"Is Company A's work really profitable?" Why profit by customer is invisible in OEM factories

Are you having these doubts?

"Company A gives us a lot of work, but... is it actually profitable?"

"Company B doesn't order much, but they're easy to work with."

"Company C has such specific requirements that it's honestly tough... but I can't turn them down."

If you work at an OEM factory (a factory that manufactures products under other companies' brands), don't you have these feelings?

"Somehow," Company A's work is difficult, and Company B's is easy.

But, can you answer with numbers how much profit is actually being made?

This time, I will talk about the "invisible profit by customer" problem that OEM factories face, and its solution.

An AI utilization x system development x business improvement x PMO x IT revenue-generating consultant is sharing the reality from a field perspective.

About the ERP series

This article is the 6th installment of the ERP series for small and medium-sized enterprises.

📚 Previous articles

• 👉 Part 1: Order Management ERP — Visualizing the flow of money

• 👉 Part 2: Product Registration/SKU — Tips for successful product master design

• 👉 Part 3: Inventory Management/Warehouse Management — Causes and countermeasures for inventory mismatches

• 👉 Part 4: Business Partner Registration — Solving the "Where do I send the invoice?" problem

• 👉 Part 5: Manufacturing ERP — How the Bill of Materials (BoM) made costs visible

• 📍 Part 6: OEM Factory ERP — This is where we are now

Starting from this time, we will enter into topics specialized for OEM manufacturing!

The OEM business is actually expanding

The market size is growing year by year

The OEM and contract manufacturing market is actually expanding year by year.

The cosmetics OEM market alone grew 4.2% year-on-year in fiscal 2023 to approximately 345.6 billion yen. It is projected to reach 400 billion yen by 2025.

The confectionery OEM market also grew 12.0% year-on-year in fiscal 2023 to approximately 268.5 billion yen.

As for EMS (Electronics Manufacturing Services) for electronic devices, it is projected to reach approximately 609.8 billion dollars globally in 2024, and over 1 trillion dollars by 2032.

Why is OEM increasing?

There are changes like this in the background.

In other words, the matching of "companies that want to create brands" and "factories that want to utilize their manufacturing capabilities" is accelerating.

Why can't OEM factories see "profit by customer"?

Reason 1: Specifications differ by customer even for the same product

At OEM factories, specifications differ by customer even for the same product category.

【例：スキンケアクリーム】

A社向け：
├── 容器：50mlジャー
├── ラベル：A社ブランドデザイン
└── 配合：標準配合

B社向け：
├── 容器：30mlチューブ
├── ラベル：B社ブランドデザイン
└── 配合：低刺激配合

C社向け：
├── 容器：100mlポンプボトル
├── ラベル：C社ブランドデザイン
└── 配合：高保湿配合

If the container is different, the cost is different. If the formulation is different, the raw material cost is different.

However, if this is managed separately in Excel, it becomes impossible to see "what is the unit cost for Company A after all?"

Reason 2: Management of customer-supplied items is complex

In OEM production, there are cases where materials are supplied by the customer.

• Labels

• Cosmetic boxes

• Bottles and caps

• Special raw materials

Since these are customer assets, you must not use them arbitrarily or mix them into other customers' products.

However, it is difficult to accurately track "whose label it is" and "how many are left" on the shop floor.

Reason 3: Frequent specification changes

"Company A's label design changed last month, right?"
"Wait, we are still using the old data..."

OEM products undergo frequent specification changes due to customer requirements.

• Changes to label design

• Adjustments to mixing ratios

• Changes to package size

• Updates to ingredient labeling (regulatory compliance)

If these are not version-controlled, accidents occur where products are made with old specifications.

Reason 4: Multiple customer schedules running in parallel

"Company A's deadline is next Friday..."
"Wait, Company B's is also next Friday..."

OEM factories manufacture for multiple customers in parallel.

When switching between multiple customers' products on a single line, managing schedule adjustments and setup changes becomes complex.

The production control staff at OEM factories are the ones solving this "puzzle" every day.

The "7 Worries" of OEM factories

1. Profitability per customer is invisible

"Is Company A's work actually profitable?"

Can you answer this question immediately?

Unit prices differ by customer, and specifications vary as well.
When producing products for multiple customers on the same line, it often becomes unclear where profits are being made and where losses are occurring.

