Contract manufacturing

Rivalry; It is a race in which companies producing the same good enter to sell more goods from each other. Of course, this product must be of good quality. Enterprises that cannot fulfill the order they have received on time, meet their needs by contracting the enterprises that make the same production.

  • Contract manufacturing

    Contract manufacturing


    The result of the relationship between two firms, one of which has an economic advantage over the other, is that the small firm produces continuously for the large firm in the agreed type, quantity and quality, and delivers this production on the agreed date.

    Contract manufacturing, which is the predominant form of production in the textile and apparel industry in our country, is generally carried out by small-scale companies. The fact that small and medium-sized enterprises have a weighted share among the main indicators of the economy such as production, employment, total number of workplaces and added value in most countries of the world, as in Turkey, shows how important contract manufacturing is.

    On the one hand, the importance of contract manufacturing and on the other hand, the importance of small businesses is increasing day by day. Parallel to this, their number in total enterprises is increasing and their share in employment is also increasing. Thus, subcontractors in particular and small businesses in general both provide growth and create employment.

    In contract manufacturing, two companies must first agree. This means that there will always be a relationship between them. In other words, the relationship between the two companies gains a permanence. This is due to the later renewal of orders.

    In the absence of this, it would not be correct to define a one-time order as a subcontractor. A contract firm has to produce in the type, quantity and quality specified in the contract. There may also be an agreed delivery date in the contract. On the other hand, the “subcontractor” has to make payments in the amounts and times agreed in the contract.

    In contract manufacturing, there should not be huge differences in terms of technological level and labor efficiency between the main company and the satellite companies that make contract manufacturing. Otherwise, it cannot be expected that a company using advanced technology will profit from a contractual relationship with another company working with backward and labor-intensive technology.

    Because the company, which has advanced technology, outsources a product that it needs in order not to make additional investments and not to hire many workers. When it tends to have small companies working with backward technology do this work, it outsources many companies that can feed its own production capacity at the same time. Today, the contract manufacturing relationship works in this way all over the world and in Turkey.

    The emergence of contract manufacturing is based on the flexible specialization model, one of the new forms of production in recent years. In Italy, which spent a period of the 1960s and 70s with intense worker movements, employers outsource the production stages to subcontractors instead of dealing with workers. Small production units sharing the same space create a flexibility model unique to Italy by contract manufacturing for the main industry.

    An example of this model is the famous company Benetton. Benetton outsources thousands of small workshops in various countries, including Turkey, and in Italy. But running this system today is only possible with a large computer network. For example, as soon as the sale is made, all information to the center; For example, it is reported which sweater, which size, which color is sold. The preferences of the consumer and the stock situation in the sales center are determined immediately and production starts immediately.

    As a flexible production model, the main difference of contract manufacturing from the widely used “flexible production” is that flexible production is a form of organization within large enterprises, while contract manufacturing is based on small workshop production. The second important difference is the place of technology in these two systems.

    In contract manufacturing, advanced technology does not play a distinctive role. Contract manufacturing does not necessarily have to be a labor-intensive or technology-intensive production model. In sectors, some production stages may be capital/technology-intensive, while others may be labor-intensive.

    For example, while the design and cutting stages of ready-made clothing are technology-intensive; planting takes place in a labor-intensive manner.

    Surveys show that 40% of small businesses also make contract manufacturing. This rate reaches the highest point with 50% in the textile and ready-made clothing sector.

    From this fact, we can reach the following conclusion: every small business operating in textile and apparel generates half of its income from contract manufacturing.

    The contract system works differently in textile and apparel. Brands first have their designers and stylists prepare a sample of the product. Then, the search for a facility that can produce them at the desired quality and cost begins.

    Sometimes only the design is given to the selected facility and the product is requested. Some companies follow a different method. They want the product to be prepared with their own materials and accessories. However, it is also possible that the brand and the manufacturing company make production as a joint organization in order to increase the quality.

    Those who manufacture custom-made garments for exporting companies working abroad, including both sewing and cutting + sewing + packaging operations.

    They are generally small and medium-sized apparel enterprises. These enterprises are the enterprises that do not make their own production, but process the orders of large enterprises in their own facilities (cut, sew, packaging) and turn them into ready-made garments.

    The computer is necessary for the realization of said organization. Companies need to get output at any time, that is, there is a constantly running programming.


    With computers;


    • How many orders in which workshop
    • The number of incoming and quality control orders


    It should be known immediately.




