The 3 suppliers you may use to get to market when developing new products
Let’s kick off by going through your options in this video:
Is your project a no-go?
When developing new products, your potential sales volume will be critical to prospective suppliers.
Unlike private-label products, developing new products and bringing them to market inherently requires more work and is fraught with far more problems to deal with, since there is, by definition, no one-size-fits-all template to follow.
Therefore if you can’t reach their MOQs, it’s unlikely any suppliers will be interested in accepting your order as it is too small to warrant their time and attention.
If your order volumes are larger, then you have 3 options:
Each of these suppliers differs in some key ways.
Working with an ODM to adjust their existing product
An ODM already has their own products & designs, but they will help you make adjustments to their existing product in order to create your new product (if your new product design isn’t wildly different) and get it to market quickly.
BUT, beware! You will not own the IP, as this has been developed by the ODM, therefore they control the project and relationship as they can dictate pricing and whether or not they will even sell ‘your product’ to you! You are essentially their distributor.
There is also a risk that they will take your idea and market it to their existing customers who they believe may be able to place a larger order than you can.
Enforcing good manufacturing contracts with an ODM is hard because they do not want to lose rights to IP that they have already spent time and money developing. This just isn’t in their interest.
Prior due diligence on ODMs is important because all of your eggs are in their basket, therefore you need to assure that they’re capable of doing a good job before placing your order as it will be difficult to change suppliers once you have started working together even if the final result isn’t great (although if your products are on the simpler side, hopefully, this won’t be such a severe issue).
PROS
- Gets you to market quickly due to not needing extensive development and having pre-existing material and sub-suppliers and manufacturing facilities set up for that type of product.
- Minimal effort required from you to develop, source, and produce products.
- Good for newbies with little experience in manufacturing abroad.
- Good for a first version of the product when you’re just testing the water.
- Good for reasonably simple new products that don’t differ a great deal to existing designs.
CONS
- The ODM retains control of the project and IP.
- You don’t own ‘your product’ design, they do.
- The ODM may decide to sell your product in competition with you (especially if they see you are successful commercially), but they own the IP therefore you may be blocked from selling your own product.
- If you want to keep producing the product you’re locked into working with them as you can’t take the design and source a new supplier elsewhere.
- Not easy to find in Vietnam or Thailand. This is really a “Chinese model”.
Working with an OEM to develop & manufacture your new product
The OEM is already in your new product’s niche and has experience in developing and producing similar products. They will usually subsidize a part of your new product development and perhaps the tooling cost, too, if they feel a relatively high market potential. Their in-house team helps you develop your product from an earlier stage, rather than merely making some changes to an existing product (as with the ODM). Therefore, an OEM is a better choice for you if your new product is more complex.
Although they provide valuable expertise to help you develop and manufacture your product, this doesn’t come for free. They will often try to retain ownership of your IP as a return on their investment of providing engineers, subsidizing tooling costs, etc. Therefore clarifying expectations from the start in an enforceable contract is essential IF they will sign one (which they may not agree to as their business model is to invest in a client’s idea and then keep the IP).
In China and Vietnam, they also have a bad habit of rushing into mass production without completing all possible process engineering work and pre-production checks because they get paid for completed products, so speed is of the essence for them.
This is all very well, but a lack of attention to critical pre-production phases (risk analysis, reliability testing, pilot run…) can lead to issues like quality problems later on, which pushes the delivery date back and raises costs to put right. Fundamentally, you’ll need to weigh whether their duty to getting their paycheck for shipping completed products is more than their duty to getting things 100% right for you.
PROS
- Gets you to market quickly due to not needing extensive development and having pre-existing sub-supplier networks and manufacturing facilities set up for that type of product.
- OEM provides in-house engineering expertise to help develop more complicated products from scratch.
- You are able to work with them on development and have more flexibility to create a very unique product.
- In case you started with an ODM, this is generally a good option for iterating a V2.0 or V3.0 of a product which you already tested on the market.
CONS
- You still lack control over the project and IP, which locks you into working only with this supplier.
- Their model is to attract you with product engineering and subsidizing the project, but then keep your idea’s IP. Therefore, getting them to concede ownership of the IP in a contract may be problematic.
- Their business model is to ONLY get paid for products made, not process engineering, pre-production work, and risk analysis – therefore they tend to skip these steps or not pay them enough attention in order to rush to mass production.
Working with a Contract Manufacturer to develop & manufacture your new product
Ultimately, the CM offers you complete control over your project and provides a factory to handle whatever you direct them to. If your order volume is agreeable (note that they may, or may not, have a higher MOQ than an ODM or OEM), they will be willing to sign a contract with favorable terms to you, as they’re invoicing you for ALL work that they do and so are under no pressure simply to deliver ‘finished goods’ like an OEM.
Although some CMs have in-house R&D departments to assist you with design and developing new products, you may choose to work with a design house elsewhere first and go to them with finished designs that you own 100% of the rights to. CMs will not insist to involve themselves with your product design unless you require it. They will be comfortable working on complete designs and providing DFM and DFQ feedback to improve those designs.
CMs tend to be strong at pre-production work and following through to production, assuring that everything goes well at every stage:
1. Because they charge for it, therefore being thorough does not make them lose money on that extra work (and it clearly benefits the client).
2. They’re incentivized to do a great job because they do NOT own the product IP and you can walk away and find another supplier if you’re dissatisfied.
So, the chances of getting to mass production without issues to contend with are higher. Much higher.
PROS
- Transparent relationship as the CM doesn’t try to maintain a hold over you by keeping your IP. (Note, some CMs do play different kinds of games, so you still need to sign proper agreements and to monitor them.)
- CM is incentivized to do everything perfectly as you can dump them and move on relatively easily.
- Getting to market with fewer problems is likely as they are more thorough in their preparation.
CONS
- May take longer to get to market if you’re starting with a blank slate.
- If you want to be closely involved with operations, you may have to do more work on sourcing, product development, and project management.
- Upfront (n0n-recurring) costs will likely be higher as CMs don’t subsidize work in return for ownership rights of IP. It generally makes sense for higher volumes.
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What is your experience of developing new products and manufacturing them with Chinese or Vietnamese suppliers? Do you have any tips to share, or perhaps questions if this is something you’re looking to do soon? Let us know in the comments!
PS.
You may also find these articles helpful:
- 3 Product Design Approaches And Their Pros & Cons For Made-In-China Products
- The 7 Most Common New Product Launch Pitfalls in China
- OEM, ODM, Contract Manufacturers: Which Chinese Supplier To Choose?
- How To Create A Valid Manufacturing Contract In China To Protect Your IP
- IP Protection For Manufacturers. Keep Component Suppliers In The Dark
Interested in designing or developing a new product to be manufactured in China? You will also like Sofeast’s Importer’s Guide to New Product Manufacturing in China!
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- The 3 deadly mistakes that will hurt your ability to manufacture a new product in China effectively
- Assessing if you’re China-ready
- How to define an informed strategy and a realistic plan
- How to structure your supply chain on a solid foundation
- How to set the right expectations from the start
- How to get the design and engineering right
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