OEM (Original Equipment Manufacturer) – A Comprehensive Review

As you are looking for Chinese products for your business, you may see the acronym OEM.  If you are curious about:

• The meaning of OEM;
• Why OEM matters for your company;
• OEM product examples;
• And a few more things along the way;

You have come to the right place!  We have the information you need to understand what OEM stands for.  Get comfortable, and get set.  We are going to jump right into it!

OEM Meaning: What does OEM mean for you, the business owner?

OEM is not an easy thing to define.  OEM on car parts and computer software industries, for example, have separate meanings.

Here is a quick and simple definition of OEM.

Let’s use Apple for an example.

Apple only does product design, marketing and sales.  The manufacturing of their products is handed off to Foxconn for completion.

Apple entrusting Foxconn to manufacture products the basic example of OEM in action.

Why can an OEM company help you grow in your business?

This is an important question.

OEM companies are within their specific industrial cluster.  They can obtain all of the production factors, commodities, for production: professional equipment, skilled workers, cheap raw materials and semi-finished products and other supporting facilities.

Buyers, on the other hand, do not want to make these investments.  The return is too slow.  They outsource production to OEM companies and focus on value-added activities like brand building.

Let’s go to business school for a moment to get a better understanding.

Ready?  Big smile!  (Keep reading.  It will make sense.)

The Smile Curve is a part of business management theory and describes how added value changes.Today’s market is a global one – keep this in mind as you continue reading.

The Y-axis is the Added Value of a product.

The X-axis is the Commodity Chain of the product.

On either end of the curve are the concepts (research, branding and design) and marketing (advertising, sales and distribution).  Manufacturing is in the middle.

Both sides of the value chain hold higher value than the center.

If you put the two concepts listed above into a graph, you get a curve.

Here is a visual representation for you.

See the smile?

The OEM manufacturer is going to invest in commodities for the products they make on behalf of the buyer.

They are investing heavily into the bottom of the smile.  They invest in land, labor, machinery and raw materials to make a profit.  Manufacturers earn small profits over a long time.

The buyer does not have the desire or time to invest in commodities for their products.  The buyer needs only to buy products and sell them.

The buyer invests heavily into the upward sides of the smile.  They invest in R&D, branding, design, distribution, marketing, sales and service.  Buyers will have better profits in shorter times.

This should give you a better understanding of the value of OEM for your business.

Let’s look at the supply chain.  An OEM business needs an appropriate location for their operations.

A factory cannot function in the middle of nowhere.  It needs to be close to raw materials and a strong labor pool.

This is why many of China’s OEM manufacturers are in industry clusters.

Industry clusters provide everything an OEM manufacturer needs for success:

• Skilled labor;
• Raw materials;
• Semi-finished products;
• Supporting facilities (warehousing, shipping and the like).

OEM vs ODM: What is the difference?

Over time as Chinese OEM manufacturers have worked with foreign customers, their design capabilities have increased.

These manufacturers can design practical products your customers want.

This is ODM (Original Design Manufacturer).  The factory provides design services in addition to the standard manufacturing of your products.

As OEM services grow, better manufacturers are more in tune with the needs of their customers in foreign markets.

Many OEM manufacturers are moving from general manufacturing to ODM.  There are a few reasons why:

• ODM reduces uncertainty in the final product due to competitive production technology and competitive raw materials;
• They move their long-term growth plans to the upward sides of the smile curve.  OBM increases on the right; ODM increases on the left.

This means the “growing pains” of the OEM factory are minimized.  They can focus on strengths almost exclusively while minimizing any elements that are a liability.

This is great.  What does it mean for you, the buyer, and your products?

It means a great deal.  So much that ODM may be the optimal solution for you.

OEM or ODM – Which is best solution for you?

OEM or ODM depends on two factors as the buyer: Your design ability and specific product needs.

Ability means you can design your own products with design software like CAD for product models.  If you have this capability, an OEM manufacturer is all you need.

If you do not have a design team, lack time and can describe your product in words or rudimentary sketches, an ODM manufacturer is what you need.

Related: Read up on OEM and ODM in detail here.

How do you find an OEM supplier?

Sourcing Nova has  a helpful article to learn how, 21 ways to help you find the perfect OEM factory  , but wait until you finish this piece.

Sourcing Nova does not go to B2B platforms like Alibaba and Dhgate for OEM suppliers.

These platforms are full of middlemen.  Our team cannot accurately measure how good an OEM manufacturer is at these places.

What does Sourcing Nova do differently?

We use more authoritative and respected sources of information within various industry clusters rather than focusing on Alibaba and Dhgate.

Here is an example of how we find an OEM supplier.

If we are going to source back-to-school products for a customer, how does Sourcing Nova do that?

