Contract manufacturing is a process that establishes an agreement between two companies. As part of the agreement, a company manufactures parts or other customer-specific materials on behalf of its customer. In most cases, the manufacturer also supports the ordering and shipping processes for the customer. In the mode of operation of the credit license, the transfer of the customer to the CM warehouse is carried out. CM`s responsibility is limited to the extent to which a lot is taken over (manufacturing and packaging) after the required tests have been completed. The timely disposal of materials and transport is entrusted only to the customer`s staff. In the type of operation P to P, the contract manufacturer generally invests some working capital. He calculates the interest for this investment while he is working at full final charge. The working capital requirement is based on inventory standards provided by the customer (taking into account delivery times and payment conditions) as well as on the completion of the customer`s payment for the CM.M. The contract manufacturer will evaluate the material requirements, arrange the transport of incoming materials and identify items (defects) that plan production. , assess material requirements with schedules, then place orders and periodically catch up with suppliers. Take samples, do the tests and take batches as planned.
At the end of these processes, the finished product is shipped to a location of the customer`s choice. In the main to main operating type, all activities are covered from the project receipt phase to the shipment of the finished product by the contract manufacturer (CM).