Manufacturing 101 – are you an OEM or an ODM?

I often hear factories’ representatives introduce themselves as “we are an OEM manufacturer”, but during the conversation, I realize that the factory is actually an ODM without real OEM capabilities.

The most common mistake I see is when ODMs state they are OEMs, but the truth is that they do not have mechanical design development ability and rely on the real OEMs for that.

Hence, it is essential to know the differences between the two types of manufacturing to be able to make the most informed decision about future partnerships with potential contractors.

 

How to spot the differences

An ODM (stands for Original Design Manufacturing) designs and produces a product to sell to buyers, which may use their own brand to market it.

The buyer can make some customization requirements such as colors or software, but these capabilities are rather limited. On the other hand, this type of manufacturing saves a lot of costs to the buyers while enjoying the benefits of “owning” a product.

The ODM service is often categorized as a “private label” or “white label”. The white label means few buyers retail a similar or same product, while private labeling involves selling finished products that are produced and sold exclusively to a particular customer.

 

 

To sum up, the essential ODM basics are:

• An ODM is a company that designs and manufactures a product which is specified and eventually branded by another company for sale.
• An ODM is a business model that owns and/or designs in-house the products that are branded by the buying firm.
• This model is especially used in international trade, where a local ODM is used to produce goods for a foreign company that sees some advantage in the transaction, such as low labor inputs, transport links, or proximity to markets.

 

An OEM or “Original Equipment Manufacturing”is used to describe a manufacturer that creates an item, solely based on the buyer’s specifications. An OEM usually doesn’t design products for their own sales which makes it an important factor when a buyer decides to look for an OEM to save costs on labor and manufacturing facilities with flexibility in quantities. In a nutshell, an OEM company is defined as a company whose goods are used as components in the products of other companies, which on their side, sell the finished item to end consumers. 

 

 

To sum up, the crucial OEM points of understanding are:

• An OEM or “Original Equipment Manufacturing”is used to describe a manufacturer that creates an item, solely based on the buyer’s specifications. An OEM usually doesn’t design products for their own sales which makes it an important factor when a buyer decides to look for an OEM to save costs on labor and manufacturing facilities with flexibility in quantities. In a nutshell, an OEM company is defined as a company whose goods are used as components in the products of other companies, which on their side, sell the finished item to end consumers. 
• In the computer industry, OEM may refer to the company that buys products and then incorporates or rebrands them into a new product under its name.
• OEMs are mostly focused on business-to-business sales, while VARs are associated with public marketing and/or other end users.

Let’s look at the examples 

Although these two types of manufacturing are mostly common in the technology and electronics fields, they are not limited to these, but many of them operate in other industries – like automobile construction, health care, entertainment, etc. To understand the concepts thoroughly, I have provided some examples of OEM and ODM manufacturing that include top tier companies in their respective fields.

OEM examples:

• Microsoft – an example of an OEM with its Windows software. This software is provided to computer companies such as Lenovo, Asus, Dell, HP, and many others.
• Foxconn – an OEM for Apple. While Apple invests primarily in R&D and innovation, they provide all the necessary information to Foxconn to produce their products from scratch.

ODM examples:

• Walmart uses ODM services for brands like ‘ONN’ in electronics and ‘Great Value’ or ‘Sam’s Choice’ in the food sector.
• COMPAL – provide ODM services for laptops, desktop PCs, and other electronic products to famous brands.

 

Know your needs

Based on all these specifics, it is fair to say that each project needs to consider many different details and requires detailed evaluation. Here are some of the fundamental factors you should consider. Depending on your business, this list can be further expanded with more specific details.

• Unit price – depends primarily on complexity and volume.
• Injection and molding – when using OEM services, it is paid and owned by the buyer, whereas the ODM services are funded and owned by the supplier.
• Development time – OEM projects require much more development and will result in 4-6 months, while an ODM order can often be completed in 1-8 weeks. As you can see, speed plays a significant role here.
• Product specification – by OEM, it is provided by the supplier and can be modified by the buyer, whereas by the ODM, it is provided by the buyer.
• Intellectual property – In OEM, the buyer owns the IP, while in ODM, it is owned by the supplier.

To conclude, it is imperative to define your needs when evaluating the type of manufacturer you’ll require for your business or future product. This will help you determine the best option (or maybe several options) for either an ODM or an OEM to work with. You can make the most informed and optimal decision by understanding the details and in-depth structure of these two types of manufacturing.

So, now I believe that it will be easier for you to decide.

Are you looking for an OEM or an ODM?