Contract manufacturing is a process that establishes a working agreement between two companies. As part of the agreement, one company custom produces parts or other materials on behalf of their client. In most cases, the manufacturer also handles the ordering and shipment processes for the client.
In Principal to Principal mode of operations, all activities are covered from the stage of receipt of projections to dispatch of finished product by the Contract Manufacturer (CM).
The Contract Manufacturer will assess the material requirements, arrange the transportation for incoming materials, and ascertain items yet to be procured (shortfalls), schedule production, assess material requirements with time schedules then place the orders and follow-up with the vendors at regular intervals. Arrange to take samples, conduct the testing, and take batches as per plan. After completion of these processes dispatch the finished product to a location of client's choice.
In P to P mode of operations, usually the Contract Manufacturer invests some funds in working capital. He charges interest on this investment while arriving at the final full fee workings. The Working Capital requirement is assessed based on the inventory norms given by the Client (while keeping in view of the supplier lead times and also payment terms) and also payment realization from the Client towards supply bills raised by the CM.M.
In Loan License mode of operations, generally stock transfer takes place from the client to CM's warehouse. CM's responsibility is limited to the extent of taking up a batch (manufacturing and packing) after conducting the necessary tests. Timely arrangement of materials and transportation will be vested with the client's staff only.
List of Licenses
Contract Manufacturing - Transition from Tactical Operations to Strategic...
Contract Research Organisations offer Promise of Innovative, Safe and...