OEM is an acronym that stands for `Original Equipment Manufacturer` which is a company that produces parts or products on private labels for other companies to market. It is no different in the cosmetic industry. Most of the products we see in the market are OEM products that are produced by OEM companies upon request. It makes a lot of sense since not everyone could own a factory and run it efficiently. It’s a great system since factories get to keep their production lines busy as they are making products not only for themselves but for a lot of other brands too. On the other hand, it certainly creates opportunities and allows people who want to enter the cosmetic industry with large SKUs and production lots to do so without having to invest millions of dollars and build their factories. It’s a win-win situation for everyone.
Higher profit margins, originality, and intellectual property are the three most common advantages of using OEM in the cosmetic industry.
Product manufacturing costs in the cosmetic OEM industry are frequently kept between 20% and 30% of the retail price, though this can be reduced to 10% or even less. If a product sells for RM 50, it likely cost between RM 10 and RM15 per unit to manufacture. Depending on your business model, you may need to invest in marketing, which adds to the cost. Even in that case, cosmetic OEM products have a much higher potential profit margin than selling existing products.
With the freedom that cosmetic OEM products provide, you can create products that no one has ever thought of before. Products that you know people want but aren’t available. In a nutshell, you could create any product or brand concept you want and challenge the market. There are numerous examples of successful beauty start-ups that did the same thing!
When you create your brand, you retain ownership of all intellectual property rights associated with your products and designs. You have complete control over the product and concept because you own the rights to them. Prices, product specifications, design, and formulation are all subject to change.
The three common disadvantages of using OEM in the Cosmetic Industry are High Initial Costs, Inventory Management, and Production Limitations.
Although manufacturing costs per unit can be low, doing cosmetic OEM will necessitate an initial investment. Even if you start with just one product, you must meet the minimum order quantities set by the cosmetic OEM companies. It can be as high as 3 thousand units depending on the product you are developing. Let’s say the product costs RM 5 per unit, for a total order of RM 15,000. The cost of manufacturing the product, however, is not the only cost. You are also charged for printing plates, product registration fees, and so on. The initial costs may be much higher if you want to start with multiple products.
When doing OEM, you will be constrained by the (Minimum Order Quality) MOQ policies imposed by your manufacturer. Assume the (Minimum Order Quality) MOQ is 1,000 pieces and the lead time is 3 months from the time you place your order. What happens if you sell out in a month? Well, you’ll be out of stock for a highly demanded product for a couple of months, which can’t be good for business. Furthermore, prices for (Minimum Order Quality) MOQ are typically very high when compared to orders in larger quantities. In Japan, for example, the price difference between producing 1,000 and 3,000 pieces of the same product is usually twice as much. In this case, ordering 3,000 pieces rather than 1,000 is more cost-effective, but the question is, will you be able to sell them? As you can see, determining the best inventory management strategy for your company can be difficult. Given enough time and experience, anyone should be able to optimize this -after all, it’s not rocket science- but it’s certainly difficult at first.
Cosmetic, Unfortunately, OEM is not all about liberty. Beginners who want to make their dream products a reality will face a slew of heartbreaking realities. Container options will be limited, and the ones you prefer may be prohibitively expensive. What about creating your container? It would necessitate designing it, which would take a significant amount of time and money. Then you’d have to pay for the injection mold, which starts at RM 10,000 and can go up depending on the design. Do you want a box with a one-of-a-kind design, a few heat stamps, and embossing? Well, you probably shouldn’t because it will be quite expensive unless you order in large quantities. The point is that large brands order their containers or other packaging materials in large quantities, allowing them to have detailed designs at very low costs. Because this is rarely the case for people who order in small quantities, you’ll need to take a different approach.
We’d like to address that we believe Oribionature Manufacturer Malaysia should be your cosmetic OEM manufacturer partner.
