What is a cosmetics manufacturer OEM/ODM?

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Are you planning to launch a cosmetics products line or expand an existing one? If so, you have probably come across the terms &#;OEM&#; and &#;ODM&#; a couple of times when searching for cosmetic manufacturers. These terms represent different types of manufacturers used to produce cosmetics products.

OEM stands for &#;original equipment manufacturing,&#; while ODM stands for &#;original design manufacturing.&#; Understanding the differences between these two manufacturers is crucial for informed decision-making.

What is OEM?

An OEM or Original Equipment Manufacturer is a company that specializes in manufacturing and producing cosmetic products based on the specifications and designs provided by customers. Cosmetic brands collaborating with cosmetic OEM manufacturers must provide specific requirements, including formulations, packaging designs, and branding elements.

Although the manufacturer allows customizing existing products, brands can design a new product that will stand out in the market. This type of cosmetics OEM manufacturing allows them to create unique, high-quality products that match their target customers&#; needs.

What is ODM?

ODM, or the Original Design Manufacturer, is a company that produces cosmetic products according to a buyer&#;s specifications by modifying existing products. ODM often offers private label services, where a cosmetics company selects a product(s) from a manufacturer&#;s existing line, makes a few changes, and sells it under its brand name.

Unlike in OEM, where you are required to provide product specifications, ODM manufacturers do everything for you. In this arrangement, the ODM company will plan, design, formulate, develop, and manufacture cosmetic products and develop the product packaging and design elements.

How is OEM different from ODM?

OEM and ODM are frequently used terms in the cosmetic industry, and their differences can be slightly blurred sometimes. In the OEM production line, the buyer provides the designs and formulations while the manufacturer offers expertise, infrastructure, and other resources to facilitate manufacturing.

However, some OEM companies lack the needed machinery to manufacture the products, prompting them to contract another manufacturer. This aspect of outsourcing manufacturing in OEM causes confusion as it aligns with how some people define ODM. However, ODM involves in-house designing and manufacturing of cosmetics products.

In this section, we explain the various ways in which the two cosmetics manufacturing processes differ from each other:

1) Manufacturing process

In an OEM partnership, the brand provides the manufacturer with the specifications, designs, and formulations. Brands aiming to work with an OEM manufacturer must have a finished product concept since this company&#;s primary role is to produce products based on the specifications presented. OEMs are not heavily involved in product design and limit their manufacturing focus to providing necessary facilities, equipment, and expertise.

ODM companies, on the other hand, are responsible for designing, formulating, and manufacturing cosmetic products. They offer more comprehensive services since they are actively involved in the entire manufacturing process.

ODM manufacturers work closely with beauty brands to generate ideas and develop the product concept, including formulation, packaging design, and branding. These companies allow brands to modify existing formulations or create new products.

From these perspectives, the choice between OEM and ODM manufacturers hugely depends on the desired level of manufacturer engagement. For example, big brands capable of formulating and designing their own products can opt to work with OEM manufacturers. In contrast, small and new beauty brands can opt for ODM partnerships since they offer more support and resources.

2) Product development time

OEM and ODM manufacturing processes can take different times to develop the products. For instance, in OEM, the manufacturer produces the product based on customer requirements, meaning they may have to manufacture new products from scratch. The procedure may involve testing and experimenting until they acquire a perfect formula that meets the customer&#;s needs. As a result, product development in OEM may take longer.

On the contrary, ODM cosmetics involves modifying the existing products to match customer needs. A beauty brand may select a company&#;s existing products and modify the packaging and branding. Since the ODM manufacturer does not have to produce the products from scratch, the product development time will be lower than in OEM production.

3) Intellectual property issues

The intellectual property rights for each production method are different. In ODM production, the manufacturer has more intellectual property rights. This is because the ODM is involved in the product design, formulation, and packaging processes, meaning they retain full ownership or co-ownership of the intellectual property. However, brands can negotiate licensing and transfer agreements regarding license, usage rights, and any royalties or fees associated with the intellectual property of the contracted products.

