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.
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