We understand that producing 10,000 units is unfeasible for a start-up. We enjoy assisting our clients who order in small lots by providing them with flexible correspondence and cost-effective solutions for low quantity orders. We do our best to assist you with inventory management. For example, to reduce costs and lead times, we offer to store packaging materials such as containers and boxes. You can order 5,000 containers and divide them into multiple productions this way. This lowers the cost of the containers and shortens the lead time.
When it comes to assisting our clients with the material procurement process, we believe we are doing an excellent job. We look everywhere for containers that meet your specifications. We always make sure to find the most cost-effective options while doing so. Although there will be order quantity limitations, our experience has taught us that there is always a great option for everyone if you know where to look.
We don’t just make cosmetics; we also provide our customers with one-on-one consultations. We not only help our clients with cost-effective and efficient productions, but we also generously share our knowledge. We make certain that no question, no matter how trivial, go unanswered. We are eager to share our knowledge with them, backed up by previous examples. We also introduce them to designers, marketing consultants, forwarders, and other professionals.
The cosmetic industry has been growing rapidly for the last couple of decades and is still attracting more and more newcomers.
With thousands of outsourcing manufacturers all over the world, it is now much easier than ever to build your own lineup and join the game, even on an individual level.
In this article, we will take a general look at OEM in the cosmetic industry then discuss what are some pros and cons of building your own cosmetic lineup using an OEM company, inside and out.
In the end, we will share some of the features that we offer as OEM Co., Ltd.
What is OEM and how does it apply to cosmetics?
It may be a little bit `too much information` but it’s always good to start with basics. Let’s take a look at what OEM stands for and how it differs from ODM.
Understanding the term `OEM`
OEM is an acronym that stands for `Original Equipment Manufacturer` which is basically a company that produces parts or products in private labels for other companies to market. Foxconn making phones for Apple and Samsung is a good example of this.
It is no different in the cosmetic industry. Most of the products we see in the market are produced by OEM companies upon request. It makes a lot of sense since not everyone could own a factory and run it efficiently.
It’s actually a great system since factories get to keep their production lines busy as they are making products not only for themselves but for a lot of other brands too.
On the other hand, it definitely creates opportunities and makes it possible for people who wish to enter the cosmetic industry with large SKUs and production lots, without having to invest millions of dollars and making their own factories. It’s a win-win situation.
So, in regard to how exactly it works in the cosmetic industry, we will be covering that in one of our other articles soon.
What’s the difference between OEM and ODM?
You’ve probably seen the term `ODM (Original Design Manufacturer)` before, and sometimes in the same paragraph with `OEM` and maybe wondered what the difference is.
In short, an ODM is a company that designs and manufactures a product. In the cosmetic sector, a lot of companies use this term as a “we do everything for you” statement. However, it actually means that the ODM company rebrands existing products from its catalog for other companies to market.
You probably come across a lot of products that look exactly the same except for the brand print on Amazon. That means they are products coming out of the same ODM.
OEM, on the other hand, is when the manufacturing company designs a product originally for you or produces a product that was designed by you. If we get back to our Foxconn and Apple example, you can see why it is OEM and not ODM.
Pros of Using OEM in the Cosmetic Industry
So, what are some benefits of using OEM in the cosmetic industry?
1 – Higher Profit Margin
In the cosmetic OEM industry, product manufacturing costs are often kept between 20%-30% of the retail price, although it can go down to 10% or even less.
If a product is sold for 50 USD, there is a good chance that it cost about 10-15 USD per unit to manufacture.
Depending on your business model, you could be investing in marketing which adds up to the cost as well.
Yet even in that case, cosmetic OEM products hold a very high potential to be higher in profit margin than selling existing products.
2 – Originality
With the freedom you have with cosmetic OEM, it is in your hands to create products that no one has ever thought of before. Products that you know that people want but are not there.
In short, you could simply create any product or brand concept you have in your mind and challenge the market. There are many examples of successful beauty startups who exactly did the same!
