Today, in the raw material manufacturing industry, the method of contract processing has become quite common as such. Before, no such methods were adopted to produce the raw materials; the industry would just produce the raw material in bulk on the basis of its field. For instance, the cotton industry would produce cotton in bulk while the silk industry would produce silk in bulk amounts. But, today the idea of producing the raw materials in bulk itself is not to be seen anywhere. Every raw material is based on the concept of contract production.
- What exactly is the idea of contract processing:
Raw material production is a very tedious process. It takes a great deal of effort as well as a great deal of investment to produce even one unit of raw material. If the raw material is produced in the bulk quantities, and no one is ready to purchase that raw material, then it has no other option but to go into the scrap. Therefore, to avoid all this wastage in the industries, the process of contract production is being adopted. In this process, the raw material producing industry will not produce the raw material beforehand. It will first wait for the main industry to place order for the contract that they are going to need the raw material for their industry and only then they will manufacture the raw material. If the raw material manufacturing industry is not following this process, it has to face a lot of difficulties, not only in clearing the waste part but also according to the investment issues as such.
- Possible reasons for the raw material industry to try out such methods:
The first and foremost reason why the raw materials are not produced beforehand itself is that the production has increased greatly in the recent few years but the raw material seekers are not ready to produce so much finished product out of the raw materials. The production and demand of the raw materials has seen so much fluctuations and hence the method of contract production.
2. Lately, there have been immense trust issues when it came to the payment for the raw materials. After the production of the raw materials, there are many raw material seekers who want to back out. Due to this, the raw material producers are facing a huge loss pertaining to the investment. Even if you leave out the topic of profits, even the mere investment which they put in is not returning back to them. Hence, they have decided to produce based on the contract production techniques.