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Contract Manufacturing

Original Equipment Manufacturers (OEMs) sometimes decide to focus on their core business activities such as design, marketing and product distribution by outsourcing some or all of their manufacturing requirements to third party specialist companies.

This strategy has numerous benefits for the OEM

  • Increased Return of Capital Employed (ROCE)
  • Reduced storage and space requirements leading to reduced overheads
  • Increased Stock Turn - minimal inventory holding
  • Reduced indirect/direct headcount
  • Increased focus on core disciplines

As a result a genre of companies has developed to service this need known as contract manufacturers. Within the electronics manufacturing sector a number of third party groups have evolved, the most common of which are listed below.

  • Contract Electronics Manufacturers (CEM) - also known as electronic manufacturing service (EMS) providers - providing turnkey manufacturing services to OEMs.
  • Contract Precision Engineering Companies - provide a manufacturing service for component parts (usually metal/plastics) for either an OEM or CEM.
  • Contract Semiconductor Wafer Fab/Packaging Companies - provide semiconductor companies with fabrication and packaging capacity enabling the OEM to bring their products to market without the need to invest in new capital hungry facilities.

This is a highly competitive sector and global in its nature.

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Guide Written by Paul Wilson

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