3 – Intellectual Property
When you make your own brand, you get to keep all property rights associated with your products and designs. As you own the rights to the product and the concept, you also have full control over them. You could always modify the prices, product specifications, design or the formulation.
Cons of Using OEM in the Cosmetic Industry
Not a thing on Earth comes with only pros and not have any cons. And cosmetics OEM is not an exception for this.
1 – High Initial Costs
Although the manufacturing costs per unit can be low, doing cosmetic OEM will require initial costs.
Even if you start with 1 product, you will have to meet the minimum order quantities provided by the cosmetic OEM companies.
Depending on the product you are developing, it can be as high as 3 thousand units. Let’s say the product cost per unit is 5 dollars, which makes it an order of 15 thousand dollars.
Manufacturing the product is, however, not the only cost. You also get charged for printing plates, product registration fees, etc. If you want to start with multiple products, the initial costs could be much higher.
2 – Inventory Management
When doing OEM, you will be restricted by the MOQ policies that your manufacturer forces on you. Let’s assume that the MOQ is 1,000 pieces and the lead time is 3 months after placing your order.
What happens when you sell out in a month’s time? Well, you will be out of stock for a product that is highly demanded, for a couple of months which can’t be great for business.
Also, prices for MOQ are usually very high in comparison to orders in higher quantities. In Japan, for instance, the price difference between producing the same product 1,000 pieces and 3,000 pieces is usually twice as much.
In this case, it is more price efficient to order 3,000 pieces instead of 1,000 but the question is, will you be able to sell them?
As you can see, it can be challenging to figure out the optimal inventory management for your business. Given enough time and experience, anyone should be able to optimize this -as it`s no rocket science- but it sure is very difficult in the beginning.
3 – Production Limitations
Cosmetic OEM is unfortunately not all about freedom. There will be a lot of sad realities waiting for beginners who want to make their dream products come true.
Container options won`t be infinite and the ones you like can be very, very expensive. What about making an original container?
It would require designing it which is very time and money consuming. Then you would have to pay for the injection mold which would start from 10 thousand dollars and could go up depending on the design.
You want a box with a unique design, a couple of heat stamps and embossings? Well, you probably shouldn’t since it will cost quite a lot unless you order in huge quantities.
The point is, big brands order their containers or other packaging materials in massive lots which enables them to have their own detailed designs at very small costs. As this is hardly the case for people who order in small lots, you will need a different approach.
Why Choose OEM Co., Ltd.?
We would like to address 3 points why we think you should consider us as your cosmetic OEM partner.
1 – Friendly MOQ policy
We understand that it is not realistic for a startup to manufacture 10 thousand units. We take pleasure in helping our clients who order in small lots by offering them our flexible correspondence and cost-effective solutions for low quantity orders.
We do our best to help you with your inventory management. For instance, to reduce the costs and lead times, we offer to store packaging materials such as containers and boxes.
This way, you are able to order 5,000 containers and split them into multiple productions. This makes the containers much cheaper and lead times much shorter.
2 – Material Procurement Assistance
We think that we are doing a great job when it comes to assisting our clients through the material procurement process. We look everywhere for containers that would meet your requirements. While doing this, we always make sure we find the most cost-effective options too.
Although there will be limitations due to order quantities, based on our experience, we came to realize that there is always a great option for everyone if you know where to look.
3 – All-around Consultation
We do not only manufacture cosmetics but also offer our clients an all-around consultation. As well as assisting our clients for cost-effective and efficient productions, we also share our knowledge generously. We make sure we never leave a question unanswered regardless of what it is. We are eager to share our knowledge with them supported by past examples.
We also introduce them designers, marketing consultants, forwarders, etc.,
Conclusion
In this article, we first discussed what OEM is and how it differs from ODM then went on talking about the pros and cons of doing OEM in the cosmetic sector.
In the end, we tried to explain why we think we could be a good option for people who are seeking for a manufacturer in Japan.
We are looking forward to hearing any questions that you might have.
See you in another article.
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