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Contract manufacturing is a specialized form of outsourcing. One business contracts with another business, which manufactures a specialized component or product formulation for consumers, such as in the food or pharmaceutical industries. A large scale example of contract manufacturing occurs in the aviation industry, where companies such as GE, Pratt and Whitney, and Rolls Royce manufacture jet engines but rely on contract manufacturing agreements with different, smaller aviation companies. These companies then provide specialized parts and components for the jet engines.
Within the medical device OEM industry, contract manufacturing offers businesses the ability to keep pace with the rapid technological advances in medical devices and bring new and needed products to market with greater efficiency, speed, and cost-effectiveness.
The medical device OEM industry spans a vast array of products, from patient-operated devices that are basic and small enough to be hand-held, to large, complex, electronic consoles designed for use by physicians and health care practitioners within a hospital or office setting.
Contract manufacturing allows the medical device company to find providers of highly sophisticated, specialized parts that are at the cutting edge of technology. These parts are often crafted by a highly skilled labor force. Rather than spending the time and money to invest in the labor force, manufacturing facilities, and quality assurance testing to create these specialized parts and/or finished devices or subassemblies on their own, medical device OEMs can use contract manufacturers to provide these. This allows them to focus on bringing the final product to market.
Because of the nature of specialization, companies that provide contract manufacturing to larger businesses benefit from the economies of scale, both in labor and materials. Thus, the contract manufacturer can often purchase bulk materials at a discounted price as well as supply finished, specialized parts faster.
The dual benefits of specialization and scale of the contract manufacturer offer the benefit of overall savings to the medical device OEM. Not only do they accrue savings on labor, materials, and facilities, but also by cutting the amount of time it takes to go from concept to finished product.