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OEM Manufacturing and its Benefits

An original equipment manufacturer, or OEM, manufactures products or parts for another company and marketed or retailed under that purchasing company's brand name. OEM refers to the company that originally manufactured the products.

In the food and beverge industry, the term "OEM" is used to describe the whole manufacturing and packaging process involved in the production of the desired finished beverage product as specified by the client.

Under such OEM arrangement where products such as Instant Coffee, instant white coffee, Cappuccino, Instant milk, instant coffee creamer, instant tea, oats, breakfast cereals and the likes will be referred to as OEM products and will carry the client's brand together with the product descriptions and labeling. The client like, for example, Instant Coffee Malaysia, will then market and sell the finished products to its customers.


Reasons for OEM Services

There are many reasons why companies outsource their production to OEM manufacturers. Mainly because they can save on capital costs for they do not have to pay for a facility and the equipment needed for production. Companies can take advantage of skills that they may not possess, but the contract manufacturer does. They can also save on labor costs such as wages, training and benefits. OEM Manufacturers are likely to have their own methods of quality control standard in place that helps them to detect damaged materials early. They can fully focus on the Marketing aspecs.


OEM Business Model

In an "OEM" business model, the client's firm approaches the OEM manufacturer with the product formula and design. The OEM contract manufacturer will provide a quote based on processes, labor and material costs. Where there is no design provided, the OEM manufacturer usually assists in the designing, especially on the packaging. There are instances where the client's company adopts the formulation of the OEM manufacturer and entrusts its entire production to a OEM contractor including the outsource of materials or components.


OEM - Crucial Consideration

When deciding about OEM contract manufacture, the company should weigh the benefits and associated risks. Apart from obtaining best prices, it is more important that the company selects a reputable, experienced and capable OEM manufacturer who has the facility to meet its volume demand, quality, standards and and delivery date lines.

Companies must ensure that the OEM manufacturer’s standards are congruent with their own. They should evaluate the methods in which they test products to make sure they are of good quality.







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Why OEM Manufacturer?

OEM Manufacturing
and its Benefits

There are many reasons why companies outsource their production to OEM manufacturer. They can save on capital costs because they do not have to pay for a facility and the equipment needed for production. They can also save on labor costs such as wages, training and benefits. Some companies may look to contract manufacture in lower-cost countries, such as China or Malaysia for cost effectiveness.


For large companies that are trying to extend into new markets without any immediate plan to build own facility, contract manufacturing may be a good choice. For small companies, an OEM manufacturer may be an answer to an economical way to get started without large capital investment in manufacturing facility. On the other hand, these companies can take advantage of the skills that they may not possess which the OEM manufacturer does.


The OEM manufacturer is likely to have good relationships formed with raw material suppliers and with industrial standards within their production to the advantage of the company. Contract Manufacturer usually have multiple customers that they produce for and because they are servicing multiple customers, they would likely be able to offer reduced costs of raw materials through economies of scale.

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