In OEM production, the customers retain most of the intellectual property rights. The OEM production method requires the customer to have a finished product concept, including product design and formulation, before engaging the manufacturer. As a result, the buyer typically owns most aspects of the product, including trademarks, logos, and specific branding elements.

However, the OEM manufacturer can claim ownership in certain cases, for example, where the company was involved in product formulation. Thus, manufacturers and brands should establish clear agreements to ensure that both parties intellectual property rights are respected and protected.

4) Minimum order quantity

Typically, ODM has low minimum order (MOQ) quantity requirements than OEM.

In ODM, the manufacturer already has the products ready for modification, making it easy for them to provide flexible MOQ requirements. If the products are unavailable in stock, the manufacturer can use existing formulas and designs to manufacture the products.

However, manufacturers in OEM production have to create new formulas and products based on the customer&#;s requirements. As a result, they may provide a specific, high MOQ requirement that justifies the effort and production costs.

5) Costs

Depending on the agreements, OEM can be relatively more cost-effective than ODM.

Brands opting for OEM production can avoid certain costs associated with product development, such as formulation research, packaging design, and branding. This can help reduce upfront expenses. In addition, outsourcing cosmetics manufacturing to OEM help brands avoid costs such as raw materials, labor, production equipment, quality control, and packaging.

ODM partnerships can be more expensive since the manufacturer is extensively involved in product design, formulation, and packaging. Brands may need to cover the costs associated with these production aspects, including product concept creation, formulation research and development, packaging design, and branding.

However, the overall costs in either OEM or ODM arrangements can vary depending on the product complexity, level of customization, negotiated terms, and general agreement.

Why work with OEM cosmetic manufacturers?

Working with OEM cosmetics manufacturers presents multiple benefits, including:

i) Cost-effectiveness

Working with OEM manufacturers presents a cost-effective solution for brands in the cosmetic industry. By leveraging the manufacturer&#;s existing infrastructure, production capabilities, and economies of scale, cosmetic companies can benefit from lower production costs than establishing their manufacturing facilities. This can be especially beneficial for smaller brands or startups with limited resources.

ii) Access to high-quality products

OEM manufacturers have specialized knowledge and expertise in cosmetic manufacturing, enabling them to produce high-quality products. These manufacturers possess the technical know-how, experience, resources, and understanding of industry regulations, standards, and trends.

Leveraging this expertise can help beauty companies manufacture and deliver high-quality products that meet regulatory requirements and consumer expectations.

iii) Higher control over production

In an OEM partnership, the brand has higher control over the production of its own products since it defines and specifies the desired product attributes. The brand sets the standards and guidelines for the OEM to follow during manufacturing by providing information on formulation, packaging, labeling, and other requirements. This helps ensure the final product matches the company&#;s vision and the target market&#;s preferences.

iii) Access to advanced technology and resources

OEM manufacturers often invest in advanced manufacturing technologies, equipment, and research and development capabilities. As a result, brands partnering with an OEM gain access to these resources, which may otherwise be expensive to acquire and maintain independently. Therefore, such collaborations enable brands to innovate, develop new product formulations, and stay competitive in the global cosmetics market.

iv) More time to focus on branding and marketing

Outsourcing the production process to an OEM enables companies to allocate their time and resources to marketing and branding strategies, such as market analysis, brand development, and building customer relationships. This approach helps them establish and strengthen their presence and position in the market and differentiate themselves from other competitors, thus potentially expanding their market share.

However, despite these benefits, partnering with an OEM can have numerous disadvantages. These include:

i) Longer lead time

Creating new products from scratch may result in a longer lead time since the process may involve creating new formulas, product designs, packaging, and branding. Sometimes, the manufacturer may require time to create molds and new tooling, which may take some time and delay the product launch.

ii) Limited feedback and guidance from the manufacturer

Limited involvement of the manufacturing team during the product designing and development processes limits the brand&#;s access to valuable feedback and guidance. Without the manufacturer&#;s input, the brand may miss opportunities to optimize the product formula or design.

