Even if it sounds ideal, not every business or organization has the capabilities, finances, or time to manufacture everything in-house, particularly in the manufacturing base. It might be substantial to invest in equipment, machinery, and experience.
So, What is Contract Manufacturing?
How does it work?
Who are Original Equipment Manufacturers?
How do you differentiate between Contract Manufacturer and OEM Manufacturer?
The following article gives us a concise definition of all of the above.
Contract Manufacturing (CM)
Manufacturing is a multidisciplinary and multi-approach field. As aleading contract manufacturerof various dynamics, we are frequently asked to explain the relationship between various manufacturing strategies.
Today, let’s understand the two essential types of manufacturing: Original Equipment Manufacturing (OEM) and Contract Manufacturing (CM).
Contract Manufacturing entails outsourcing a portion of the production of a product to a third party. Numerous businesses employ this method to delegate labor-intensive production tasks to a third party, sometimes known as a Contract Manufacturer (CM).
A benefit of contract manufacturing is that it enables businesses to make and sell valued goods without investing in their equipment, machinery, and other production resources.
Outsourcing production enables the manufacturer to free up capital, reduce labor expenses, and allocate greater resources to Research and Development (R&D) and other value-adding activities.
Who Is An OEM Manufacturer?
OEM stands for Original Equipment Manufacturer, which implies that a factory manufactures a product based on the client’s specifications.
When you get into an OEM arrangement with a factory, the client is expected to supply the factory with a complete product specification sheet and their product design.
There are different levels of the original equipment manufacturer (OEM), ranging from using a factory-made product with considerable modifications, such as changes in shape and dimensions, to inventing a nearly new product.
If you are developing a product that does not currently exist on the market, you will likely engage in Original Equipment Contract Manufacturing.
Many OEM projects require the creation of specific molds or another tooling to manufacture the product. These must be created before production begins, and the buyer always pays for them.
In some instances, the manufacturer will cover the cost of molds and include it in the selling price.
Also, OEMs may manufacture subcomponents for their clients’ use in their manufacturing processes.
What the OEM client does:
- Product development
- Market analysis
- Testing the product
What OEM service manufacturer does:
- Implements the product
OEM vs. Contract Manufacturing (CM)
Contract Manufacturing (CM) goes beyond Original Equipment Manufacturer (OEM)!
While an OEM may offer customizable items or provide additional assistance throughout the product design phase, a CM is simply a Contract Manufacturer.
If you operate as a CM, clients approach you with product specifications, and your only responsibility is to provide the product.
The client keeps all Intellectual Property (IP) rights but must submit all design specifications in exchange.
To get a better grip on the context, let us look at the advantages of each of the manufacturing processes;