Views: 0 Author: HONGHANG Publish Time: 2025-10-15 Origin: Site
Procurement is more than price tags and purchase orders. It's the heartbeat of margin, on-time delivery, product quality, and customer satisfaction. For aftermarket sellers, large fleet operators, and OEM-tier suppliers, shaving a few percentage points off procurement costs compounds quickly — think better margins, more competitive pricing, and reinvestment into R&D or marketing. What most companies miss is how OEM/ODM partnerships — when used strategically — can remove hidden cost layers rather than simply negotiate price down.
OEM (Original Equipment Manufacturer): you buy parts produced to your spec, often under your brand, where the manufacturer follows your drawings and QA processes.
ODM (Original Design Manufacturer): the manufacturer takes design responsibility and offers a ready or semi-custom design that you can brand.
Why this matters: OEM routes give tight control but can be costlier in design and tooling; ODM routes often save on design costs and speed time-to-market but require strong IP and quality agreements. Picking the right model for the part, your volume, and your market position is step one for cost reduction.
To see real-world examples of OEM and ODM models in action, check out Honghang Tech's services, where we specialize in customized auto parts solutions tailored to your needs.
Unit Cost of Goods (COG): material, labor, tooling amortization.
Logistics & Freight: ocean vs air vs land, last-mile complexity.
Inventory Carrying Cost: warehousing, obsolescence, capital tied up.
Quality Failures & Returns: warranty claims, rework, recalls.
Administrative Overhead: purchase order processing, testing, audits.
Regulatory & Tariff Burdens: import duties, certifications.
Think of procurement like an iceberg — unit price is the visible tip; the real cost is the huge mass below the surface.
OEM/ODM partners can deliver cost reductions in multiple ways: engineering-led design optimization (reducing material use), better localized production (lower freight/lead times), shared tooling amortization across SKUs, consolidated logistics, and even shared forecasting that reduces inventory. Importantly, when you involve OEM/ODM early in the product cycle, you unlock design-for-cost opportunities that are often impossible to achieve through downstream negotiations alone.
For instance, partnering with an experienced manufacturer like Honghang Tech can help implement these strategies effectively. Learn more about our partnership models.
Don’t pick a partner solely on price. Use a scorecard that balances: capability, financial health, quality history, responsiveness, IP controls, and cultural fit. Request reference projects similar in complexity and volume. Ask for factory tours (virtual if needed) and sample production runs. A well-qualified partner reduces surprise extra costs.
Here is a reliable supplier like Honghang Tech, a source manufacturing factory with many years of production and manufacturing experience. Visit our website to explore our OEM/ODM capabilities and request a factory tour.
Invite your OEM/ODM to the table during concept stage. DfC is where engineers ask: can we reduce part count? Use snapped-together assemblies rather than fasteners? Choose a different grade of steel or a composite that’s cheaper to stamp or mold? These choices change the cost structure permanently. Remember: negotiating a lower price after full design lock is marginal compared to redesigning for cost early.
Fewer SKUs = simpler inventory, larger batch sizes, and better pricing. Modular designs let you use the same base part across models or variants with simple clip-on covers or inserts. Ask your ODM for modular tooling strategies — one core mold, multiple finishing options — which brings down tooling amortization dramatically.
Good forecasting (with realistic range and committed floors) unlocks scale discounts. Use flexible contracts — tiered pricing, rolling forecasts, and purchase windows — that protect suppliers while allowing you cost advantages from volume consolidation.
Quality costs money upfront but saves far more later. Work with OEM/ODM partners to standardize test plans, implement in-line inspection, and set mutually agreed failure thresholds. Shift-left on testing: a small additional test step at source often prevents bulk returns that are exponentially more expensive.
Nearshoring can reduce freight time and variability — lower buffer stock needed and faster inventory turns. Consolidating shipments across multiple SKUs reduces per-unit freight cost. Negotiate Incoterms smartly — who pays what, and where risk transfers — to avoid unexpected landed cost spikes.
Right-sizing packaging reduces volumetric weight and damage rates. Work with your OEM/ODM to design returnable totes, collapsible crates, or nested packaging to lower inbound/outbound costs. A best-practice reverse-logistics policy reduces reclamation costs and speeds refurbished-part circulation.
Cost-Plus: transparent but can discourage efficiency. Good when trust and cost visibility are needed.
Target Costing: you set the market target, supplier designs to that cost. Best when supplier has strong design capabilities.
