH | 2024
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Executive Summary
Using contract manufacturing by a brand owner to make and ship products averages 32% of total production. Despite the significance, this portion of the supply chain operates primarily on an island between trading partners supported largely by spreadsheets and email. Due to the lack of automation, black holes plague the process. (The data disappears for days at a time.) The automation and synchronization of data flow is an opportunity for all trading partners. Improving outcomes requires an investment in network technologies. In automating supply chain trading partner relationships, many companies attempt to “integrate supply chain data” without understanding that the goal needs to be the improvement of interoperability—the synchronization and harmonization of data flow bi-directionally across multiple supplier/customer interaction tiers. When implemented correctly, the network provides optimization engines, interoperability mechanisms, and a system of record. Each is important. With increased demand and supply variability coupled with reduced order cycles, network investment improves agility and resilience. Yet, the research for this report shows that only 8% of the flows between brand owners, contract manufacturers, and suppliers move through Supply Chain Network Operating systems. Seizing this opportunity is the subject of this report.
______________________________ Trading Partner Definitions
Brand Owner: the company owning a brand to be outsourced for manufacturing/finishing to a third-party. Contract Manufacturer: A provider of manufacturing services to a brand owner to produce, package, and ship a branded product. Supplier: A provider of raw materials or services for use in manufacturing. Trading Partner: An entity participating in the buying and selling of products or services in the extended supply chain. Outcomes Agility: An organization’s ability to deliver the same cost, service, and quality in the face of demand and supply variability. Resilience: Continuity of balance sheet results despite supply chain disruption and variability. ______________________________
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