What is OEM means in the Beverage Industry? Pros & cons of it

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  • What is OEM means in the Beverage Industry? Pros & cons of it

    OEM has become an everyday norm on the Internet in recent years. OEM products have become standards in many industries such as IT, automobiles, mobile phones, etc. 

    Besides, we saw a stable growth rate in the beverage industry. Therefore, to have a  good overview of beverage OEM and take its advantages, it is definitely essential to know what it is, how it works, etc.

    The article will help you get a comprehensive definition of OEM in the beverage industry nowadays.

    What is OEM means? What does oem stand for

    According to Investopedia, OEM ( stand for an Original Equipment Manufacturer) is traditionally defined as a company whose goods are used as components in another company’s products, which then sells the finished item to users.

    In the beverage industry, OEMs typically sell their products in a B2B (Business to Business) market. They cooperate with another firm, usually as a manufacturer, packaging designer, etc. The other company will mark the product up and resell it to final-users with some kind of value-added.

    oem manufacturer line model

    According to Business Wire, the 2018 global beverage market is evaluated at US 1,544.61 billion. It is projected to increase at a 3.1% CAGR to reach the market size of US$1,854.589 billion by the year 2024. Those figures illustrate the potential future of the drink industry in the coming years.

    As a result, it is easily understood that there is a growing trend of OEM in the F&B industry.

    OEM Manufacturing process concept illustration

    Differences between OEM and ODM

    With the rapid increase in new types of international business, OEM and ODM are considered emerging formats welcomingly received by investors in recent years.

    OEM and ODM differences

    On Alibaba.com and other e-commerce sites, customers commonly notice that suppliers claim to offer ‘OEM service’ and ‘ODM products’. Both the terms ODM and OEM are related to the manufacturing industry, and they sound very similar. Still, there is a fundamental difference between them.

    As the name of each type, ODM stands for Original Design Manufacturing, and OEM refers to Original Equipment Manufacturing.

    Additionally, OEM refers to a company producing products on behalf of another company. The purchasing company then markets the product under its own brand name. In contrast, an ODM takes responsibility for designing a product as per another company’s specifications.

    OEM in the Beverage Industry

    From the previous sections, you’ve learned about the basics of OEM. OEMs in the beverage industry are not very different. Beverage OEMs basically take advantage of good local fruit ingredient sources, sourcing trusted partners to develop high-quality drinks at competitive prices.

    In simpler terms, beverage OEMs are suppliers who meet various partners’ needs, including beverage formulation, raw material purchasing, beverage manufacturing, and packaging.

    Thanks to these high specializations, the business process will be optimized.

    Beverage manufacturing process

    For example, company A makes a request for its packaging design (private label) to Tan Do. We’ll incorporate it into the drinks and export drinks back to A. In this case, Tan Do is the OEM.

    Pros and cons of OEM in the beverage industry

    The following pros and cons are analyzed from the view of the OEMs and their partners.

    1. Pros

    With the characteristics of OEM analyzed, an OEM relationship possibly provides a very effective route to market and increase sales, for example:

    • Access to new markets such as geographic or industry sectors. Widely international trade has created a chance for firms to penetrate and do their own business in many regions across their boundary.

    international trading

    • Assembly or integration into a complete solution that might be impossible for the vendor. The specialization allows both manufacturers and exporters to minimize costs and keep prices down without lowering product quality.

    Cost reduction illustrate

    Cost reduction – one of the most outstanding advantages of OEM

    • Resources such as brand, marketing resources, sales resources, working capital, physical distribution, or manufacturing assets are essential by the end-customers. These activities are being proceeded only by OEM partners – large manufacturers and distributors.

    Human resource concept illustrate

    2. Cons

    • The principal may insist on product improvements driven by inner perspectives, rather than market requirements. As a result, the drinks’ quality depends on OEMs who take all responsibility for the manufacturing process. This might definitely lead to supplier-customer conflict.

    ———————————————————————————————————————————-

    • The ultimate problem is the lack of product perception or sales enablement as a consequence of suppliers not directly involving in the production. Hence, their sales departure cannot significantly understand 5W product questions such as what, why, what, where, when.

    ———————————————————————————————————————————-

    • Exclusivity stops the OEM from understanding the end-customer and implementing product improvements to suit real market requirements. Whereas specialization helps us minimize unnecessary costs and increase productivity, manufacturers will find it more challenging to approach and satisfy final customers.

    Needs Wants Demands illustrate

    OEM’s upcoming trends in the beverage industry 

    According to Business Wire, the private-label Food and Beverage Market in the US will accelerate at a CAGR of almost 4% through 2020-2024. The report offers an up-to-minute analysis regarding the current market scenario, the latest trends and drivers, and the overall market environment.

    From Technician, the global private label food and beverages market size will likely grow by USD 215.81 billion during 2020-2024. It means a clear potential for sales in private beverage labels, which creates chances for OEMs to expand markets worldwide. If you want to start a beverage company, this is a good opportunity.

    A product line extension is one of the key factors driving market growth. In addition, consuming premium brand trends are contributing to OEM development nowadays.

    beverage industry upcoming trends

    Summary

    OEM (Original Equipment Manufacturer) recently has been one of the leading trends in beverage manufacturing. Taking its advantages can help entrepreneurs, companies, or firms to work efficiently in their fields.

    Understanding the OEMs meaning clearly is to make use of its benefits, invest in, and develop the OEM beverage industry.

    As one of the leading beverage manufacturers in Vietnam, Tan Do will not only help you develop and manufacture your beverage products but also inform you of the most up-to-date changes and trends in the market, notify opportunities, and support your business. Therefore if you are thinking of cooperating with an OEM company and expanding your business, don’t hesitate to contact us!

    Lilian Nguyen
    Hi! I'm Lilian Nguyen. I'm an expert in OEM, ODM, private label beverage industry with 8 years of experience. I believe that it is crucial for companies to focus on the benefits which the product provides to their target customer and what does it mean to the community. When i am not working, i run a blog on making healthy snacks & drinks and join in a hiking club. I'm an expert in the beverage industry invited by Tan Do Beverage to work. I'm in charge of publishing articles, research articles on the beverage industry or anything healthy to help readers have a better view of what they are looking to do, prepare to do or are doing related to the beverage industry. Email: lilian.nguyen@tdfood.com.vn

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