Gainshare Models: supplier and buyer split achieved savings. Great for incentive alignment.
Choose the model that aligns incentives: if your supplier owns design, target costing or gainshare often delivers the best outcomes.
Background: A mid-sized aftermarket brand selling LED headlamp housings faced high per-unit costs and long lead times. They had lower volume than big OEMs, so tooling and freight were painful.
ODM Strategy Used: The brand partnered with an ODM that offered an existing modular headlamp platform. Together they:
Consolidated three SKUs into one base housing with two interchangeable bezels.
Reduced injected plastic thickness where structural load wasn’t required.
Shifted certain metal clips from stamped stainless to plated carbon steel with corrosion coating.
Reworked packaging into nested trays, cutting volumetric freight.
Results:
Unit manufacturing cost reduced by 14% through material and design changes.
Logistics and packaging savings added another 6% reduction.
Tooling amortization spread across higher shared volumes shaved 2% more — total 22% cost reduction.
Takeaway: Early ODM involvement + SKU consolidation = rapid, meaningful savings.
If you're looking to achieve similar results, contact Honghang Tech for a consultation on ODM-driven cost reductions.
Background: A national fleet operator needed brake pads and filters for thousands of vehicles across regional depots. Previously they used multiple small suppliers causing small-batch premiums.
OEM Strategy Used: They negotiated a multi-year OEM agreement with a tier-1 manufacturer:
Committed minimum annual volume across regions.
Centralized QA and serial-number traceability for warranty management.
Implemented hub-and-spoke logistics: bulk shipments to regional hubs, cross-docking to depots.
Included a gainshare clause: supplier reinvests a portion of efficiency savings into a supplier-managed spare pool.
Results:
Price-per-unit decreased by 10% from volume leverage.
Logistics rework and inventory carrying costs dropped 5% through hub consolidation.
Reduced warranty claims and faster RMA processing led to improved uptime and indirect savings of ~3% — total ~18% effective cost reduction.
Takeaway: Volume commitments + logistics redesign with an OEM saved both direct and indirect costs.
Saving costs isn’t just about the cheapest quote. Watch for:
IP leakage with ODM designs — secure contracts and IP assignment.
Change-order costs — unclear specs lead to expensive engineering changes later.
Quality drift over time — periodic audits, sample testing, and KPIs help.
Regulatory compliance — certifications needed for different markets can add unexpected costs.
Currency fluctuation — hedge or agree on currency clauses in long-term contracts.
Always build contingency and a clear change-management process into any OEM/ODM agreement.
Draft thorough contracts: define ownership of tooling, rights to design improvements, NDA terms, and responsibilities for certification. Include clear commercial terms for change orders — time-and-materials vs fixed-cost redesign — to avoid surprise invoices.
Track a balanced scorecard:
Unit Cost (COG) — baseline and target.
Total Landed Cost — includes duties, freight, and brokerage.
Inventory Turns & Days of Supply — how efficiently stock is managed.
On-Time-In-Full (OTIF) — supplier reliability.
First Pass Yield & Defect Rate — production quality.
Cost Avoidance & Cost Reduction — distinguish between one-time avoidance and permanent unit reductions.
Short-term metrics (lead time, price variance) vs long-term (supplier innovation contribution, lifecycle cost) both matter.
“We’ll lose control if we hand design to an ODM.” — Use strict specs, milestones, and retain approvals on critical dimensions. Use IP clauses and stage gates.
“Volume commitments are risky.” — Negotiate flexible floors, rolling forecasts, and exit clauses. Consider co-investment in tooling with amortization linked to actual volumes.
“Quality might decline.” — Define quality gates, acceptance criteria, and penalties. Run initial pilot runs and audits.
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On-page tips: For an example of effective on-page SEO in the auto parts industry, explore Honghang Tech's site, which features detailed OEM/ODM comparisons and downloadable resources.
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Reducing auto parts procurement costs is rarely about a single tactic. It’s a systems game: design, sourcing model (OEM vs ODM), logistics, and commercial models all interplay. By bringing OEM/ODM partners in early, aligning incentives, and redesigning around total landed cost — not just unit price — companies achieve sustainable savings, faster time to market, and better product quality. Ready to start? Identify the top five SKUs that cost you the most per year and start a DfC pilot with a trusted OEM/ODM like Honghang Tech. Visit our website to consult our auto parts experts and get started today.
