subject: What is a Contract Manufacturer? [print this page] What is a Contract Manufacturer? What is a Contract Manufacturer?
A contract manufacturer, also referred to as a CM, is a firm that manufactures components or products for another "hiring" firm. Contract manufacturing varies based on the hiring firm needs. It may include a single precision part of a complex subassembly of the finished product.
The hiring firm is also known as the OEM, or original equipment manufacturer. In contract manufacturing, the OEM approaches the contract manufacturer with a design or formula. While the OEM is the company that owns the legal rights to a product, the contract manufacturer is responsible for supplying parts directly to the OEM. In this scenario, the CM would be considered a first tier supplier.
The CM will quote the parts based on material costs, tooling/fixturing, labor, and secondary processes. Once the OEM selects a source, the CM acts as the hiring firm's factory, producing and shipping units of the design on their behalf.
Many companies use contract manufacturing as an alternative to the expense of operating and maintaining their own factories. Many facilities provide a unique value to OEMs, by performing services from CNC machining, grinding, assembly and fabrication to inspection and testing.
In the increasingly high-pressure environment of manufacturing, outsourcing has become a way of survival for many companies. CMs are utilized in today's cost competitive environment for their ability to drive cost out of the production of products through manufacturing efficiencies. Passing on a lower part cost to the OEM allows them to be competitive in today's global marketplace.
