Articles covering best business practices and important insights

What is Contract Manufacturing?

What is Contract Manufacturing?

Contract manufacturing is often called private label manufacturing and refers to an agreement where a firm hires a third-party contract manufacturer to produce products components or a final product.

The Purpose of Contract Manufacturing

Contract manufacturing is a form of outsourcing that allows firms to have their products produced by specialist manufacturers. Third-party contract manufacturers typically specialize in one of the following:

  • Product assembly
  • Product design
  • Product distribution
  • Product component manufacturing

Contract marketing is a business model that is implemented by many industries over the world, including the technology, medical, pharmaceutical, food, and cosmetics industry.

Benefits of Contract Manufacturing

There are several benefits to contract manufacturing including:

Lower Input Costs per Unit

Since the hiring firm doesn’t produce their products, they don’t need factories and the necessary production equipment. Labour costs are also typically lower, especially if the contract manufacturer operates in a low-cost country like China.

Contract manufacturers are also better suited to benefit from economies of scale, especially if they purchase large quantities of raw materials for several clients. As a rule, the cost per unit decreases as the number of units in once shipment increases.

Mutual Long-term Benefits

Contracts between hiring companies and contract manufacturers that last for years are beneficial to contract manufacturers in that they represent a steady flow of business.

Long-term benefits are also beneficial to the hiring company since the contract manufacturers eventually gain extensive knowledge about the hiring company’s product requirements.

Quality

Established contract manufacturers have extensive quality control policies in place to detect defects or poor quality at an early stage.

Skills and Expertise

The hiring company may not necessarily have the skills and equipment to produce high-quality products from raw materials in a cost-effective manner. One of the most prominent benefits of a relationship with a contract manufacturer is that it allows the hiring firm to take advantage of these skills.

Emphasis on Core Competencies

By leaving production to specialists, hiring firms free their resources to focus on their core competencies and strengths.

Risks of Contract Manufacturing

Lack of Control

By entering into a contract manufacturing agreement, the hiring company forgoes a high degree of control over the production process. High-end contract manufacturers will, however, work with the hiring company to meet their requirements.

Inherent Risks

Outsourcing production or assembly can be risky, especially if the contract manufacturer is in another country. Working with local contract manufacturers may mitigate risks such as long lead times, language barriers, and cultural differences.

Lacking Flexibility

If a hiring company outsources the production of their goods, responding to fluctuations in demand can be a challenge. Lacking flexibility can be particularly problematic if the hiring firm does not constitute a large portion of the contract manufacturer’s business.

In Conclusion

Contract manufacturing is a valuable model for role players in the food industry. If you’re in the food industry, and you want to build on the strengths of your business and need a partner to take care of the production end, head over to Dure Foods to learn more.

What is OEM?

What is OEM?

Important OEM Questions Get Answered

OEM stands for Original Equipment Manufacturer. OEMs produce a product and then sell that product to suppliers. They typically design products and create them using their own preferences and specifications and have the freedom to innovate and design products – they don’t have to abide by the wishes of specific suppliers or clients. An OEM designs a product it believes will sell well to clients and distributors.

In this short article, we’ll overview OEMs, their products, and how they may differ from ODMs.

What is An OEM Product?

An OEM product is a product produced by an Original Equipment Manufacturer. OEM producers build products that correlate to their own specifications and desires. OEM producers then sell the products on to suppliers and distributors who release the products to consumers at a markup.

OEM products sell under the original brand name of the OEM producer. For example, a Jeep Grand Cherokee is an OEM product manufactured by Jeep. Jeep sells these vehicles onto suppliers and dealerships around the country.

Is OEM the Same as Original?

Yes. OEM products are the original product manufactured by the OEM company. They are not replicas or rip-off products produced by inferior production teams. If you want an original OEM product, you should try to purchase products, accessories, or replacement parts straight from the manufacturer.

What is the Difference Between ODM and OEM?

There are vast differences between ODMs and OEMs. ODM stands for Original Design Manufacturer, while OEM stands for Original Equipment Manufacturer. So, what are the main differences between these two producers?

As mentioned previously, OEMs manufacture their own products and then sell them to suppliers or release them to the market. They typically retain their own branding and specifications.

Photo by Stefan Cosma

On the other hand, ODMs manufacture products for other businesses. They manufacture products to the specification of other companies. Companies will contact ODMs with specific designs and specifications in mind.

ODMs typically relinquish branding to the company that requests the product. The company will then brand and package the products and sell them to customers. This is a widespread practice in modern consumer markets.

ODM Packaging

After companies purchase products from ODMs, it is typically the distributing company’s job to package the product and develop branding. Packaging is a great way to build your product’s brand and distinguish yourself from competitors.

We provide ODMs with custom packaging that can take product branding to the next level. If you’re planning on selling another manufacturer’s goods under your own brand, it’s essential to use a custom packaging provider that understands the industry.

Is OEM Authentic?

Yes. An OEM product is an authentic product sold to the consumer market under original branding. If you want to purchase genuine products from specific manufacturers, you should look for OEM products.

In Closing

OEMs and ODMs Both Play Crucial Roles in Modern Manufacturing. They both provide products to the consumer market in two very different ways. Regardless, they’re both necessary for providing a variety of products and brands for consumers to choose from.