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What is OEM, ODM Manufacturing and How do they work Work

2023-12-27 10:49:45

Commerce businesses are often “side hustles” for the business owners. Therefore, the first question is always, “how much money do I need to start selling online?”. Really, what they're asking is how little can I start out with to sell on Amazon, eBay, etc. New eCommerce business owners often don't take into account storage fees, accessorial fees, logistics costs, and lead times. However, a key factor they also fail to consider is factory MOQs. The question then becomes, “how little can I invest in my eCommerce business while still meeting factory minimums for my product.

What is a Minimum Order Quantity? 
MOQ, or Minimum Order Quantity, is the smallest quantity or least amount of a product that a factory will allow being ordered. MOQs exist so that factories can cover their operational overhead costs. These include the MOQs required by raw material suppliers, labor required for production, machinery set up and cycle times, and project opportunity costs. MOQs differ from factory to factory, and from product to product. 

OEM (Original Equipment Manufacturer)
OEM is a company manufacturing products that other enterprises can later sell. When choosing this option, you import and then sell other companies' goods but under your brand. Thus, according to their own project, the exporter manufactures your product and then affixes your company's logo on it.Big brands like NIKE and Apple all have OEM factories in China to help them produce, assemble and pack products. It saves tons of money if they manufacturer it in their own country.

ODM (Original Design Manufacturer)
In comparison to OEM, ODM manufacturers first design a product according to an importer's idea, then assemble it. It means that following your demands, they'll adjust a project or design of your item. In such a case, your company's logo will also be put on a product. Moreover, you have many possibilities to customize the goods so that they meet your requirements.

For businesses, an OEM or ODM manufacturer is a very popular option. It can provide products of good quality at a lower price than they could do it themselves. It offers them a chance to outsource complicated production tasks and focus on what they do best.

How to Find a suitable OEM/ODM Manufacturer in China
In order to find a reliable manufacturer, you will want to do as much research as possible. There are many manufacturers in China, so it is important that you know what to look for when choosing one.

Many people would recommend companies with certain criterion: officially certified with ISO and such; the size should be big enough so they have good quality control; They should be in the business for a long time and know everything about it.

It may seem that these are useful aspects to assess a manufacturer, but the question is if it's the most important consideration for your branding and business? More often than not, the answer is no. If you play exactly by book, it often does more harm than good. Why is that?

The above suggestion is only useful when you have established business and stable sales channels. If not, it means you are either a new brand builder, or trying for a new product line. Either case means you have to spend as less as possible and get your ideas tested and products launched as soon as possible.

In this status, how fast you move and how well you control the budget is the most crucial thing to consider. Big, reputable, professional manufacturers, who's well certified, mean they don't lack customers and orders. You, a new brand owner, will be a disadvantageous party compared to them. They often have high MOQs, high prices, long lead time, slow responses and not to mention their complicated procedures. Most of their traits are not what you are looking for at the beginning of your business. You want to get the things done as fast as you can, while spending as less money as possible. Only when you're sure the new idea is working, and it's time to do scale production, a reputable manufacturer would be great to work with.

Try to analyze what status you are at. If it's the beginning of a new brand, what you need is probably a flexible, creative partner who can think as you do and come up with various solutions, who can move fast to help you create the prototype and test the market.