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Contract Manufacturing vs OEM: What’s the Difference?

A close-up photograph of a CNC mill in action on a square block of metal. The machine's sharp metal tool is cutting into the metal, producing a shower of metal chips that are scattering in all directions. Light illuminates the scene from the left, highlighting the precision of the machining process.

Precision in motion: Watch the CNC mill work its magic on this metal block, bringing the design to life.


In the dynamic world of manufacturing, businesses often face the decision of whether to manage the entire production process in-house or outsource parts of it to a contract manufacturer. In this blog post, we will discuss the differences between original equipment manufacturing (OEM) and contract manufacturing, along with their respective pros and cons. Additionally, we will explore best practices for approaching a contract manufacturer and explain why partnering with an experienced company like Machining Concepts is essential for your manufacturing needs.

Defining OEM and Contract Manufacturing

Original Equipment Manufacturing (OEM)

Original Equipment Manufacturing refers to companies that design and manufacture products under their brand name, managing the entire production process internally. This process encompasses everything from product conception, research and development, design, sourcing materials and components, manufacturing, to quality control, and assembly. OEMs have their own manufacturing facilities and employ their workforce to produce their products, ensuring control over the entire production process.

Several industries commonly use OEM, including automotive, aerospace, and electronics. For example, companies like General Motors and Ford are OEMs that manufacture cars and trucks. Aerospace OEMs include Boeing, Airbus, and Lockheed Martin, which design and manufacture planes and spacecraft. Electronics OEMs include companies like Apple and Samsung, which produce consumer electronics like smartphones and computers. Though many OEMs decide to contract out some areas of their production process.  This is where contract manufacturers come into play.

Contract Manufacturing (CM)

Contract Manufacturing involves outsourcing certain aspects of production, such as manufacturing components, assembly, or even the entire production process, to a specialized third-party manufacturer. The original company maintains responsibility for product design, quality control, and overall branding. Contract manufacturers produce the products according to the client’s specifications, using their facilities and workforce. This approach allows companies to leverage the expertise, equipment, and facilities of the contract manufacturer while retaining ownership of the intellectual property.

Several industries use contract manufacturing, including medical devices, industrial equipment, and consumer goods. For example, medical device companies like Medtronic and Boston Scientific use contract manufacturing for the manufacturing of components and assemblies. Industrial equipment companies like Caterpillar and John Deere use contract manufacturing to produce machinery parts. Consumer goods companies like Nike and Adidas use CM for the production of apparel and footwear.

Pros and Cons of OEM and Contract Manufacturing

OEM Pros


OEMs maintain complete control over the entire production process, ensuring adherence to their specific standards and requirements. This control allows businesses to make real-time decisions and adjustments, leading to improved efficiency.


In-house manufacturing enables greater customization and design flexibility, allowing OEMs to quickly implement design changes and adapt to evolving market trends. This can result in more innovative and tailored products that meet unique customer needs.

Intellectual Property Protection

OEMs maintain control of their intellectual property, reducing the risk of information leaks or unauthorized use. This control allows businesses to safeguard their proprietary designs, processes, and technologies, maintaining a competitive edge in the market.

OEM Cons

Higher Costs

In-house production can be more expensive due to increased overhead, labor, and equipment costs. Managing the entire production process requires significant investments in infrastructure, personnel, and ongoing maintenance, which can strain financial resources.

Limited Expertise

OEMs may not have the specialized knowledge that a contract manufacturer provides in specific areas of production. This can result in inefficiencies or lower-quality products, as in-house teams may not be up-to-date with the latest technologies or manufacturing techniques.


OEMs may struggle to rapidly scale production in response to changes in demand. Expanding in-house production capabilities often requires significant investments in equipment, facilities, and personnel, which can be time-consuming and costly.

Risk Management

OEMs shoulder the risks associated with the entire production process, including equipment failures, supply chain disruptions, and labor issues. This can make it more challenging to manage and mitigate risks effectively.

Contract Manufacturing Pros

Cost Savings

Outsourcing to a contract manufacturer can significantly reduce labor and overhead costs. Contract manufacturers have established supply chains, optimized processes, and economies of scale that lower production costs, ultimately benefiting the partnering business.