    • How many of these orders were rejected
    • How many of them were kept waiting to go to these workshops and the date of their departure.


    Obtaining such information is important in terms of ensuring the continuity of the organization in businesses.

    This information in the computer makes it possible to carry out contract manufacturing. Otherwise, it is difficult to carry out contract manufacturing today. Since there is a large volume of production, and there is also a need for a relationship between the workshops, it turns out that contract manufacturing is a rather complicated process. So the computer plays an important role. Also working with more workshops as big order arrives It is imperative to pay more attention to quality.

    At this stage, it is necessary to talk about the technology and quality used. Large companies are naturally in a very advantageous position in using the developing technology. Most of them already use advanced technology.

    When we look at the production stages in the ready-made clothing sector, it is observed that the technology was intense at the beginning. Since it is the large company that takes the order, it is also in its interest to keep the quality under strict control. Therefore, they are trying to achieve that level of quality with some financial support. If the ordering company is not satisfied with the quality and similar features of the product produced, it tends to look for another manufacturer. Because competition; It is a race in which companies producing the same good enter to sell more goods from each other. The situation is a frequent occurrence in real life. Therefore, the company receiving the order has to continue production without compromising on quality. Contract manufacturing has some important positive aspects as well as some negative aspects.


    Positive Aspects of Contract Manufacturing


    The textile and ready-made clothing industry requires intensive use of labor. The country has an important place in terms of employment. Although rapidly developing technologies in recent years reduce direct employment especially in yarn and weaving sub-sectors, they play an important role in increasing employment due to their indirect and direct effects in these sectors.

    Labor cost is much lower than other businesses. The use of women and child workers in textile and ready-made clothing, as well as the low rate of skilled workers among the total employees, are the most important factors in keeping the cost low.

    In large enterprises, workers are generally unionized and contracted. In the subcontractor company, payments such as insurance premium, income tax, leave fee, nursery and meals are avoided, thus reducing the cost. Therefore, in sectors where labor is intense such as textiles and ready-made clothing, the unit cost in production is also low.


    In contract manufacturing


    Employees, managers and employers are located in the same place. Meanwhile, since most people do the same job, there is ease of communication between employees. Therefore, motivation, which is an important factor in production and efficiency, can be increased more easily. Also, decisionsoften provided with employees. Thus, since the management of the enterprise is partially carried out jointly, the chance of success also increases.


    big işin enterprises


    In addition to the unionized and contracted work of the employees, the employees in the contract manufacturing enterprises cannot strike. Even if it is, such an event is not long-term and permanent.


    In contract manufacturing


    There is a structure that is more open to specialization as it generally concentrates on certain aspects of production. This specialization will also help reduce the possibility of large-volume production enterprises to be adversely affected by demand elasticities, as there are many contract manufacturing workshops. Again, in parallel with this, the advantage of contract manufacturing that can easily respond to the demands of the consumer should not be overlooked.


    Contract manufacturing workshops


    Whether it is regional or nationwide, it also shows the balancing feature of income distribution, depending on the employment-increasing feature of this production. It is necessary to think of these enterprises as micro copies of large enterprises that produce in a small and specific area. They can easily implement technological innovations with a certain amount of expenditure compared to large enterprises. They have more adaptability and mobility in this regard. Thus, by applying technical developments faster, they make it easier for large enterprises to benefit from these innovations.


    Contract manufacturing provides elasticity.


    Contract manufacturing facilitates growth.


    Negative Aspects of Contract Manufacturing


    • Contract manufacturing Labor costs are low in workshops. Most employers do not pay minimum wage, do not employ uninsured workers. Therefore, a significant number of workers are unskilled. All these lead to low labor productivity in enterprises.
    • Especially low wage policy is a factor that undermines social peace.
    • Generally Since the financing problem is seen and they can keep their production to a certain extent, they cannot grow much. In addition, although they can easily adapt to economic developments, they can be dragged into bankruptcy as they are easily affected by negative developments.
    • Contract manufacturing The most negative effect on the country's economy is that it fuels the informal economy. In particular, the high tendency to employ uninsured workers and the fact that they do not comply with the document system cause this result.
    • Contract manufacturing The biggest harm is undoubtedly that it prevents branding and becoming a worldwide name. Today's competitive conditions are much heavier and more brutal than before. This has made it difficult to survive and be permanent in the market. The most effective way to overcome this difficulty is for the company to have its own brand.
    Posted by %PM, 20% 638% 2020 17%:%Jun in home page Read 2413 times

Contract manufacturing