Most sourcing agencies will go to Alibaba, enter a few key words, like backpack, and browse the results – deductive searching – from the very general to the very specific.

Let’s use back to school products for an example of what we mean.  We are looking for OEM backpacks.

First, we need to know the top brands of backpacks available today.

We found these brands: Disney, Joe Fresh, Spray Ground, Spalding, Edenbo, Samsonite, Chloe, Versace, Under Armour, North Face and Fila.

We check their websites.  Most world-class brands share supply chain information on their official websites.  We start at Google with “Adidas Supplier List” as a search term.  The following website appears:

https://www.adidas-group.com/en/sustainability/transparency/supplier-lists/.

adidas supplier list

This is Adidas’ official website.  Any information we glean from it should be valid for our purposes.

The information we find is incomplete.  There are mainly some raw material suppliers for clothing and leather, nothing about the OEM backpack factories specifically.

Adidas has several different OEM foundries across China in different industry clusters based on specific niche products.  Adidas also makes shoes, sportswear, game equipment and more.

The supplier list will not have the locations of these factories.  The reason for not publishing foundry information is simple.  These world-famous brands want the customer to focus on the brand image and not who made the brand.

How does Sourcing Nova track down the actual manufacturer in an OEM industry cluster?

We cannot disclose manufacturer information with you.  Here is why.

Privacy and copyright laws protect Adidas and other companies proprietary information and intellectual properties.  If we tell you, there is a chance we can be sued.

Many OEM companies will have non-disclosure agreements with world-famous brands.  They can only share information under certain legal circumstances.

Here is an example of sharing information legally: https://www.sec.gov/Archives/edgar/data/1632799/000114420415034476/v411346_f-1.htm

Sourcing Nova learns from the above legal report that the factory serving Adidas for OEM footwear is the same manufacturer for the following brands: Li-Ning, 361°, Erke, Anta, Adidas, Reebok, Mizuno and Under Armour.

Where to find data sources?

The best data sources are China Customs import and export databases, governmental reports on industry clusters, business prospectus and other reports.

These are great suggestions to get started finding appropriate data.

But …

These reports are not easily found.  They are often written in Chinese and can be very expensive to obtain.

If you are a U.S. citizen and do not understand Chinese, finding an OEM manufacturer for a  given brand is like finding a needle in several hay stacks.

Even if you happen to track down a supplier for this brands in the English-speaking world, you will not find contact information.

OEM factories in China are not concerned with Internet marketing.  The supplier names are pinyin, Anglicized Chinese names, for the official name.

There are dozens of suppliers who use the same pinyin, but most of these OEM suppliers will not have a valid website.

Western buyers do have access to certain tools that will find OEM factories.  These tools will not help you find the information you really need, however.

How to get the best from an OEM manufacturer?

The millions of large and small manufacturers in China provide OEM services.  Are you going to find a factory of world-class brands to make your products using the same raw materials, technology and skilled labor?

Like we just said a few lines up, you can find OEM factories with some of the available tools at your disposal – tools like Panjiva and Import Genius.  These tools charge a fee, provide supplier names but little information outside of that.

You may more likely find a factory that will do shoddy work, cheat you and destroy your business.

You need to make sure this does not happen.

What you need is an OEM factory that meets the following conditions:

• Stable product quality;
• Flexible production;
• Advanced production technology;
• Integrity in business;
• History of good relationships with customers;
• On time delivery;
• Reasonable pricing;
• Excellent customer support (in English!);
• So much more.

This is not a final list by any means.  Each individual buyer of world-class products has their own set criteria for suppliers and a process to evaluate those suppliers.

The tools you have to find OEM factories are not going to evaluate them.  It will be for you to do that – provided you can.

What does Sourcing Nova do for you?

We do not choose just any suppliers.  We look for the same OEM manufacturers of world-class brands.

Let’s use t-shirts and polo shirts as an example.

We use the same OEM suppliers for t-shirts and polo shirts as the following brands: Louis Vuitton, Givenchy, Ralph Lauren, Bugatchi and Arnold Palmer.

As long as your t-shirt or polo shirt does not exceed the product quality of these brands, you can expect the manufacturer we select on your behalf to meet your expectations.

Common OEM product examples Sourcing Nova can find for you

Start with our product page.  Sourcing Nova has excellent OEM partners for private label products.

For example: candles, golf shirts, air filters, OEM apple chargers, lights, makeup bags, backpacks, keyboards, replacement seat covers, speakers, bluetooth earphones and leather seat covers.

Final thoughts

What OEM products are you wanting to import from China?  What is the high-end brand in your niche product industry you want see as your private label?

What if we told you that we will have the same OEM manufacturer as that brand make your private label products and at a fraction of the cost?

We can make it happen.

Leave a comment below.  We want to know what products you are interested in sourcing from top manufacturers.