CMs offer scalable production capabilities, allowing companies to increase or decrease production volumes as needed. This flexibility helps businesses adapt to fluctuating market demands and seasonal fluctuations without making large capital investments.


CMs specialize in specific areas of manufacturing, which can result in higher quality products and faster turnaround times. This specialized expertise allows them to stay up-to-date with the latest technologies, materials, and manufacturing techniques, ensuring that the end products meet or exceed industry standards.


Outsourcing production allows companies to concentrate on core competencies, such as product design, marketing, and customer relations. This focus on core competencies can lead to faster product development cycles, increased market share, and enhanced customer satisfaction.

Contract Manufacturing Cons

Loss of Control

Companies relinquish some control over the production process when outsourcing to a CM. This can result in reduced visibility into manufacturing operations and potential misalignment between the company’s goals and the CM’s priorities.

Intellectual Property Concerns

Confidential information may be at risk when working with a third party. Businesses must carefully vet potential contract manufacturers to ensure robust security measures and non-disclosure agreements are in place to protect sensitive information.


Working with a CM can sometimes lead to communication barriers, especially if they are located in a different time zone. These barriers can result in delays or misunderstandings, impacting the efficiency and effectiveness of the manufacturing process.

Best Practices for Reaching Out to a Contract Manufacturer

Comprehensive Research

Conduct extensive research to identify reliable and experienced contract manufacturers that specialize in your specific industry. Look for companies with a strong track record of success, positive customer testimonials, and industry certifications that indicate their commitment to quality and compliance.

Clear Communication

Establish open and clear communication channels from the beginning. This will help ensure a smooth working relationship and prevent misunderstandings or miscommunications that could delay the project or impact product quality.

Due Diligence

Perform due diligence by:

  • Visiting their facility to assess their capabilities, capacity, and the overall work environment. This can help you determine if they are a good fit for your project.
  • Reviewing their quality control processes, certifications, and compliance with industry standards to ensure they meet your expectations for quality and reliability.

Intellectual Property Protection

Take steps to protect your intellectual property by:

  • Implementing non-disclosure agreements (NDAs) with the contract manufacturer to legally protect your proprietary information and trade secrets.
  • Ensuring the contract manufacturer has robust security measures in place, such as secure data storage, controlled access to sensitive information, and employee training on confidentiality.

Collaborative Partnership

Treat the contract manufacturer as a strategic partner rather than just a vendor. Establish a collaborative relationship by:

  • Involving them in the early stages of product development to leverage their expertise and identify potential production challenges.
  • Encouraging open dialogue and feedback to improve product design, manufacturability, and overall project success.
  • Recognizing their contributions to the project and valuing their input, which fosters a sense of shared ownership and commitment to achieving the best possible results for your product.

Partnering with Machining Concepts

Choosing the right partner for your manufacturing needs is critical, and Machining Concepts offers expertise, cost-effective solutions, and the highest quality standards in the industry. With AS9100, ISO13485, and ISO9001 certifications, Machining Concepts provides a risk-based approach to manufacturing that addresses the common concerns associated with choosing a contract manufacturer:

  1. Control: Machining Concepts prioritizes proactive risk identification and mitigation throughout the manufacturing process. This ensures clients maintain a significant degree of control while benefiting from our expertise.
  2. Intellectual property protection: Our strong commitment to quality and regulatory compliance, along with robust security measures and non-disclosure agreements, protect clients’ confidential information and intellectual property.
  3. Communication: Transparent communication and collaboration are integral to our culture of continuous improvement and innovation. Our team ensures clients are informed and involved throughout the manufacturing process, eliminating communication barriers.

By partnering with Machining Concepts, you can also expect effective supply chain management, ensuring reliable delivery of materials and components. Our dedicated team of professionals is committed to providing exceptional service, allowing you to focus on what you do best. Leverage our expertise, state-of-the-art facilities, and tailored solutions to support your manufacturing goals and drive your business forward. Contact Machining Concepts today to explore how we can help you make the right choice for your manufacturing needs and achieve success.

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