Sourcing products from overseas has been the go-to solution among Western countries for decades. Of the many countries that function as sourcing centers, China remains unbeatable. China has been the giant in the manufacturing business for a long time now, thanks to ridiculously low labour prices and excellent resources. Apart from these, China also leads in the technological advancements in the last decade. With the several years of experience in manufacturing for companies overseas, China also has a reputation for smooth functions of production. This includes procuring raw materials from across the world, dealing with overseas buyers and the delivery process. Here we look at the details to pay attention to when dealing with an Original Design Manufacturer in China.
Original Design Manufacturing refers to the kind of manufacturing where the production company designs as well as manufactures products and sells the products to other companies. The companies that buy the bulk products from Original Design Manufacturers then rebrand the items as their own. The two kinds of ODM are white label and private label. White label manufacturer produce one kind of products and sell them to multiple companies. Private label manufacturers sell an already existing design to a single company, with minimal modifications.
Original Equipment Manufacturing (OEM) is another kind of manufacturing service where the product is entirely designed by a company which is then manufactured by a different company. An example of OEM is Apple products. The design of Apple products is done entirely by the Apple team but the production is done by Foxconn.
The difference between ODM and OEM is mainly the fact that serve two different kinds of businesses. Depending on what the business focuses on, the buyer may decide between the two.
In ODM, the buyer has very little to do with the design. An already existing product is modified to a small extent and sold under the brand name of the buyer. The buyer needs to spends very little time and money in research or design. The production process is also relatively fast, since the manufacturer is usually experienced in the production of the particular product. However, there is very little room for modifications. No major design changes are possible, especially if it requires equipment and methodology outside of what is available at the factory already.
Original equipment Manufacturing is preferred by companies that focus on the design of the product. These companies dedicate a lot of time into researching and developing a design that is new to the market. Understandably, the relationship between the manufacturer and the buyer is closer and binding. The buyer company and the production company have to work in tandem since they rely on each other for a large part of each others’ profits. This aspect of the buyer-manufacturer relationship is absent in ODM. Additionally, the design of the product is guarded under copyright as intellectual property of the buyer company.
If you are looking to start a business soon with a constraint on capital, ODM might be the better option for you.
· Limited investment in design & manufacturing
ODM requires minimal involvement from the buyer in the manufacturing process. An already existing product means the buyer has to invest very little in the research and development stages. At the same time, small adjustments can be made to make the product stand out slightly from the other brands. Starting a product from scratch can be expensive and time intensive for new businesses. Moreover, you do not run the risk of entering the market with a new design which might get rejected by the customer base.
· Can easily enter any market without expertise
Limited investment in design and manufacturing means that companies that choose ODM can invest that much more into marketing. Additionally, since ODM deals with product designs that already exist in the market in some form, market expertise can be negligible. As opposed to entering an entirely new design into the market, you will be taking advantage of a tried and tested design. You will also have enough data for accurate market research and invest your money and time wisely into marketing.
· Partnership with a supplier who has immense experience in the market
A common problem with OEM is the difficulty of deciding a manufacturer that works in tandem with you. It becomes a lot of hassle to make sure the manufacturer understands your requirements and produces quality products. With ODM, the choice of manufacturer is easily made. The ODM manufacturers typically will have been in business for a long time, manufacturing the same product you intent to buy from them. This way the chances of any miscommunication between the buyer and the manufacturer is extremely limited. Also, you can rely on the manufacturer to know about the design and production more than you do.
· Shorter time to market
Typically, a company that aims to go into business with a new product will an immense amount of time before they can hit the market with their product. This is because it takes a long time to design and arrange a custom production line. With ODM, this period of time is cut short by a huge margin. Instead, there can be a lot more focus on marketing and customer response research.
· Economies of scale (when you choose same design as other brands)
ODM companies usually produce their products in large quantities. As a result, there is likely to be huge savings on equipment and raw materials. These savings will reflect in the price you pay as well. These companies produce for huge brands as well as small businesses. As a result, there is usually a lot of lenience when it comes to the minimum quantity to avail discounts as well. So, even if your order is relatively small for the production company, their savings won’t take a hit, and chances are neither will yours. This is in addition to the amount you will save in other sourcing steps such as transport and customs. Since it is likely that the product is in demand with other local companies , you might be able to cut down a few steps in transport and customs.
· Easier to offer lower entry price when selling products
ODM allows you to hit the market with really low entry prices. This is crucial to any new business to drive up sales long term. In the case of most start ups, low entry pricing is a struggle since the production phase takes up a lot of the capital. Without much capital to rely on, it becomes difficult not to make significant profits in the early phases. However, with ODM, you get to keep most of your capital intact thanks to low investments in the production phase. Heavy discounts thanks to bulk productions also helps keep the capital in place. This can be helpful for you attract a customer base with low prices in the early phases of your business. This also delivers in the long term future of your business.
China has been leading the manufacturing industry for years. Over the years, Chinese manufacturers have adapted and adjusted to the technological developments around the world. Although China is largely known for its OEM capabilities, Chinese manufacturers are investing more time and effort into bringing in ODM customers. This is because, ODM enables China to develop on their design and innovation fields as well. ODM industry has been a major driving force in the Chinese economy in the past few years. China sourcing providers are also adapting likewise.