Given that the manufacturer is more knowledgeable about the production process and the industry, their involvement can increase access to valuable insights. These can help improve product functionality, cost-efficiency, or manufacturing feasibility. Thus, it is recommendable for beauty businesses to embrace more collaborative approaches that allow information sharing.

Why work with ODM cosmetic manufacturers?

Working with ODM cosmetic manufacturers offers several advantages. These include:

i) Much shorter lead time

Since ODM manufacturers have pre-existing product formulations and designs, brands can quickly launch their products by selecting pre-developed options. This is especially beneficial for brands that want to capitalize on emerging trends or products that experience seasonal demand. ODMs can speed up product development, allowing brands to launch their product line faster and stay competitive in the market.

ii) Lower MOQ

ODM manufacturers often have lower MOQ requirements than OEM arrangements.

Since ODMs have established production lines and resources, they can provide flexible MOQ arrangements and efficiently handle smaller order quantities. Leveraging ODM manufacturing enables brands to produce cosmetics in smaller batches, reducing inventory costs and minimizing the risk of holding excess stock. Therefore, this production approach is more favorable for emerging brands, startups, or those testing new products in the global cosmetics market.

iii) Access to market insights and trend forecasting

ODM companies deeply understand market trends, consumer preferences, and emerging innovations in the cosmetics industry. Due to their significant involvement in production processes, these companies actively monitor the market, conduct market research, and track the latest trends.

By partnering with a private label, cosmetics brands can tap into this knowledge and gain access to valuable market insights and trend forecasts. This enables brands to develop products that align with current market demands, stay relevant and competitive, and cater to evolving consumer preferences.

iv) Acess to Advanced manufacturing and production capabilities

ODM manufacturers typically have advanced manufacturing facilities equipped with modern technologies and innovations. They invest in technology and infrastructure to optimize production efficiency and ensure consistent product quality.

Therefore, working with an ODM manufacturer enables brands to leverage these advanced capabilities without investing in their own manufacturing setup. This opportunity helps brands achieve higher production efficiency, maintain quality standards, and scale their operations effectively.

v) No need for know-how

When partnering with an ODM, brands do not require extensive knowledge or expertise in product formulation, packaging, or manufacturing. The ODM takes care of these aspects, utilizing their knowledge and experience. As a result, brands can focus on their core competencies, such as branding, marketing, and distribution. They can also leverage this opportunity to enter the market with high-quality cosmetics without requiring extensive technical knowledge or investment in specialized resources.

However, ODM is characterized by various downsides, which makes it not a viable choice for every company. Here are some disadvantages of this production approach:

i) Limited product differentiation

ODM companies often create products sold to multiple brands with minimal modifications. Since the product formulation, design, and packaging is similar regardless of the branding, the products launched in the market lack originality.

ii) Limited customization options

ODM typically offers a range of pre-developed options for brands to choose from. This limits their control over the customization of their products since they must work within the provided framework. As a result, ODM partnerships may not be a viable option for brands looking to create unique products.

Final Takeaway

OEM and ODM cosmetics manufacturing processes offer unique opportunities for brands aiming to launch new products or expand their existing product lines. While these processes may have overlapping advantages, the decision to use one over the other should be based on the brand&#;s needs. For instance, a brand seeking full customization and higher control can opt for OEM, while another that prioritizes shorter lead times can opt for ODM.

OEM is often the word that comes to mind when one thinks about producing their own cosmetic products.

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In this article, we will be explaining details regarding cosmetics ODM and its difference with OEM. In the end, we will also be introducing the 3 points we think are important when choosing a cosmetics ODM partner in Japan.

Definition of Cosmetics ODM

ODM stands for &#;Original Design Manufacturer&#;. ODM is an abbreviation for Original Design Manufacturing. Cosmetics ODM is a manufacturing method in which an ODM company plans, designs, develops, and manufactures cosmetic products under the brand of the buyer.

