“OEM” is a transaction to undertake manufacturing of products with other brands, a form of corporate transaction frequently made in various industries such as automobile or PC as well as the cosmetics industry.
How is this form of transaction advantageous? This document will explain the characteristics / advantages of cosmetics OEM.
# What is cosmetics OEM?
Currently, many corporations are manufacturing cosmetics through such cosmetics OEM. Let us first explain its characteristics.
# OEM: the consignee manufacturing products in the form of the consigner’s brand
OEM is short for “Original Equipment Manufacturer”. For example, if a cosmetics company, A, asks an OEM maker, B, to manufacture products, while B manufactures actual cosmetics, the brand itself will be A’s. To take the order to manufacture products with another company’s brand like this is called OEM. Simply put, it is a form of outsourcing of product development / manufacturing with the similar advantages of outsourcing, also seen in other industries.
For instance, even when one (a company) newly enters a market with manufacturing facilities / know-hows not yet established, it may be able to sell the intended products through use of OEM. Nowadays while various products such as automobiles or electronic appliances are being manufactured through OEM, it is often employed also in the field of cosmetics.
# It can be used even when various needed applications to the authority are not complete yet or boxes to contain cosmetics are not sourced yet.
Even when the application for “Permit to be Cosmetics Manufacturer” to Ministry of Health in Japan, Labor and Welfare is not yet done, one can produce cosmetics through use of OEM. One basically needs to acquire specific permits to manufacture and sell cosmetics / medicines, etc. but if its OEM makers already have them, it can sell such products without going through various necessary procedures. OEM makers sometimes even undertake sourcing materials such as packages, labels, or boxes.
# From order to delivery of Cosmetics OEM in Japan
The typical, actual flow of manufacturing: The consigning maker gives its order to its OEM company to first produce samples; upon completion, the consigner checks their usability, etc.; the consignee starts manufacturing actual products if there is no problem around the checked samples; it manufactures and delivers the designated numbers of them.
The biggest advantage of using OEM is being able to manufacture without know-hows, etc.
Let us see the advantages of using OEM now; there are mainly four of them with each to be examined:
# Advantage of using OEM 1: one does not necessarily need know-hows on manufacturing when it tries to sell products with its own brand.
Some OEM makers support broad processes from incubation of products, R&D to designing of packages or containers; some are even knowledgeable around selling such as how to implement marketing and energize sales channels. Therefore, even one which has not yet established know-hows on manufacturing cosmetics can easily enter a new market. As establishing such know-hows by itself usually takes a sizable amount of time, it is a big advantage to be able to shorten the time span needed.
# Advantage of using OEM 2: one can start a new business even with a small amount of capital.
Cosmetics are products that need attention not only to high quality but also to safety; therefore, manufacturing of them will require a huge amount of capital for investment in factory facilities or payrolls / wage. It is another advantage of using OEM to be able to proceed with a new business while minimizing such costs.
# Advantage of using OEM 3: one can reduce the risk of amassing a huge amount of inventory at hand.
Some OEM makers cater to a need for low-lot manufacturing, which can minimize the risk of a huge stockpile when the products do not sell so well as expected.
# Advantage of using OEM 4: one can concentrate on sales activities.
The lifecycle of products should be generally not so long in the cosmetics industry in which trends change very frequently; therefore, it is required to implement plans / marketing within a short span. By leaving manufacturing to OEM, one can concenter on responding to such change in trends.
This document has explained the advantages of selling products utilizing OEM. The fact is that it is hard to productize cosmetics even if planning itself has been done well, as the hurdle is rather high to make a gigantic investment in facilities or observe related legal regulations. However, using OEM makers will lower the hurdle for one to be able to effectively proceed with manufacturing of cosmetics with its own brand while minimizing risks involved.