Private Label vs Contract Manufacturing: Differences Explained

manufacturer welding industry

Not a lot of people are aware of the differences between private label and contract manufacturing. While both of these manufacturing styles are prevalent in various industries today, a closer look into each of its different characteristics is essential to determine which one would work best for you.

A lot of people seem to be confused about these manufacturing styles. However, it’s important to understand that both aim to come up with products that buyers will not only love but will want to purchase more often.

The Differences Between Private Labeling and Contract Manufacturing

Private Label Manufacturing

These are products that are usually manufactured by one company that then gets marketed under a different label. The company that did the manufacturing of the products will have control over the product quality, specifications and other details. In addition, the product is owned by the manufacturer. In most cases, the products are sold alongside other more known brands but are poised as a cheaper alternative to these more popular products.

This is especially true with superstores that sell their in-house brand along with more well-known products as this is going to help the store earn more profits in the process. Private labeling or otherwise called as Orginal Design Manufacturing (ODM) can commonly be interchanged with Contract Manufacturing or Original Equipment Manufacturing (OEM). The many differences between ODM and OEM are mentioned in this simple and informative guide.

cutters tool millingContract Manufacturing

This means getting the manufacturing process outsourced to a different company. The specifications of the products will be provided by the company who owns the product. They will also specify the specific units for the products that will be produced. The manufacturers will not have any say in terms of changing the product specifications. Generally, this is just a manufacturing style that simply executes the manufacturing process.

Private Label Manufacturing

Private label manufacturing allows you to retain product ownership as well as enjoy the benefits of being connected to a larger brand. Among its many advantages include:

  • Lower expenses for marketing and selling – The marketing channels and stores where these products are sold are also owned by a larger brand or store, business overhead costs are practically zero.
  • Product control – The manufacturer has control over the product which allows him to make changes and tweaks to the specifications, formula, ingredients, and various other details.
  • Better marketing control – The manufacturer can make crucial decisions on label design and he can even determine what the tag lines and the logos should be.
  • Brand recognition – While the carrying brand or store might not bear your name as the manufacturer, but your brand will. So, as long as you keep churning out likeable, useful products, expect customers to actually buy what you have to offer and even ask for more.

Contract Manufacturing

People who wish to lessen their marketing risks while increasing their overall efficiency operation-wise will find the contract manufacturing route more appropriate for their needs.

  • Marketing is less risky – The production is already specified ahead of time not only in terms of design but in materials and their respective quantities as well.
  • Economies of scale are maximized – it’s common for contract manufacturers to accept orders in bulk. They are also known to work with various other customers while accepting their bulk orders as well.
  • Honed skills – Manufacturers won’t need to focus their attention on logistics, marketing, and various other business activities that are necessary to get a brand operational. As a result, they get more time working on their skills and honing it to improve not only the production process but also the overall quality of the products they’re churning out which could lead to minimized costs.
  • Better product quality – Manufacturers are expected to adhere to specific specifications. When attention is focused towards properly adhering to what the customers want, this resulst in better product quality.

Both the contract and private label manufacturing styles offer their own advantages and disadvantages. At the end of the day, the best choice is always what you think is best suited to where your company is now as well as the amount of risks that you’re willing to take. What matters most though is that you continue to deliver products that your customers will always be happy with.