Contract Manufacturing: Cigarette OEM
Hizbullah Shoukat November 24, 2020 No Comments
Maximizing production capacities as much as possible is important for investment-heavy cigarette manufacturers; and OEM is a handy tool to achieve just that.
Apart from the largest multinationals and sheltered state monopolies, almost every cigarette company engages in OEM (a.k.a. contract manufacturing), not only making their own products but also manufacturing cigarettes for other brand owners. Expensive machinery ties up substantial investments and is costly to maintain. It therefore should be utilized as much as possible instead of having it sitting idle. Besides, OEM provides welcome additional income that helps keep a cigarette firm in the black – and workers in their jobs. While the focus primarily may be on proprietary brands, OEM can contribute anywhere from a few single-digit percentage up to as much as half of annual revenue.
BMJ Industries UAE
The United Arab Emirates have matured into quite the hub for tobacco products manufacturing owing not only to a perfect geographical location with easy access to Asia, Africa, and the Middle East. Established in 2000, BMJ Industries FZE (BMJ) is one of the country’s largest privately owned cigarette companies, according to the firm’s sales manager, Malik Warrayat. ”We became involved with OEM manufacturing quite a few years back when we received increasingly frequent inquiries from other companies who wanted the same quality production for their own brands that they had recognized in ours,” he recalled.
However, Warrayat insisted that OEM was more of a by-line than a major revenue stream, as most Tobacco Manufacturing companies focus was and still remains its broad range of proprietary brands. “We only engage in OEM business with clients who already are in our business network and we regard contract manufacturing more as a general support aspect rather than it being a defining part of our business strategy,” he said. As such, the OEM segment currently constitutes for only around 5% of manufacturing company’s annual production output, the lion’s share of 95% being contributed by the firm’s own brands. They also disclosed that all of the company’s current OEM clients are located “outside of the UAE”. He added that “most of them don’t have production facilities on their own, which is why they approached us in the first place.”
Cigarette Manufacturing Company, BMJ’s particular strength was advanced, popular formats such as Fresh Pack and capsule cigarettes, “all of which are produced in-house, including single and double capsule filters.” For development and design the company has partnered with a media agency lending creative talent. Within Dubai’s Jebel Ali free port zone, BMJ furthermore operates a fully-staffed logistics center to facilitate exports.
The company’s OEM customers are a diverse lot, too. Some already have well-established brands and prefer to either furnish the Cigarette manufacturing company with all raw materials needed for production or expedite meticulously detailed specifications.
Does IZIPART facilitate contract manufacturing?
This is where IZIPART’s services come into place. IZIPART has global supply options on one one platform for genuine, OEM & aftermarket for tobacco manufacturing companies. IZIPART continues to serve multiple regions such as the US, eastern europe, middle east and African countries. What separates us from other b2b’s is the customer service and procurement management offered to our clients. From the start of one enquiry, we process and take over all communications with the best suitable supplier, ensure guarantee, quality, delivery time and all payment management.
Via IZIPART we were able to access multiple supply solutions for an urgent spare part quickly and easily. The communication and purchase process was simple and transparent. We will definitely use IZIPART next time!
Al Fakher, UAE
By:Head of Maintenance & Procurement
Even though BMJ’s capacity is considered quite large, the company sometimes is forced to outsource “to other factories” in order to produce its own brands – but of course under close supervision from BMJ’s quality control team. Payment security is an important issue for BMJ as well as seen in various Tobacco Industrial Manufacturing Companies, the company insisting that full payment be made in advance. “However, we sometimes may agree to an arrangement of 50% upfront payment and 50% prior to shipment,” they revealed.
The process of omitting illicit cigarette trade
But how about unwittingly playing part in the illicit cigarettes trade? It is advised that you follow strict due diligence procedures to ensure that the products we manufacture on behalf of customers are distributed and sold legitimately in the destination market. For this, the client must provide us with trademark registration both in the UAE and in the destination of the shipment, documentation proof of tax payments and customs declarations. Prospective customers unable to show such documents are outright rejected. In any case, the company’s policy of primarily focusing on OEM business from long-term customers serves as an additional filter to keep out unethical parties.
How KT International (Bulgaria) deals with Cigarette OEM: Contract Manufacturing
Bulgaria’s KT international (KTI) was established in 2008 after the privatization and break-up of the former state monopoly enterprise. “Even though a relatively young company, we are proud of our heritage and expertise that can be traced back to 1872,” explained KTI’s corporate brand manager, Milena Stoyanova. Alas, not only expertise was inherited from the state monopoly but also “very old and outdated facilities.” It took the company a couple of years and a multi-million euro investment to construct a new production complex and update aging machinery. That at first put OEM a little on the backburner.
“Although we had OEM clients from the beginning, we didn’t really pursue that business segment very vigorously,” Stoyanova recounted. “Our initial focus was on developing and modernizing the plant and establishing our own brands, ‘The King’ and ‘Corset’, in the market.” The OEM aspect only took on a more pronounced role once the new factory had become fully operational by 2014. “The expanded capacity that came with it allowed us to crank up our OEM business; and certainly our growing reputation for customer service and quality production also assisted us in attracting credible clients,” she said.
Stoyanova claimed that in 2019 a not so shabby “20% of our annual [production] volume was derived from contract manufacturing.” She also disclosed that all of KTI’s current OEM clients are international, the majority of them based in western and eastern Europe. “But we also work with some clients from MENA and Asia.”
Companies approaching KTI for OEM services appreciate the company’s straight forward sense of doing business. “Some of them are private label brand owners who do not have their own production facilities,” Stoyanova divulged. Still others contact KTI to manufacture specific cigarette formats which their own facilities are not set up to produce. “We offer eight different pack formats including the world’s first fully TPD2-compliant shell pack super slim format,” Stoyanova said, adding that KTI’s strict adherence to international and European regulations, track and trace, and international quality standards is another reason that has made the company “a contract manufacturing partner of choice”.
“Clients are attracted by our expertise in working with multiple raw tobacco grades and our in-house master blender, who has over 40 years of experience developing blends to customer specifications,” Stoyanova said. That also ties in nicely with the aspect that KTI is a major tobacco buyer. This, according to Stoyanova, enables the firm to purchase the desired grades right at source and worldwide. Moreover, KTI offers OEM clients a comprehensive set of supplementary services ranging from brand and packaging development and design to shipping, customs documentation, insurance and warehousing. And, to ensure product consistency and consumer value on the filter side, a dedicated cigarette filter facility was installed last year, producing not only standard filters but also capsule and flavored thread filters.
Yet, KTI would of course not just accept any random client without vetting them first. Thorough background and legitimization checks are necessary practice in order to ensure that all OEM customers are credible, legal and sustainable business partners. “We require from our OEM clients quite a list of documentations, such as (business) licenses, certifications, and trademark registrations, for example” Stoyanova pointed out. The company’s legal team would then validate all supplied documents while also ascertaining that the prospective OEM customer meets all financial requirements.
source: https://www.tobaccoasia.com/features/cigarette-oem-extra-revenue-never-hurts/