Chinese technology has been unbeatable for a long time now. With advanced technology taking over the manufacturing industry, China has been delivering high quality goods at low prices. With new advanced technology at their disposal, Chinese manufacturers are bringing in new designs to the market. The enhanced equipment capabilities also means there is more room for customisations within the ODM industry.
One of the main reasons Chinese manufacturer rule the manufacturing industry is the unbeatably low prices. With extremely cheap labour and availability of raw materials at extremely low prices, Chinese manufacturing allows you to source products cheaper than you ever imagined. China sourcing service providers usually provide ample guidance in these matters.
China is increasingly investing more money and effort into ODM. Compared to OEM companies which depend on buyers for design, ODM allows for development within the country. This means that buyers get to choose from an array of manufacturers. Earlier, there were limited choices when it came to ODM in direct sourcing services in China. This forced buyers to stick to the few manufacturers who produced certain products. Now buyers get to compare prices, quality and customer reviews before choosing a manufacturer.
In direct sourcing services in China, the first crucial step is to choose a supplier who meets all your needs and requirements. These requirements will change depending on the kind of product you intent to buy. For ODM products, the following criteria can help source quality products will minimal hassle. Choice must be based on:
· Customer feedback & reputation
Although ODM requires minimal research into design, some amount of research into your sourcing procedure might be necessary. This includes digging into the details of your potential supplier. Customer feedback is one of the most important parts of supplier research. Apart from the details of quality, you should also look for their willingness to work with the modifications you wish to make to the product. Also, check for the supplier’s reputation in delivering products that meet quality requirements. This also includes the instances where they compensated for quality failures.
· Technological capabilities
An important part of quality check, is checking the capabilities of the factory and workforce. This includes checking whether the equipments are state-of-the-art and that the workers are trained in operating them effectively.
· Cost of service
The cost of service charged by the supplier should be a point of comparison. Expensive suppliers are not necessarily the best in the business.
· Number of competitor brands they serve
This is an important aspect of ODM. One of the disadvantages of ODM is that you can’t expect to market on the design. This is because there is bound to be multiple brands that sell more or less the same design. When sourcing from an ODM that serves several brands that sell the same product, it becomes even more difficult to market a nuanced design. Additionally, it also puts a constraint on how low you can go with your prices since the competitor brands are likely to be able to afford the same price point.
· Ease of working with ODM
Even though the buyer-supplier relationship doesn’t require as much investment as in OEM, it is important to get a supplier who is easy to work with. This is because you are likely to be in business with them for a long time. A difficult ODM can make it difficult for you to raise concerns and make modifications the way you wish.
· Intellectual properties owned
The supplier should ideally have experience in multiple intellectual property dealings. In ODM, the intellectual property is typically owned by the ODM since it is usually their own design. In the cases where the buyer makes major changes to the design, it must be specified early on as to who will own the rights.
· Terms of contract
Pay a lot of attention to the terms when drawing up a contract. This is a crucial part of your long term relationship with your supplier. If the contract doesn’t specify your expectations upfront, it can create a lot of conflict later on.
· Share product specification requirements
In ODM, although there is not much room for drastic changes in design, attention to detail can go a long way in making your product stand out in the market. For this, it is important to be specific when it comes to your product requirements. This can be done through demonstration videos or detailed diagrams. Some of the ways you can customise your product are:
Vet and customize the designs.
Change the brand name & logo
Change the product colour or design
Select a different material type
Add or reduce product features as necessary
Whittle down the details of your contract
There are several points of conflict when it comes to ODM. The manufacturer and the buyer should agree on who gets to keep the rights to the product and who gets to distribute. A few details included in the contract should be:
· Contract period
The contract period should be decided while keeping in mind that your requirements and specifications will continue without modifications in that period. A lot of manufacturers will have a minimum contract period already set.
· Products manufactured
The products you intent to source should be specified with details in the contract. Under your contract, all and only these products will be manufactured, until further modification are made. This way, a regular supply of the specified products can be ensured.
· Spare parts or additional parts
Any manufacturing projects apart from the ones that are already produced by the manufacturer must be specified and agreed upon beforehand. The contract should specify the details of these additional or spare parts that accompany the larger order.
· Who can distribute/sell products
In white label ODM, the manufacturer sells to multiple businesses that compete with each other in the market. In private label on the other other hand, the manufacturer produced for a unique buyer. In either case, it is important for both parties to know who the product line is made available to.
· Non competing clause
Exclusivity or non competing clauses are rarely available for ODM sourcing services in China. The intellectual property is typically owned by the manufacturer. However, if there is any space for negotiation on this front, it should be done beforehand and included in the contract.
· Non-disclosure clause
A standard non-disclosure agreement is an important part of all sourcing services in China. However, it can be a tricky thing when it comes to ODM. Any nuances need to discussed prior to agreement.
· Product advertising & branding clause
The buyer and the manufacturer might need to agree on the advertising and branding strategies of the product. This is because of the shared intellectual property status that might come into ODM contracts.
· Contract ending & renewal
Finally, there has to a clear specification of how contract ending and renewal will be carried out. At the end of a contract, the existing terms and conditions need to revisited and discussed.
As with any manufacturing needs, China is the one-stop solution for all. Not only do they lead in quality workmanship and technology, they also have decades of experience of working with suppliers overseas. In the last few years, China has invested greatly into ODM and continues to develop its technology and innovation in this field.
If you are looking to source from an ODM in China, Maple Sourcing is your friend in business. At Maple sourcing, all your quality concerns and manufacturing requirements are taken care of by professionals.