"I'm somehow busy, but somehow there's no profit left."

This is a common occurrence in OEM factories.

② Managing customer-supplied items is complicated

Labels and containers supplied by customers.

Since these are "customer assets," they must be managed separately in inventory.

However, accurately tracking "whose," "what," and "how many" on the shop floor is much harder than you might imagine.

③ Specification changes and version control cannot keep up

Changes to label designs, adjustments to formulation ratios, changes to package sizes...

OEM products have frequent specification changes.

If version control is not maintained, accidents like "we made it with the old specifications" will occur.

④ Scheduling for multiple customers is difficult

OEM factories proceed with manufacturing for multiple customers in parallel.

If you prioritize a specific customer too much, you will miss the delivery deadlines for other customers.

On the other hand, if you process them equally, you won't make it in time for either.

⑤ Price tags and labels change suddenly due to campaigns

"Company A, we're having a sale next month, so change the price tag stickers."
"Wait, I've already made 3,000 units with the regular price..."

When a customer runs a campaign, price displays and promotional labels may change.

It is not uncommon for this to happen without prior notice.

⑥ When sales formats change, shipping formats also change

"Company B says they're switching to selling in 2-packs from now on."
"Wait, so we have to redo the boxes and the shrink wrap for everything?"

When a customer's sales strategy changes, the shipping configuration changes.

• Single item sale → 2-pack sale

• Individual item → Gift box packaging

• Bulk shipping → Assorted set

Even for the same product, the BoM changes depending on the way it is bundled, and the work processes increase as well.

7. Order units and delivery destinations differ

OEM factories with large retailers as customers face this kind of complexity.

【受注と納品のズレ】

受注データ：
├── 渋谷店：50個
├── 新宿店：80個
├── 池袋店：30個
└── 合計：160個

納品先：
└── C社 関東配送センター（1か所）
    └── 160個を一括納品
    └── ただし、店舗別の仕分けラベル必要

請求先：
└── C社 本部経理（また別）

Orders are by store unit, delivery is to a single distribution center, and billing is consolidated at headquarters.

It results in a situation where everything is disconnected.

Visualizing "profit by customer" with ERP

Customer-specific master management

In an OEM-compatible ERP, you can maintain product masters for each customer.

【顧客別製品マスタの例】

製品コード：SKC-001
製品名：スキンケアクリーム

├── A社向け仕様
│   ├── ラベル：A社ブランドラベル v3.2
│   ├── 容器：A社指定ジャー（50ml）
│   ├── 配合：標準配合A
│   └── 販売単価：450円/個
│
├── B社向け仕様
│   ├── ラベル：B社ブランドラベル v1.5
│   ├── 容器：B社指定チューブ（30ml）
│   ├── 配合：低刺激配合B
│   └── 販売単価：380円/個
│
└── C社向け仕様
    ├── ラベル：C社ブランドラベル v2.0
    ├── 容器：C社指定ポンプボトル（100ml）
    ├── 配合：高保湿配合C
    └── 販売単価：650円/個

If you select the customer when placing an order, the specifications are determined automatically.

Customer-specific BoM and cost management

Furthermore, you can manage BoM (bill of materials) and costs for each customer.

【A社向け スキンケアクリーム 1個あたりの原価】

■ 材料費
├── 基剤（クリームベース）：120円
├── 有効成分：80円
├── 香料：15円
├── 防腐剤：5円
├── 容器（A社指定ジャー）：50円
└── ラベル（A社ブランド）：10円
─────────────────
材料費 計：280円

■ 労務費
└── 充填・ラベル貼り（3分）：25円

■ 経費
└── 製造間接費配賦：20円

─────────────────
製造原価 計：325円

販売単価：450円
粗利：125円（粗利率 27.8%）

If you calculate this for each Company B and Company C, you can visualize "which customers are profitable."

Inventory management of customer-supplied items

Materials supplied by customers can be managed separately as "consignment inventory".

【顧客支給品 在庫状況】

A社支給品：
├── A社ブランドラベル：残2,500枚
├── A社指定ジャー：残1,200個
└── ⚠️ ラベル在庫が4週間分を切りました

B社支給品：
├── B社ブランドラベル：残800枚
└── 🚨 2週間分を切っています → B社に発注依頼が必要

This prevents situations where "production cannot proceed because customer-supplied items are missing."

