Growth is always the common goal for any company in the world of manufacturing. Manufacturing business ideas always consider long term visions on how a company should progress in the long run. A lot of companies who start out as a white label/private label company always look forward to improve and become an OEM company with original products instead of relying on other companies to create products for them to market.
We all know the manufacturing industry is a tough market and competition is really tough. However, this does not mean moving up the ladder is not possible. With the right tools, strategy and a stroke of luck, you can always transform your small scale manufacturing business into a major OEM manufacturing company. In this wiki article, we will provide you manufacturing business ideas on how to properly do cost estimation when upgrading your small scale white label business into OEM operations.
Deciphering White Label & OEM
White labeling products is the act of acquiring existing manufactured products and then rebrand them as if they are their own while OEM goes through the entire manufacturing details as the latter is trying to create a product from scratch. Both terms are easily misinterpreted from each other because some industry professionals are even confused of properly defining these terms and provide wrong information out there in the internet. The Economist has a piece on this. Sorting through any manufacturing business ideas, you should be clear about that difference.
Obviously, white labeling is a cheaper route compared to being an OEM company. It is widely regarded as a low cost entry point for startup entrepreneurs into the world of manufacturing due to its simplicity by design. As long as you have some funds to acquire existing manufactured goods and then spend some cash on the rebranding or redesigning these products, you are already a step forward the white labeling option in manufacturing. White labeling is definitely a low investment manufacturing business idea.
With the OEM option, it is a lot more expensive as you have to spend for the product development process, more overhead expenses and you have to keep in mind your business is designed for high quantity manufacturing. If you are seeking for a small scale manufacturing business, being an OEM company would not be suitable for you. This is why most OEM businesses start out as a white labeling company who eventually moved up the ladder after achieving several successes and victories with their white label products.
Costs to Consider when Shifting towards OEM
1. Product development
Now that you are a full-time original equipment manufacturer (OEM), you are now solely responsible for the product development of all your products. From design conception all the way up to the end of the production line, the costs involved within are your company’s own responsibility. Product design and development is a lengthy and tedious process. Not to mention the costs which accumulate from one step to another. All these costs will pile up and if your company is not ready to face it then I would strictly advise for you to stick with white labeling.
Product development starts off on the product design. From a simple idea, this design will be developed into a full 3D prototype which is the actual representation of the product before it hits the production line. Designing a product will require help from graphic designers from sketching the product up to creating a 3D design on the computer. All of your inputs and specifications are incorporated on this 3D design and not simply the aesthetics side of the project.
Depending on their level of skill and expertise, graphic designers are professionals with an average rate of $17/hour in the US. This would be too costly for your company but if you are smart enough, you can outsource these services to people outside the US for a cheaper salary rate. By paying $400 up to $700 a month, you can already hire a decent freelance graphic designer who can provide you the right skills and expertise to get your graphic design needs.
The more expensive aspect of product development is in the prototyping process because it is a trial and error method which could be done once or could be repeated several times until the desired results are achieved. Prototyping can be costly because failed prototypes are still expenses and you still need to pay for the materials and services spent on them. The back and forth process can be time consuming and time means gold in the manufacturing world.
2. Overhead expenses
Your overhead expenses will clearly increase since you now have graphic designers and other manufacturing professionals on board unlike in your white labeling days wherein there is limited work and staff needed. You are no longer a small scale manufacturing business and you should expect the additional costs which comes with this business development. Always consider your overhead expenses as part of moving up the ladder.
Even if you are only making sure you are staffed in all departments of manufacturing, you also have to check whether you are overstaffed of not. You have to make sure you are paying employees who are necessary to your OEM business and that you have maximized their efficiency levels for your own good. Paying the right number of people with the right set of skills and expertise will definitely pay off for your company in the long run.
3. Packaging and labeling
OEM businesses are mostly in charge of packaging and labeling their products. This is a crucial process which also plays a part for your marketing schemes. Low investment manufacturing businesses tend to outsource this process to packaging and labeling experts but depending on your capabilities you can take on this process yourself. Custom product packaging expenses can either be cheap or costly depending on the type of packaging you are going for. Simply make sure the packaging expense is rational towards the functionality and design of your packaging option.
Aside from packaging, labeling is also another aspect where your manufacturing costs should be allotted. There are a lot of companies out there who can assist you with labeling and certification of your products. These companies will run production tests and quality assurance methods to make sure your product passes international quality standards and be marketable for consumers. Some taxes are also incorporated as part of acquiring product labels and certification seals.
4. Mass production
Keep in mind you are no longer a small scale manufacturing business catering to minimal orders. As a standard OEM company, you are expected to produce original items which can be delivered to several stores and marketing outlets. Your production mode changed (here is more on the different production modes by the BBC). As your production quantity rises, then so will be your manufacturing costs towards your contract manufacturing companies. However, you must also be practical in producing the right number which is suitable for your market and not overproduce wherein your products may end up being stale. Manufacturing business ideas are often complex and convoluted, but they are often about the principles as outlined here.