What is OEM in the cosmetic industry?

OEM is an acronym that stands for `Original Equipment Manufacturer` which is a company that produces parts or products on private labels for other companies to market. It is no different in the cosmetic industry. Most of the products we see in the market are OEM products that are produced by OEM companies upon request. It makes a lot of sense since not everyone could own a factory and run it efficiently. It’s a great system since factories get to keep their production lines busy as they are making products not only for themselves but for a lot of other brands too. On the other hand, it certainly creates opportunities and allows people who want to enter the cosmetic industry with large SKUs and production lots to do so without having to invest millions of dollars and build their factories. It’s a win-win situation for everyone.

Higher profit margins, originality, and intellectual property are the three most common advantages of using OEM in the cosmetic industry.

Outsourcing to cosmetics OEM helps in increasing PROFIT MARGINS!

Product manufacturing costs in the cosmetic OEM industry are frequently kept between 20% and 30% of the retail price, though this can be reduced to 10% or even less. If a product sells for RM 50, it likely cost between RM 10 and RM15 per unit to manufacture. Depending on your business model, you may need to invest in marketing, which adds to the cost. Even in that case, cosmetic OEM products have a much higher potential profit margin than selling existing products.

skincare oem

Originality when you outsource to an OEM such as ORiBionature

With the freedom that cosmetic OEM products provide, you can create products that no one has ever thought of before. Products that you know people want but aren’t available. In a nutshell, you could create any product or brand concept you want and challenge the market. There are numerous examples of successful beauty start-ups that did the same thing!

Intellectual Property (I.P.)

When you create your brand, you retain ownership of all intellectual property rights associated with your products and designs. You have complete control over the product and concept because you own the rights to them. Prices, product specifications, design, and formulation are all subject to change.

The three common disadvantages of using OEM in the Cosmetic Industry are High Initial Costs, Inventory Management, and Production Limitations.

Highly-priced Initial Investment

Although manufacturing costs per unit can be low, doing cosmetic OEM will necessitate an initial investment. Even if you start with just one product, you must meet the minimum order quantities set by the cosmetic OEM companies. It can be as high as 3 thousand units depending on the product you are developing. Let’s say the product costs RM 5 per unit, for a total order of RM 15,000. The cost of manufacturing the product, however, is not the only cost. You are also charged for printing plates, product registration fees, and so on. The initial costs may be much higher if you want to start with multiple products.

Inventory Control

When doing OEM, you will be constrained by the (Minimum Order Quality) MOQ policies imposed by your manufacturer. Assume the (Minimum Order Quality) MOQ is 1,000 pieces and the lead time is 3 months from the time you place your order. What happens if you sell out in a month? Well, you’ll be out of stock for a highly demanded product for a couple of months, which can’t be good for business. Furthermore, prices for (Minimum Order Quality) MOQ are typically very high when compared to orders in larger quantities. In Japan, for example, the price difference between producing 1,000 and 3,000 pieces of the same product is usually twice as much. In this case, ordering 3,000 pieces rather than 1,000 is more cost-effective, but the question is, will you be able to sell them? As you can see, determining the best inventory management strategy for your company can be difficult. Given enough time and experience, anyone should be able to optimize this -after all, it’s not rocket science- but it’s certainly difficult at first.

Production Restrictions

Cosmetic, Unfortunately, OEM is not all about liberty. Beginners who want to make their dream products a reality will face a slew of heartbreaking realities. Container options will be limited, and the ones you prefer may be prohibitively expensive. What about creating your container? It would necessitate designing it, which would take a significant amount of time and money. Then you’d have to pay for the injection mold, which starts at RM 10,000 and can go up depending on the design. Do you want a box with a one-of-a-kind design, a few heat stamps, and embossing? Well, you probably shouldn’t because it will be quite expensive unless you order in large quantities. The point is that large brands order their containers or other packaging materials in large quantities, allowing them to have detailed designs at very low costs. Because this is rarely the case for people who order in small quantities, you’ll need to take a different approach.

We’d like to address that we believe Oribionature Manufacturer Malaysia should be your cosmetic OEM manufacturer partner.

skincare oem

Tactful (Minimum Order Quality) MOQ policy

We understand that producing 10,000 units is unfeasible for a start-up. We enjoy assisting our clients who order in small lots by providing them with flexible correspondence and cost-effective solutions for low quantity orders. We do our best to assist you with inventory management. For example, to reduce costs and lead times, we offer to store packaging materials such as containers and boxes. You can order 5,000 containers and divide them into multiple productions this way. This lowers the cost of the containers and shortens the lead time.

Material Procurement Support

When it comes to assisting our clients with the material procurement process, we believe we are doing an excellent job. We look everywhere for containers that meet your specifications. We always make sure to find the most cost-effective options while doing so. Although there will be order quantity limitations, our experience has taught us that there is always a great option for everyone if you know where to look.

Consultation All-Around

We don’t just make cosmetics; we also provide our customers with one-on-one consultations. We not only help our clients with cost-effective and efficient productions, but we also generously share our knowledge. We make certain that no question, no matter how trivial, go unanswered. We are eager to share our knowledge with them, backed up by previous examples. We also introduce them to designers, marketing consultants, forwarders, and other professionals.

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