Version control and change history

When there is a specification change, you can record when, who, and what was changed accordingly.

【A社 スキンケアクリーム 変更履歴】

v3.2（2024/10/01 適用）
├── 変更内容：ラベルデザイン変更
├── 承認者：A社 田中様
└── 旧版在庫：v3.1ラベル 残500枚

v3.1（2024/07/15 適用）
├── 変更内容：容器キャップ色変更（白→シルバー）
└── ステータス：在庫消化中

v3.0（2024/04/01 適用）
├── 変更内容：配合変更（香料グレードアップ）
└── ステータス：製造終了

This makes it possible to track "which version was used for production" and "when it was switched".

Key functions of ERP for OEM

We have summarized the functions that OEM manufacturers should check when choosing an ERP.

Three points for ERP implementation in OEM factories

1. First, understand the "gross profit margin by customer"

To break away from "being busy for no reason," first understand the gross profit margin by customer.

【顧客別 粗利率の例】

A社：粗利率 27.8%　→ 優良顧客
B社：粗利率 15.2%　→ 条件見直し検討
C社：粗利率  8.5%　→ 赤字リスクあり

Once you know this, you can make

• "reviewing transaction terms with Company B"

• "proposing whether Company C's specifications can be simplified"

and other strategic decisions.

2. Thoroughly manage customer-supplied materials and version control

Many troubles in OEM manufacturing occur because
"the wrong materials were used" or "it was made with old specifications"
.

By managing the receipt and issuance of customer-supplied materials in the ERP and clarifying the version, such mistakes can be prevented.

Accidents like "Company A's label ending up on Company B's product..." are fatal for an OEM factory entrusted with a brand.

3. Consult a professional for implementation

Honestly, ERP implementation for OEM manufacturers is more difficult than for ordinary manufacturers.

• Business rules differ for each customer

• It is necessary to ensure consistency with existing Excel management

• Training costs for on-site staff are incurred

That is precisely why I recommend consulting with an ERP implementation consultant.

Rather than trying to force it on your own amidst a talent shortage, it is often faster and cheaper to implement by borrowing the power of experts.

Summary

Let's organize the key points from this session.

Conclusion

"Is Company A's work really profitable?"

Being in a state where you can answer this question with numbers.

That is the true purpose of an OEM factory implementing an ERP.

「A社さんは粗利率28%ですね」
「B社さんのラベル、残り500枚なので発注依頼お願いします」
「C社さんの仕様、v2.3で間違いないですね」

A workplace where such conversations can happen naturally.

"Creating a customer's brand" is actually a very proud job.

Why not use a system to firmly support that work?

📢 ERP Series, Summary So Far

The ERP series we have delivered over six parts.

• 👉 Part 1: Order Management ERP — Visualizing Cash Flow

• 👉 Part 2: Product Registration/SKU — Tips for Avoiding Failure in Product Master Design

• 👉 Part 3: Inventory Management/Warehouse Management — Causes of Inventory Mismatches and Countermeasures

• 👉 Part 4: Client Registration — Solving the "Where do I send the invoice?" problem

• 👉 Part 5: Manufacturing ERP — How the Bill of Materials (BoM) made costs visible

• 📍 Part 6: ERP for OEM Factories — This is where we are now

"I want to know more about this part!"
"How would this apply to my company?"
If you have any questions like these, please let us know in the comments.

We will continue to provide useful information on DX and ERP implementation for small and medium-sized enterprises!

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📌 References and Sources

• Weekly Shogyo "Trends, Market Size, and Sales Scale of the Cosmetics OEM Industry" (February 2024) https://www.syogyo.jp/matome/2024/02/post_037722

• Yano Research Institute "Survey on the Confectionery Contract Manufacturing (OEM) Market (2024)" https://www.yano.co.jp/press-release/show/press_id/3622

• Fortune Business Insights "Electronics Manufacturing Services (EMS) Market Size"

• Organization for Small & Medium Enterprises and Regional Innovation, JAPAN "Survey on DX Promotion in SMEs (2024)" https://www.smrj.go.jp/research_case/questionnaire/