Compared to a normal licenced manufacturer, a contract manufacturer is typically regarded as carrying a lower level of risk.
A manufacturing principal that directly bears the risk of demand and final consumer pricing is the "manufacturing principal" for whom the contract manufacturer manufactures items.
The principal may guarantee the acquisition of the goods if the product manufactured by the contract manufacturer meets the product and quality requirements set out by the principal.
Therefore, compared to a licenced manufacturer, a contract manufacturer may be subject to relatively limited risks connected with retaining finished goods and selling them.
Because the contract manufacturer often owns the plant and equipment and procures and owns the raw materials, they are still responsible for bearing the risks involved with retaining inventories of fixed assets and raw materials. However, in many cases, a manufacturer may do some "contract manufacturing" activities in addition to its licenced or full-fledged manufacturing activities.
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