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Contract vs OEM Manufacturing

There are various manufacturing strategies, and these strategies depend on many different aspects such as product type, production technologies and equipment. Another big factor that distinguishes these manufacturing strategies from each other is the type of manufacturer. Let’s compare two major types of manufacturer, contract manufacturer (CM) and original equipment manufacturer (OEM), to see how manufacturing strategies can differ.

Contract Manufacturer

Contract Manufacturer (CM) refers to a firm that manufactures parts or products for a different company on a contract. CM is a form of outsourcing in which the hiring firm provides the contract manufacturer with a design and the contract manufacturer produces the products as a contractor.

There are some benefits of working with a contract manufacturer:

  1. The hiring firm does not have to purchase all the equipment and/or a facility required for production.
  2. The hiring firm does not have to worry about hiring high-skilled labor. It can benefit from the workforce and skills that the contract manufacturer already possesses.
  3. It is likely that contract manufacturers can acquire materials for lower prices, since they will buy those in bulk for multiple customers.
  4. The hiring firm can focus on other facets of their business while the contract manufacturer takes care of the production of the products.
  5. The contract manufacturing business model is common in fields such as the aerospace, medical, automotive and defense industries.

Original Equipment Manufacturer

Original Equipment Manufacturer or OEM refers to the original manufacturer of a part or a product. An OEM uses its own label to sell its products, although the product may be marketed by a different manufacturer. This means that an original equipment manufacturer produces components that are used in a different company’s product. Then, the finished product is marketed to users by the other company.

For example, if Company A produces power cords that are used in Company B’s products, which are then marketed to the public, then Company A is an OEM. The original equipment manufacturing business model is often used in the automotive and computer software industries.

When you are considering starting your production process or finding a production partner, it is important to be aware of all the choices you have. Aztec Plastic has experience in both of these realms and can guide you through the whole process. Contact us to explore your options.

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