You probably have a favorite pair of shoes. Your shoes—especially the most comfortable pair in your wardrobe—are designed with a purpose; construction, hiking, backpacking, running, walking, dancing, etc. But the people who designed these shoes didn't create the materials—rubbers, fabrics, treatments, materials, etc.

Every component of a product is created by another part of the industry.

That's the difference between a contract manufacturer and an OEM.

Contract Manufacturing vs. Original Equipment Manufacturing

The rubber, textile and fabric treatment components in your favorite sneakers are all examples of Original Equipment Manufacturer (OEM) OEM shoe manufacturers and factory-built products.

According to Tech Target's definition:

“OEM (Original Equipment Manufacturer) is a broad term whose meaning has evolved over time. In the past, an OEM referred to a company that initially manufactured a given product and then sold it to other companies for rebranding and rebranding. For sale. Currently, the term is often used to describe companies that rebrand a manufacturer’s product and sell it to end users.”

So what does this mean?

This means that the OEM ignores certain nuances and is the company that made the different parts in the first place. For example, the rubber soles on your shoes. They then sell those rubber soles to larger brand companies (like Nike), which attach the soles to the shoes and sell the entire product as a single product.

OEM is a fully integrated company that designs, manufactures and sells its brands under a registered trademark. For example: Your waterproof raincoat or hiking boots may be marked with a "Gore-Tex" protection label. Best known for its GORE-TEX waterproof/breathable fabrics, WL Gore & Associates, Inc. has contracted with countless other brands and companies on the market for a range of technical apparel and footwear solutions.

Products offered need to be of consistent quality and standards and must meet customer expectations, just like equipment manufactured by General Kinematics.

In contrast, contract manufacturers make proprietary products for other companies. The contract manufacturer provides the in-house design, formulation or specification, and the contract manufacturer then completes the production process.

The evolution of contract manufacturing

In the past, contract manufacturers provided standard parts. As manufacturing has grown, the process has advanced with assembly equipment and testing capabilities. Contract manufacturers are then able to increase output, produce more advanced components, and customize products to meet specific market or customer needs. And, when a product is developed based on consumer needs—similar to a pair of work shoes or a raincoat—the value increases substantially.

According to Alternative Manufacturing Strategies, this market evolution has also led to lower production costs for U.S. market companies and other markets around the world that work with contract manufacturers on a high-volume, low-cost model.