An OEM product may be designed and manufactured to specifications other than those specifications of suppliers primary products. OEM in China referred to the Chinese company that originally builds a given product and sells it to the foreign company. It is important to all the foreign companies to make sure the contract manufacturer they have chosen is capable of delivering all their manufacturing requirements for producing their OEM products.
According to most of the Chinese law firms, overseas companies need to keep in mind that not all the contract manufacturing companies are the same. You need to keep a comprehensive checklist of questions in hand while interviewing the contract manufacturer for your OEM product. It is essential that you and the contract manufacturer are working together to successfully bring your OEM products to the market and expand your business.
It is noted quite often that many OEM relationships fail to meet the definition of the term because the dynamics of the OEM are changing. As a business owner, you have to ask the right questions before forming this valuable relationship with a Chinese contract manufacturer.
The Following is a Checklist of OEM Agreement:
- Materials– The kind of material the CM is going to use must be clearly mentioned in the contract. Be sure the contract manufacturer you’re considering has adopted quality standards – such as the ISO 9001:2008 – which provide guidelines to ensure the contract manufacturer’s products and services are consistently meeting customer requirements.
- Manufacturing– Review consignment terms, contract, and Standard Operating Procedures (SOP)
- Price– Request to know the provider’s pricing formula and activity or service rates with current your product.
- Order placement– How are orders to be placed? Purchase order or by forecast? Also, be sure and state the liability where necessary. The agreement must also define the list of products, performance criteria, tooling list and purchase order.
- Quality control and quality assurance- Foreign companies need to have the right, after a 24-hour notice, to inspect, audit or examine the manufacturer’s operation, record, system, and facilities to ensure compliance with the OEM agreement.
- Term– The parties will determine an appropriate term for their contract, and may make the agreement renewable on request by the buyer.
Due to the fact that China has become the world’s leading manufacturing base, it is quite obvious that businesses from all over the world want to make the most of it. An OEM agreement could prove to be the most effective tool in order to carry on seamless business operations in China.