When you outsource your contract manufacturing, you typically are faced with determining which one of three types of manufacturing entities will fit your manufacturing needs. Depending on your circumstances and project requirements, you’ll want to evaluate if you’ll need a toll manufacturer, contract manufacturer or full-fledged manufacturer.
Materials, goods, inventory and selling risks are assumed by the organization that hires a toll manufacturing company (you in this case). Under this type of situation, the toll manufacturer provides the plant, machinery and labor force to manufacture parts, and you must provide all materials and goods necessary for manufacturing. You also would hold ownership of all intangible assets such as patents and designs and assumes all selling risks.
You can count on paying a toll manufacturer on a routine basis.
This type of manufacturer is the body that owns the plant and machinery and provides the labor to operate the machinery – similar to a toll manufacturer. You would have access to the company’s resources (plant, machinery and machinists) to make your parts and components, and you ultimately assume the risk of selling the goods. Similarly, a contract manufacturer would also be paid on a routine basis.
What makes contract manufacturers different from toll manufacturers is that they source and supply the materials necessary to manufacture the parts.
A full-fledge manufacturer is the most involved of the three types. This company is responsible for providing the space, machinery and team to manufacture the parts, as well as, all materials and goods necessary for production. Ultimately, this type of manufacturer assumes all risks associated with selling the products and has rights to intangible assets such as designs and patents.