Operational and intellectual accountability in Third Party Manufacturing

The contract manufacturing services that we’ve been providing to our Customers for years are of an extremely practical and concrete nature: becoming the production arm of a Customer, we focus our energy and our skills on the tangible realization of the finished product or semi-finished product. The activities carried out on behalf of the Customer, from the procurement of raw materials, to the management of the production cycle, to the organization of outbound logistics, all require experience, precise skills and a decisive pragmatic approach to be carried out in the best possible way, in strict compliance with contracted lead times.

However, there is a theoretical implication that accompanies the operational workflow and manifests itself through a specific question: who is responsible for the product, when the product is the subject of a continuous collaboration of productive nature?

The answer to this question arises from the existence of two different types of responsibility: operational accountability and intellectual accountability.

Operational accountability in contract manufacturing

Let’s observe the following scenario, which is one of the most commons in the world of contract manufacturing and industrial production for third parties:

a company elaborates an idea and develops a project concerning a finished product intended for a specific industrial or civil sector;
this company needs to realize the project by producing in the first instance a certain number of prototypes, then a pre-series and, upon definitive approval, an industrial production in series;
the assembly of a product involves a chain of complementary activities that require specific experience, dedication and skills. The company does not contemplate any of these activities in its core business and therefore chooses, for reasons of optimization and efficiency, to find a Production Partner to whom to entrust the operations linked to the realization of the product;
once a Partnership has been stipulated, ideally all the activities of operational nature necessary for the production and assembly of the finished product are carried out by the Production Partner, who will be responsible for:
- Managing the supply chain and the procurement of materials and raw materials
- Organize the production and assembly cycle with a focus on process optimization
- Manage quality control through a Quality Supervising Team
- Manage warehouse procedures
- Organize the outbound logistics process aimed at the arrival of products at the designated destination for each production order.

On the basis of the scenario just described, it is easy to identify operational accountability and its role within a continuous production contract. The management of the operational steps that contribute to the fulfilment of the object of the contract - that is the physical realization of a product resulting from a production process and from all the auxiliary activities - falls within the domain of the Manufacturing Partner and as such it is under its full responsibility. This kind of responsibility is normally defined as operational accountability as it is closely linked to the concrete performance of production processes aimed at creating a tangible output.

Intellectual accountability in contract manufacturing

Although the production process is, as a whole, domain and responsibility of the Production Partner, the ownership of the product itself always and in any case remains with the company that developed it and which legitimately holds it. intellectual rights. It follows that intellectual responsibility, unlike operational responsibility, concerns the product itself and not the manufacturing process with which it is made.
Any intrinsic characteristic of the product, be it technical or design, is the domain and responsibility of the Customer company, as well as any aspect related to proper product usage. Furthermore, the ancillary activities for the design and marketing of the product are managed entirely by the Customer company. These activities commonly include:

research and development
market analyzes
marketing campaigns
product life cycle management
technical, commercial, administrative assistance

Conclusions

Summing up the main concept, it is possible to affirm that:

The Production Partner is responsible for the management, organization and result of manufacturing activities, i.e. all the activities included in the contract and entrusted by the Customer company.
The Customer company, as the legitimate owner of the product, is responsible for the product itself, for all its characteristics and its intended uses and personally manages all the activities necessary for the development, marketing and maintenance of the product on the market.