When considering OEM services, it’s essential to understand the potential risks involved. While OEM suppliers typically subsidize product development costs, buyers end up paying for these costs in the product unit costs. This article delves deeper into the OEM risk for buyers and why it’s crucial to master this aspect before starting an OEM service.
To fully comprehend the OEM risk, it’s essential to understand that all products must pass through two phases: product development and production phases. OEM suppliers differentiate these phases and offer buyers a unique value proposition. This article explores how OEM suppliers differentiate these phases and the potential price of OEM risks. Additionally, it highlights the result of advanced work, which is low production costs and low-risk products.
Key Takeaways
- OEM services involve potential risks that buyers need to understand before starting the service.
- All products go through two phases: product development and production phases, which OEM suppliers differentiate in their value proposition.
- Advanced work results in low production costs and low-risk products.
All Products Have to Pass Through Two Phases, i.e., Product Development and Production Phases
Product development and production are two distinct phases that every product must pass through before it is ready for the market. The product development phase is the early stage of product creation, where product design and manufacturing processes are involved. During this phase, designers and engineers work on creating a unique product design that meets the customer’s needs. However, if the product has some similarities with other products, there are fewer discoveries because the product doesn’t need extra features in its design.
In most cases, buyers hire designers or engineers to create a product design, and some tradeoffs will be involved to ensure accurate decisions. Conversely, when the manufacturer is the decision-maker, their incentive is to start the production process as soon as possible to attain money and keep the product in its simplest form, reducing the headaches involved in the production process.
After the product matures, it is considered ready for mass production. During this phase, the dynamic process changes, and the unit price of production becomes the sum of handling costs, material costs, export costs, and manufacturing costs. When the supplier has financed a part of the product development, a certain amount will be added to each quantity’s price.
Buyers get visibility in the cost structure, even if the suppliers cannot know about future order quantities. In instances where there isn’t transparency, it allows out of control price increments.
The following table summarizes the activities involved in each phase:
| Product Development Phase | Production Phase |
|---|---|
| Product design | Mass production |
| Manufacturing processes | Handling costs |
| Tradeoffs | Material costs |
| Hiring designers/engineers | Export costs |
| Decision-making | Manufacturing costs |
In conclusion, the product development and production phases are critical stages that every product must pass through before it is ready for the market. The product development phase focuses on creating a unique product design that meets the customer’s needs, while the production phase involves mass production and cost management. Buyers must be aware of the cost structure to avoid out of control price increments.
How OEM Suppliers Differentiate the Phases
OEM suppliers differentiate the phases of product development to ensure that they deliver quality products to their clients. The phases of product development include design, prototyping, testing, and production. During the design phase, suppliers focus on creating a product that meets the client’s specifications while also considering factors such as cost, manufacturability, and functionality.
In the prototyping phase, suppliers create a physical model of the product to test its functionality and identify any potential issues. The testing phase involves rigorous testing of the product to ensure that it meets all the necessary standards and specifications. Finally, during the production phase, suppliers manufacture the product in large quantities and ensure that it meets the required quality standards.
To differentiate these phases, OEM suppliers use a range of tools and techniques, including project management software, quality control processes, and supply chain management systems. By using these tools, suppliers can ensure that each phase of product development is completed efficiently and effectively, and that the final product meets the client’s requirements.
In conclusion, OEM suppliers differentiate the phases of product development to ensure that they deliver quality products to their clients. By using a range of tools and techniques, suppliers can ensure that each phase is completed efficiently and effectively, and that the final product meets the required quality standards.
Potential Price of OEM Risks
When dealing with suppliers, it’s important to consider the potential price of OEM risks. Some suppliers may offer low-quality goods at high prices, which can be detrimental to a company’s bottom line. In order to protect themselves, companies must ensure that ownership of goods is established through a legal contract. Without an enforceable contract, it can be difficult to retrieve tooling or prove ownership in international supply chains. Legal documents are essential in establishing ownership and protecting against potential OEM risks.
The Result of Advanced Work is Low Production Costs and Low-Risk Products
Effective product development is vital in reducing production costs and ensuring low-risk products. Process engineering and product design are crucial components of product development, as they help set 80% of the price before products enter the production sector.
Good product development yields several advantages, including ease of assembling, access to professional suppliers and on-time delivery, efficient price risk analysis, ease of detecting and addressing product issues, and better follow-up processes. Additionally, well-trained operators contribute to successful product development.
To obtain these benefits, large volumes of products must be antedated. OEM suppliers who provide this service reduce the price risks of OEM producing goods, making it easier to start OEM or ODM services. For business people targeting markets with high-risk levels, it is possible to skip some steps and simplify the development process, but this increases the potential price risks of OEM.
Product sourcing companies are the best fit for those seeking OEM suppliers in China. By engaging in advanced work, businesses can reduce production costs and minimize the risks associated with product development.