What is a Manufacturing Agreement?
A Manufacturing Agreement is a contract between two parties to manufacture and sell goods. It sets out the type, quantity, and specifications of the goods to be manufactured, as well as the purchase price and payment terms.
A Manufacturing Agreement will also set out any minimum purchase obligations, warranties regarding the goods, and how title and risks in those goods pass.
What is the purpose of a Manufacturing Agreement?
A Manufacturing Agreement helps to govern the relationship between a manufacturer, supplier, and distributor by outlining their duties and responsibilities. Businesses use this agreement to improve the supply chain, protect their rights and save cost.
Most businesses that work as a supplier or distributor need this agreement because they often purchase bulk amounts of goods from the manufacturer and distribute them in local markets. So, having a well-drafted manufacturing agreement will give them a strong legal footing in case of any disputes in the future.
What should be included in a Manufacturing Agreement?
These are the important things that should be included in a Manufacturing Agreement. I.e.;
Product Specification: A well-written product specification will help both parties to avoid error, save time and cost which ultimately leads to better growth of any business.
Duration of the agreement: This is the time period of the agreement. Normally it ranges from 1 to 5 years. The duration can be extended upon mutual consent once the term of an agreement is over.
Payment terms: This includes detail about the payment terms. It can be a lump sum amount, installment, or payment cycle.
Confidentiality: Both parties should not leak any confidential information that may hamper the organization in any possible way.
Logistics information: A clear detail about shipping and logistics will help both parties to save time and money by tracking the shipment and getting the delivery on time.
Clause for damaged goods: A product can get damaged during the shipment process, so it should be made clear in the agreement, who is going to cover for the damage.
Termination: This includes the terms and conditions under which the agreement can be terminated. Normally a repeated breach of contract and poor quality of goods can lead to contract termination.
Features of Manufacturing Agreement
Cost Saving: Companies save on the cost of production. This includes labor and manpower costs, equipments and others.
Quality control: Manufacturers have better knowledge of quality control and so they are are better experienced to provide better end results.
Competence: Companies can focus on their core competencies and better direct resources when manufacturing is outsourced.
Scaled production: As contract manufacturers produce goods for multiple customers, they get raw materials for better price. Hence, the overal cost for companies reduces drastically too.
Create a Manufacturing Agreement with Zegal
A Manufacturing Agreement is a legal document that defines the obligations and the rights of the manufacturer and distributor, in order to provide a specified product on pre-defined terms.
The main purpose of having a manufacturing agreement is to give a clear understanding of the responsibilities, legal rights, and obligations of both parties, to ensure that the specified products, provided by the manufacturer, are delivered to the distributor accordingly.
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