Manufacturing plant

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Example of contract manufacturing: A company specializing in saucepans does not manufacture knives itself, but has them delivered by a manufacturing company and provided with its own logo

A manufacturing company is the supplier (subcontractor) of a manufacturer. Even if the goods he produces reach the retailer or end customer directly , he does not act as a supplier to them, but leaves that to the manufacturer or his distributor . The core competence of the manufacturing company is the optimization of manufacturing processes; it does not deal with product development and marketing . The quality assuranceis carried out by the customer, the manufacturer, at the manufacturing site. In addition, there are manufacturing companies that manufacture certain products on behalf of brand manufacturers or trading companies, but which they are not allowed to sell to end users themselves.

Extended workbench

The metaphorical expression extended workbench , i.e. handing on the work along an imaginary workbench until it reaches outside the company, i.e. to the market, is originally used for industrial manufacturing companies (or even entire economies) that do not have their own research and Do development , but only offer contract manufacturing of products that have been developed by other companies (or in other economies).


This trend started in the 1970s when the ASEAN countries began to open up to the west and attract foreign investors. These tendencies also existed in South America. With the onset of globalization , the opening of Eastern Europe to the west and the end of the managed economy in India at the end of the 1980s and beginning of the 1990s, this trend continued to spread.

The extended workbench offers the investing company several advantages:

  • Proximity to raw material sources
  • Low wages and (in many countries) weak unions
  • Direct support from an (often) corrupt political class
  • Access to domestic sales markets

For the individual countries are the advantages

  • Building the infrastructure
  • Training of skilled workers
  • Tax and customs revenue


The disadvantages and risks for the economy, on the other hand, are:

  • Loss of know-how
  • longer lead time
  • Unstable political systems
  • Exchange rate risks (see Asian crisis )
  • unprofessional banks
  • Difficulty enforcing ethical standards
    • lack of employee rights
    • in part, the utilization is of child labor accepted
    • Occupational safety
  • Supply chain less transparent
    • Risk of counterfeit components
    • Risk of substances being used and remaining in the product that are not permitted for the target market

The disadvantages for the countries:

  • growing dependence on the world economy and international financial flows
  • growing environmental problems

to form

  • Suppliers
  • Outsourcing
  • Contract manufacturing


In the beginning, mainly areas of light industry, which require few skilled personnel and low investment, were outsourced, followed by heavy industry, which requires more capital. However, with the increasing educational level in the respective countries, outsourcing also includes white collar jobs and even research and development departments.

The effect of the extended workbench is slowly disappearing and full-fledged suppliers and even competitors are growing up in the former “workbench countries”. In the meantime, the term extended workbench is also generally used for sub-suppliers who perform standard activities or preparatory work for the actual supplier.

Reasons for this are, for example:

  • The actual supplier can adapt more flexibly to fluctuating capacity requirements.
  • Cost savings
  • Process-related reasons
  • Strategic reasons

Example: A company offers the repair and overhaul of turbines at several locations around the world. Since the actual plant, which can carry out the complex repair processes, only exists once, there are independent national companies belonging to the group for non-European customers that receive the turbines, disassemble, clean and send them to the repair plant for the actual overhaul. The repairing company speaks of the foreign national companies as an extended workbench.

Contract manufacturer of branded goods

Contract manufacturers or contract manufacturers are industrial companies that produce products in series on behalf of and for the account of branded goods manufacturers without appearing as a manufacturer to the buyer . The advantage is the anonymity of the manufacturing company, the disadvantage is the inability to give the manufacturing company an image . However, they must be distinguished from the extended workbench , as this is defined as the outsourcing of certain upstream or downstream work on a product from production.

The transfer of the manufacture of branded products is of paramount importance for the computer industry ( original equipment manufacturers), but companies have also specialized as contract manufacturers in many other branches of industry, e.g. B. in the pharmaceutical industry, the cosmetics industry and in the field of food production ( trademarks ).

