OEM meaning is Original Equipment Manufacturer. Find out what that could mean for your business and how you can benefit the most by OEM and China sourcing
China is a manufacturing powerhouse and their manufacturing sector is one of the major drivers behind the country’s growing economy. The country produces 50% of all global industrial goods. The interest among international businesses in sourcing products from China is growing for two significant reasons: because China consistently produces high quality products at affordable rates. Working with a sourcing agent in China makes it easier to source reasonably priced quality products from their country. Sourcing agents work directly with manufacturers, eliminating the need for any middlemen, which greatly reduces costs.
If you are considering sourcing products from China, first you must find the right manufacturer that can make the product for you. If your business deals in new and innovative products, you may want to consider working with an OEM. But, what is an OEM?
In this article, we will look at OEM meaning, its benefits, and how to choose the right OEM in China.
OEM or Original Equipment Manufacturer is a company that manufacturers products or components sold by another company. OEM meaning can be misleading as an Original Equipment Manufacturer does manufacture a product, but the design or specification is not their own. The design and specification of the product are provided by the company that they are manufacturing the product for.
In most cases, companies that use the services of OEMs are those that do not have the manufacturing facilities necessary for producing specialized products. Companies that can’t handle high-volume goods or find that outsourcing the production is a lot less expensive, also work with OEMs. So, OEM manufacturing can be considered as a kind of outsourced or contracted manufacturing. OEM meaning can be simplified as a manufacturer who is willing and capable of making products according to your design and specifications.
Before you secure an OEM to manufacture your product, you need to do thorough R&D, including design, engineering, and market research. The OEM then manufactures the products according to your desired design specifications. OEM manufacturing is cost-efficient, especially for companies that have large-scale orders. But OEM manufacturing is also popular among smaller companies because of the numerous benefits it offers.
International businesses partner with OEMs when sourcing products from China as it helps reduce labor costs significantly. OEM manufacturing also offers better quality and allows businesses to focus on sales and profits rather than production.
Here are some of the benefits of OEM manufacturing:
Working with an OEM means that you can outsource your manufacturing and production work to another company. Doing so can help free up valuable time that you can use to focus on the core activities of your business. OEM manufacturing is also very popular because most OEMs use cutting-edge technology which results in better quality and design.
Consumer demands evolve with time and delivering novel high-quality products is one of the easiest ways to increase customer engagement. If you want to bring your customers innovative products, it is better to tie up with OEMs since they also use an innovative approach to manufacturing.
Another benefit of using OEM manufacturing is cost-efficiency. Cutting down costs is the fastest way to increase profits. When you outsource your production to an OEM, you can save tremendously on manufacturing costs and operations costs. Compare that to a company that manufactures all its products in-house. Such a company needs to have proper manufacturing facilities to handle the large-scale manufacturing of products. They will also need to hire manpower to run the manufacturing facilities, which will increase both operational costs and labor costs. Hiring manpower means that they will also need a recruitment team to hire the right people for the job. Recruitment itself is a long and tedious process, which will further increase costs.
Outsourcing your manufacturing frees you from the hassles of in-house manufacturing, reduces manpower requirements, and cuts down costs.
Manufacturing products is a huge task, and when you outsource this task to a reliable OEM in China, you save both time and money. When you don’t have to focus on manufacturing, you can use the time to look after other core business activities. The money you save can be used in marketing campaigns to help grow and expand your business.
Business growth is the primary objective of all entrepreneurs. Outsourcing your manufacturing to an OEM frees you from doing repetitive and redundant tasks, allowing you more time to grab new business opportunities. Another OEM facet is efficiency, as outsourcing to them means you get to focus on other important areas of your business, thereby growing your business. When you outsource production, you also outsource risks and liabilities associated with production too. Hiring an OEM service instead of manufacturing in-house saves time and money and also lowers opportunity costs.
No business can survive without customers. When you offer high levels of customer satisfaction, you automatically improve sales, attract new clients, and reduce disruption. Enhanced customer satisfaction also increases customer loyalty and retention. Customer retention boosts revenues and helps your business maintain sustainability. Prioritizing customer satisfaction is crucial to ensure the growth of your business.
Since OEMs deliver high-quality products, they can play a vital role in improving customer satisfaction. You benefit from economies of scale since OEMs produce in bulk amounts, making the products cost-effective. You can pass on some of the benefits to your customers in terms of price, further improving customer satisfaction.
Companies usually do their own research and development before outsourcing manufacturing to an OEM. Hence, they hold the Intellectual Property rights to the products. Since you hold the IP rights, it puts you in a stronger bargaining position. It also makes switching manufacturers uncomplicated if you ever need to do so. However, it is important for businesses to take appropriate measures to protect their copyright. You do not want your unique product ideas to be stolen by copycats.
If you are considering sourcing from China, then finding the right manufacturer is crucial. The OEM you work with must specialize in the product that you want to manufacture. Plus, the manufacturer should also be able to deliver high-quality products at a reasonable price.
You have to completely understand OEM meaning first before you start looking for suitable manufacturers in China. So, how do you ensure that you choose the right OEM in China?
There are several websites available on the Internet like Alibaba and Global Sources that can offer you a list of thousands of Chinese manufacturers. Unfortunately, not all manufacturers that you find on such lists are reliable. For starters, narrow the list by manufacturers that you think specialize in the kind of products that you want to manufacture. Since you are already on the internet, try and find out as much information about the ones you have shortlisted so that you can further shorten the list. This will not be as easy as it looks. China’s internet is highly regulated and the government monitors internet access and may also censor website content. However, you should be able to find information on most major manufacturers. Once you have finalized your list, it is time for the next step.
After you have shortlisted about 5 to 10 manufacturers, you need to get on a plane and visit them in China. Visiting a manufacturer in-person offers three benefits:
What should you do if an in-person visit to the manufacturing facilities in China is not an option for you?
The biggest advantage of a sourcing agent is that they can identify and verify manufacturers on your behalf. They have an extensive network of partners and in-depth knowledge of the sourcing market in China, from which you can greatly benefit.
Most sourcing agents have a local office in China with employees who are fluent in English as well as the local dialects. Since they are already in China, they can visit potential factories to ensure that they meet your requirements.
When you source products from China, you must ensure that they meet the regulatory and safety guidelines of your country. A sourcing agent can ensure that the manufacturer you work with has all the necessary licenses and certifications. They can also verify the authenticity of the certificates that the manufacturer provides. Sourcing agents can also help in the negotiation process, helping you get the best possible deals.
You can only establish a favorable relationship with an OEM, provided they also have your best interest in mind. The OEM you work with should be willing to embrace and implement innovations and design changes as you scale up your business.
Ensure to partner with an OEM who does not manufacture any competitor products. Having an exclusive contract ensures that both parties stay focused, have the right production facilities, and prevent your trade secrets from getting leaked.
When you have a good understanding of OEM meaning, its benefits, and the way Chinese manufacturers work, you will be able to find the right OEM for your business. If you wish to work with an OEM in China, working with a sourcing agent is advisable as they have in-depth knowledge of the industry.
Working with an OEM in China ensures that you receive cost-efficient products. The products are also high-quality since the products are tested according to stringent specialized manufacturing testing standards. You also benefit from specialized technology used by the OEMs, and also keep all IP and trademarks associated with your product design and specifications.
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.
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