ODM and OEM are common terms in manufacturing. Although both of these terms sound pretty similar, they are completely different from each other. Manufacturers operate in different capacities. Sometimes, they design and manufacture products on their own. At the same time, others use custom designs to manufacture products.
Manufacturers fall into two categories: ODM and OEM. We’ll explore each in more detail below.
ODM Definition: What does ODM mean?
The term ODM refers to the Original Design Manufacturer. An ODM is a company capable of designing, developing, manufacturing, and selling its products.
The ODM model works as both a designer and manufacturer of products. ODM model manufacturers can accommodate your private label request.
OEM Definition: What is OEM meaning?
OEM means Original Equipment Manufacturer. OEM companies will produce products according to the client’s needs (client’s design & brand).
When you use OEM manufacturers, you need to design the products yourself. The OEM business will provide you with expertise and labor to push the manufacturing process.
You can think of an OEM as a handyman. When you present your product idea to the original equipment manufacturer, they will assist you in turning your idea into reality.
OEM vs. ODM: A Guide on Key Differences
The business models of ODMs and OEMs have evolved over time. To put it simply, ODM products are limited to a particular design, whereas OEM products can be customized to meet any specification.
Do you want to know more about ODM and OEM here? Let’s look at the details below to understand this better.
How does the ODM company work?
As we know, the ODM meaning is Original Design Manufacturer. ODM refers to all the companies that provide manufacturing services. An ODM business leases its designed products to brands on a white-label or private-label basis.
ODM businesses help customers save more on product research and development expenses.
When you choose the right contract manufacturing partner for ODMs, you don’t have to spend time and resources on product design here.
If you want to start your business quickly, ODM is preferable. Use the ODM manufacturer to customize your own brand name to products. This business model can shorten your time to launch a product and get it to the market. Finding a reliable manufacturer to make the private label product will be wise.
Pros of ODM
· Reduced costs of product development
The ODM company doesn’t need you to design your product. ODM manufacturing can save you from spending money on prototype design. Expenditures on these business activities cost hundreds or thousands of dollars on average. And by eliminating or vastly reducing product development expenses, importers can focus more on marketing strategies.
They are choosing an ODM manufacturing business to cooperate with means having access to finished products with engineering prowess and manufacturing expertise. Moreover, the minimum order requirements are usually less than OEMs.
· Tried and tested products
Tech giants in the industry have already contracted most ODM businesses. That means you will get to work with manufacturers with extensive experience. They have tested product manufacturing processes and are experienced in dealing with different products.
· Trustworthy and reliable products
The main advantage is that ODM manufacturing can serve as a one-stop solution. Working with an ODM eliminates the need to subject your potential products to extensive testing. In addition, you do not have to worry about obtaining licenses. ODM companies have completed all these steps before putting their products on the market. It is more trustworthy to work with an ODM if you wish to sell electronic products since you will need several types of certifications to sell your products.
Cons of ODM
· The lack of customization
ODM doesn’t guarantee you a unique product for your brand. Due to the lack of customization options in ODM manufacturing.
Using private labeling to overcome this issue requires clients to invest more time and money.
· More competition on the market
At the same time, ODM business models usually have higher competition in the market. Even though ODM requires less start-up capital, price competition tends to be steeper, resulting in slimmer profit margins. Moreover, opting for legal protection is also difficult in this case.
How does the OEM business model work?
OEM businesses provide original equipment manufacturing. OEM works as a handyman for your brand’s operations. You need to provide a product idea, and the original equipment manufacturer will assist you in turning your idea into a manufacturing process. Apple, Adidas, Nike, and Samsung are examples of OEM business models.
Pros of OEM
Do you want to know what benefits your brand can get by choosing OEM manufacturing? Here are the pros of OEM products you must know:
· Better creative control
Even though an OEM manufacturer can advise you on optimizing your production process, the company will not interfere with your product design process or patents. Therefore, you will be able to have a greater degree of creative control over your products.
· More competitive service
OEMs usually have a network of suppliers to work with. They can buy the required material in bulk from those suppliers at a competitive price. Consequently, you can get more competitive service rates from OEM businesses.
· Enhanced cost-efficiency
Working with an OEM can be cost-efficient as you can cut costs on buying production equipment and its maintenance. Moreover, an OEM model can reduce production and material acquisition costs. Additionally, you can negotiate a specific price per set of manufacturing for a certain period. This practice protects you from offensive price increases.
Cons of OEM
· Requires more time and resources to bring your products to market
OEMs are manufacturers that other businesses hire. They provide manufacturing services for buyers’ specifications. Therefore, the minimum order requirements in this manufacturing model are usually higher. Besides that, OEM manufacturing also has associated overhead costs. These costs are associated with market research and product design. Moreover, ROI cannot be guaranteed.
Business Cases of ODM / OEM
To understand them, we have presented some business cases for OEM and ODM. Do you want to know about them? Let’s look at the real-life examples below for a better understanding.
1. OEM vs ODM: The business case for OEM
ODM businesses operate on white-label manufacturing principles. For instance, Apple is a popular tech company that invented and designed the iPhone. Apple hired Foxconn as its OEM supplier.
Foxconn factory provides OEM services to produce smartphones for Apple. This business model is exclusive to Apple. However, Apple carefully manages its smartphone production through its contracted manufacturer.
2. OEM vs ODM: The business case for ODM
Production of third-party phone chargers is another business case for ODM products. For instance, if you search for phone chargers online. You will notice the product is available from different manufacturers yet has the same design. Even though the chargers have the same basic design, they are different in colors, branding, packaging, etc., as per the specifications of their seller’s needs.
OEM vs. ODM: Which Business Model Is More Suitable for You?
Both OEM and ODM business models come with their pros and cons. However, choosing the most suitable business model for your brand comes from your available resources.
For instance, do you have a research and development budget? Or do you have enough time to spend on market research and creating a business prototype? You can choose OEM as your ideal business model to create a fresh product.
On the other hand, if you want to launch your products with a limited budget quickly, then ODM is your option.
OEM: When should you choose OEM?
For example, you should choose OEM if you want more creative control over your products. If you wish to introduce a unique product to the market with little competition, OEM is also a suitable choice. By utilizing this business model, you can design your product and launch it on the market. Most importantly, this is an appropriate solution for brands waiting for a rational time-to-market strategy.
When working with OEMs, it is always advisable to manage your expectations. It is not enough to hand over the design of your product to OEMs. OEMs are not responsible for researching product compliance and legalities. Thus, before developing any innovative product in this manner, it is essential to conduct market and legal research.
ODM: When should you go for ODM?
As an alternative, if you do not have an adequate budget and passion for product design and have limited resources. If this is the case, you should consider ODM.
If you are working with an ODM manufacturer, ensure that you negotiate the terms of your contract to protect your supply chain. Consider negotiating favorable terms such as liability, payment terms, production costs, etc., to enhance your protection.
To put it simply,
ODM means original design manufacturer. This type of supplier is skilled in both design and production.
ODM: You provide your logo, the ODM provides the products, and the ODM personalizes them for you.
OEM means original equipment manufacturer. This type of supplier possessed experienced skills to produce a new product.
OEM: You provide the design, and the OEM provides production skills to turn your design into mass production.
That’s all for OEM vs. ODM. Both of these business models are suitable for different scenarios. The final call between OEM and ODM depends on your business needs and preferences. You can choose both of them, but it is important to know their basics and understand your needs before making the final decision.