Contract manufacturing in the automotive industry

In the automotive industry, contract manufacturing is a type of cooperation that is used in several application scenarios. Contract manufacturing is often used analogously . A variant that has been used for decades is the outsourcing of small series and low-volume derivatives. Automobile manufacturers' production facilities are usually designed for high volumes. Small numbers are therefore rarely worthwhile. Contract manufacturers have therefore developed precisely in this market segment. They take on the production of low-volume derivatives and special models (e.g. convertibles).

Over the past decade, another use case has emerged for large automobile manufacturers; they use contract manufacturing as a market entry strategy in new markets. The original manufacturer (OEM) commissions a contract manufacturer in the target market to assemble the vehicles. This can significantly reduce the tax burden and overcome trade barriers (import taxes on finished vehicles can be a multiple of the vehicle price). However, such manufacturing cooperations place high demands on the planning, logistics and manufacturing processes as well as supporting IT systems of the two partners, since the separation of the value chain between the two companies requires considerable information and coordination.

Contract manufacturer chemicals

Manufacturers of a substance in quantities of one tonne or more per year must register the substance .
  • There is no definition of a contract manufacturer in the REACH regulation
  • The registration obligation according to REACH lies with the contract manufacturer despite the fact that the raw materials, the intellectual property and the end product (s) belong to the customer .
  • Furthermore, both sides of the contract manufacturing agreement should keep in mind that when the customer acts as a TPR (like all TPRs) the customer cannot register a substance for the company he represents (i.e. the contract manufacturer). In this case, the registration must be carried out by the contract manufacturer (in his own name).
According to REACH, a supplier is a manufacturer, importer, downstream user or dealer
who places a substance on the market as such or a mixture.

Contract manufacturer pharmaceuticals

Ready-to-use pharmaceuticals are generally subject to authorization
  • Formula drugs are approval-exempt drugs which, based on Art. 9 Para. 2 let. a to cbis HMG and are intended for sale to their own customers (Art. 19b, Para. 2 VAM).
  • In order to limit the risk involved in the manufacture of formulas that are exempt from authorization, the active ingredients permitted for this type of manufacture are restricted in Art. 19d VAM.
Production of formula medicines in-house (pharmacy)
  • The manufacture of formula drugs is based on a formula or your own manufacturing instructions and generally requires a cantonal manufacturing license. For this reason, doctors and veterinarians, for example, are not allowed to place an order with a contract manufacturer for the manufacture of a formula drug.
  • The magistralis formula (Art. 9 Para. 2 lit. a TPA) is a medical or veterinary prescription with manufacturing instructions that is carried out in a company with a manufacturing license.
The executing company (pharmacy) may contractually transfer production to a company with a corresponding production license
If several clients place production orders for the same formula drug, the quantity produced by the contract manufacturer may not exceed the sum of the maximum quantities applicable to the client and specified in 19c (2) VAM. It is recommended to always state the annual quantity applicable to the client in the contract manufacturing contract, regardless of the scope of the manufacturing order. The client is responsible for ensuring that the quantity produced for it does not exceed the permitted quantity.
It is not permissible if the contract manufacturer produces an amount that exceeds the amount specified in the production order or in the combined production orders
  • the surplus formula drugs may not be sold to another client.
  • The in Art. 9 para. 2 let. a to cbis HMG is only entitled to the customer, not the contract manufacturer.

Contract manufacturer for the trade

Large department stores and mail order companies have been selling products under their names for a long time, but they do not manufacture them themselves, but have them made by manufacturing companies. This trend has intensified in the last few years, especially by discounters and supermarkets that sell products as no-name goods or under their own name. The manufacturing companies do not manufacture products for an anonymous market, but manufacture on behalf of the discounters, who not only specify the product precisely, but also purchase a very specific quantity at a specific point in time.

See also


Individual evidence

  1. Homepage - ECHA. Retrieved May 17, 2017 (UK English).
  2. Contract manufacturers under the REACH regulation 2016
  3. Swissmedic Journal 11/2011 Contract manufacturing and distribution of formula drugs
  4. Home - Swissmedic -. Retrieved May 17, 2017 .