Contract Manufacturing vs OEM: The Full Guide

OEM & Contract Manufacturing Basics

Contract manufacturing and Original Equipment Manufacturing (OEM) offer distinct advantages and disadvantages depending on the application. When choosing between OEM vs contract manufacturing, companies must select a model that best suits their specific requirements and unique business needs.

At Bent River Machine, we offer turnkey OEM and contract manufacturing solutions for customers striving for quality and consistency. In this comprehensive guide, we’ll go over some key differentiators between contract manufacturing and OEM manufacturing to help you determine which option is right for you.

WHAT IS OEM MANUFACTURING?

OEM is a manufacturing model in which a manufacturer makes a product to be marketed and sold under another company’s brand name. With this model, a business may approach a manufacturer that specializes in a specific type of product and enter into a contract to produce that product for them.

For example, a company that sells computers may approach an electronics manufacturer that produces computers to manufacture their product. The customer provides certain design specifications, and the manufacturer uses their existing machinery, facilities, components, and other resources to manufacture and deliver the product according to the customer’s parameters.

What is Contract Manufacturing?

With contract manufacturing, a company goes under contract with a manufacturer to produce a product or component on its behalf – the manufacturer builds the product based on the customer’s drawings and specifications. Because of this, the customer is fully responsible for the design and qualification of the product, whereas the provider is purely providing the manufacturing services.

Compared to OEMs, contract manufacturers typically don’t specialize in a specific product type. Instead, they have facilities that are equipped to produce the tooling needed to manufacture the requested product. For this reason, contract manufacturing is often associated with custom manufacturing, as companies often turn to this model to develop unique or niche products. Using this method for producing products allows companies to take advantage of the expertise and resources of an experienced manufacturer without having to invest in their own labor and infrastructure.

OEM Manufacturing Pros & Cons

Choosing OEM manufacturing offers different benefits and drawbacks:

Pros of OEM Manufacturing

The primary advantage of working with an OEM is the ability to obtain cost-effective products. You can effectively benefit from the economies of scale because OEMs typically create bulk quantities of the same product. Other pros of using the OEM model include:

High-Quality Goods
OEMs test products according to strict manufacturing standards to ensure you receive the highest quality products.
Access to Specialized Technology
By working with an experienced OEM, you gain access to specialized technology and components for higher quality products.
Retain Rights
When you work with an OEM, you typically get to keep all of the intellectual property rights and trademarks associated with your products and designs.
Efficiency
Experienced OEMs can efficiently manufacture products and meet changing customer demands.

Cons of OEM Manufacturing

Although OEM manufacturing offers several benefits, there are some disadvantages to be aware of. For example, if you require a highly specialized product, it may be more difficult to find an OEM with the capabilities to produce it. This can make it challenging to capitalize quickly on newer, more innovative products. Other cons include:

Demand Requirements
Because OEMs primarily like to deal with companies who create a lot of demand, OEM manufacturing may not be the right solution if you can’t sell enough products.
Risk of Manufacturing Deviations
When working with OEMs, it’s often beneficial to involve their manufacturing team during the product development process. If you skip this step, OEMs may insist on certain product alterations during the manufacturing process based on their team’s recommendations, deviating from your original design. Without collaborating during product development, you could miss out on valuable feedback that could potentially reduce costs or streamline production.
Product Differentiation
Since OEM contract manufacturers often work with various companies to create similar components, product differentiation is much more difficult.

Contract Manufacturing Pros & Cons

Just like with OEMs, there will be both pros and cons that come with choosing contract manufacturing:

Pros of Contract Manufacturing

Key benefits of contract manufacturing include:

Lower Overhead & Improved Profits
Contract manufacturing makes it simpler and more efficient for companies to produce products without incurring considerable overhead costs associated with in-house production.
Greater Control
Customers have greater control over all aspects of specifications, product design, structure, etc.
Technical Expertise
Companies can take advantage of the knowledge and technical expertise of a contract manufacturer, depending on them for guidance related to the best processes, materials, and applications of a new product.

Cons of Contract Manufacturing

Some drawbacks of contract manufacturing include:

Partner Reliability
It is essential to thoroughly vet a contract manufacturing partner when considering their services for producing your products. Working with an inexperienced provider can have a long-lasting negative impact. For this reason, understanding a contract manufacturer’s area of expertise and their history is critical in ensuring the success of your project.
Higher Long-Term Costs
Despite considerable savings on upfront workforce and equipment costs, you may experience higher per-unit costs depending on the price of labor, materials, quality control, shipping, etc.

OEM vs Contract Manufacturing

Choosing between an OEM and a contract manufacturer can oftentimes be the source of confusion for many companies looking to outsource their product manufacturing. To sum up the differences between the two, contract manufacturing requires the customer to provide all specifications and designs, and the provider simply builds the product based on the drawings. In contrast, companies who choose the OEM model provide only a portion of the product design, and the provider uses their existing components and expertise to build the finished product, which is then sold under the customer’s brand name.

Contact Bent River Machine, Inc. -
A Trusted OEM and Contract Manufacturer

Choosing between an OEM and a contract manufacturer requires careful consideration of your product requirements, budget, project timeline, and more. At Bent River Machine, we’ve been providing superior manufacturing solutions for our customers since 1978. We offer turnkey OEM manufacturing and contract manufacturing services for customers across a range of challenging industries. Our expert team and advanced capabilities allow us to meet the diverse needs of our customers while ensuring the highest level of quality and integrity.

For help determining which manufacturing model is right for your unique project requirements, contact Bent River Machine today.