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How Does OEM Manufacturing Work?

oem manufacturing

OEM manufacturing is a part of most people’s lives, whether they realize it or not. 

The products that people use in their daily will have parts from OEM manufacturers. These include automobile, electrics, and computer software products that benefit from OEM manufacturers

In this article, we’re going to take a deep dive into the world of OEM manufacturing. So take a seat, buckle up, and enjoy the ride!

OEM Manufacturing 

An original equipment manufacturer (OEM) is a company who manufactures parts to be used in another companies’ products. The purchasing company then sells the end product to the consumer. 

Take, for example, a car that’s driven daily. An OEM manufacturer is the one that manufactures parts such as the steering wheel or tires that are then assembled and sold to individuals. 

Traditionally, OEM manufacturers have only dealt with business-to-business transactions. Recently they have been selling directly to consumers with the help of the internet. Say an individual consumer wants to buy a graphics card. They can then purchase the graphics card directly from the OEM manufacturers or retailers with the OEM product in stock. 

Contract Manufacturing

Like OEM manufacturers, contract manufacturers also develop products based on their client’s designs. However, contract manufacturers have the added benefit if a company wishes to expand its range of products. 

A company looking to hire a contract manufacturer typically has a design or a formula for the product they want to sell to individual consumers. 

One example would be a cleaning supply company. They would hire a contract manufacturer to produce the product according to their design, then throw on a private label specific to them. 

Some contract manufacturers also provide warehousing options. This means that they can provide services including:

  1. Manufacturing the product
  2. Storing the product
  3. Labeling 
  4. Shipping directly to the consumer

In today’s globally connected world, the services above become a valuable part of any profitable business plan. 

Working together with a contract manufacturer has an added benefit – giving the business owner more time to focus on customers rather than worrying about their supply chain. 

Benefits of OEM Manufacturers

Working with an OEM Manufacturer in China has its advantages that blow its competition out of the water. Here are some of the most important.

Cost

Manufacturing in China has been a practice that is recognized not only in the U.S. but also globally. The main reason for the recognition is the significant decrease in production costs. The advantage is competitive pricing. This enables the selling company to decrease the product’s price while maintaining a higher profit margin. 

The competitive pricing that OEM manufacturers located in China provide makes working with them ideal. The higher overhead costs of domestic OEM manufacturers only lead to higher prices for both parties. 

Scale

The fact that OEM manufacturers in China produce goods for companies globally is a well-known fact. Due to the demand, these manufacturers can scale their production well beyond any domestic company for a fraction of the price. 

Limited storage space is a problem for many small business owners and companies. But it’s a problem that OEM manufacturers in China with warehousing services solve. Specifically, warehouses that can provide next-day shipping. 

Let’s say a company wants to expand its products or dip its toes into a new market. An OEM manufacturer in China or contract manufacturer can develop the product line for the company with a quick turnaround. 

Assembly

Several well-known companies contract out their production of parts to OEMs. However, they assemble their final product themselves. Unfortunately, this isn’t always possible or even profitable for smaller businesses. 

Contract manufacturers provide another solution to a problem here. Some contract manufacturers provide assembly services in addition to manufacturing, warehousing, and shipping. Thus, they are essentially an all-in-one shop. 

Quality

Some people tend to think that products made in China are of lower quality because the cost to produce is so low. That’s not the case whatsoever. 

A large majority of these OEM manufacturers have been implementing the same production process for decades. This makes them experts on that process. Many companies and small businesses make the costly mistake of attempting to produce a product on their own. That mistake doesn’t make sense when they have the option to contract an OEM manufacturer in China with decades of experience. 

Cost-Effectiveness

Another benefit we want to discuss also has to do with the cost-effectiveness of OEM manufacturers. For example, say a company wishes to produce its product domestically. 

This means that a large part of their investment will have to go into the factory as well as the purchase of expensive equipment. It also includes the added cost of raw material prices fluctuating in the market. Yet, manufacturers in China can mitigate the risk. The OEMs lock in costs per unit over a fixed period. This protects them against fluctuations in currency and raw materials costs. 

Disadvantages of OEM Manufacturers

Working with OEM manufacturers is not all roses and sunshine. However, the disadvantages discussed below can be avoided with proper research.

The most apparent drawback of working with an OEM manufacturer overseas is the lack of complete control over the final product. The lack of total control can be mitigated by building a relationship with the manufacturer. This entails clear, consistent communication from both parties. 

An international agreement entails two different legal systems. Before signing a contract, a company must understand which legal system the contract falls under. 

In addition, culture and language differences are also a cause for concern for many business owners. 

Despite the disadvantages, companies looking to work with an overseas OEM manufacturer can avoid the risks. Proper research is a vital step towards a fruitful relationship. 

Change the Game

Shield Works is a 100% British-owned and managed company headquartered in China with offices in the U.K. and the U.S. 

We are the one-stop-shop for all your OEM manufacturing needs. We provide a range of services, including assembly, manufacturing, warehousing, or management needs. That’s in addition to any other custom services you require. To better serve our clients, we leverage our C2W membership to provide supply chain services as well.  

Get in contact with us to change the game.