This enables the buyer to pick an off-the-shelf cosmetic product that is ready to go without any planning or know-how.

There are also ODM companies whose support extends to marketing and logistics.

Difference Between Cosmetics ODM and OEM

Let&#;s take a look into the differences between cosmetics ODM and OEM.

In short, an ODM is a company that designs and manufactures a product. In the cosmetic sector, a lot of companies use this term as a &#;we do everything for you&#; statement. However, it actually means that the ODM company rebrands existing products from its catalog for other companies to market.

You probably come across a lot of products that look the same except for the brand print on Amazon. That means they are products coming out of the same ODM.

OEM, on the other hand, is when the manufacturing company designs a product originally for you or produces a product that was designed by you.

Pros of Cosmetics ODM

We think there are 3 key benefits of using cosmetics ODM.

• &#;No need for know-how
• &#;Much shorter lead time
• &#;Lower MOQ

No need for know-how

As the seller will be re-branding an off-the-shelf product of the manufacturer, they will not have to think of a concept or plan the product.

This is useful for people who want to launch a product without having to do the necessary research and obtain the know-how.

Much shorter lead time

Developing an original product from scratch requires an R&D process which can take up to months. This is not limited to formulation but also the packaging materials and design as well.

When it is an ODM product, none of this will be necessary and the product will be ready to order and delivered in a much shorter span compared to an OEM product.

Lower MOQ

Making an original OEM product requires a certain quantity. This can be 500 or 3,000 depending on the product.

However, ODM products are often in stock and can be delivered in a few days.

Even if the manufacturer does not have it in stock, they will still manufacture a certain amount of products and provide the required quantity from their inventory.

Cons of Cosmetics ODM

There are also downsides of cosmetics ODM which makes it not for everyone.

• Lack of Originality
• Inflexible Packaging and Design

Lack of Originality

As these are off-the-shelf products, there will be no originality to the product. For companies that aim to differentiate their products from others in the market, cosmetics ODM products will not be a viable option.

Inflexible Packaging and Design

In the case of an OEM product, the buyer has the freedom to choose from thousands of different containers and packages.

However, for cosmetics ODM products, this is different. Buyers will be limited to the options that the manufacturer has in their inventory, in most cases.

One way to work around this is, using an off-the-shelf formulation with original packaging.

Of course, this will bring the MOQ quite a bit up since the containers will be required to be procured.

3 Key Points When Choosing Your Cosmetics ODM Partner in Japan

In this section, we will be explaining the 3 key points we think you should keep in mind when choosing your cosmetics ODM partner.

• Do they have a wide range of products?
• How much flexibility do they offer?
• What is their MOQ policy?

Do they have a wide range of products?

At least in Japan, it is difficult to run into ODM-only companies. It is mostly OEM companies that also offer a set of ODM products.

Some companies will only have 1-2 products while others have dozens. Working with a company that offers a wide range of products will be more practical in the long term when you want to add new products to your existing catalog.

How much flexibility do they offer?

Cosmetics ODM products are off-the-shelf products that are often preferred for their speed and practicality. By nature, this comes at the cost of flexibility, which is inevitable.

However, the extent of this also varies from manufacturer to manufacturer. Some companies may be able to offer minor changes to the formulation and a few different options on the packaging materials.

What is their MOQ policy?

One of the reasons why many people prefer ODM over OEM is the minimum order quantity.

If the cosmetics ODM company has the product in their inventory, they can swap the label very easily. Some companies may do this from as little as 20-30 products while others may require 100 or more.

Also, there are companies that do not hold stock and require OEM-like quantities also.

Conclusion

In this article, we explained cosmetics ODM with its pros and cons while comparing it to cosmetics OEM.

Even though we mainly specialize in OEM -as can be seen in our company name- we are also experienced with cosmetics ODM.

We will appreciate any inquiry from your end regarding cosmetics ODM and OEM via the button below.

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