What's the Difference between ODM and OEM?

Have a great idea for a product but don’t know how to design and manufacture it? Or do you have a stellar product design but do not have the production capacity necessary to make the final product?

In both scenarios, you will need to partner up with an ODM or OEM that can help you with manufacturing a product that you can then launch in the market.

But before you can go ahead with any of that, it is good to understand OEM vs ODM differences so you can decide on the ideal partner for your requirements

What is an Original Device Manufacturer (ODM)?

Companies that want to design, create, manufacture, and market products are known as product companies.

If a product company doesn’t have the necessary resources or capabilities to manufacture the product, ODM manufacturers can help them with the appropriate licenses or even manufacturing expertise. Original Device Manufacturers are companies with in-house capabilities and equipment to design and manufacture products ready to be taken to the market.

ODMs mostly produce white-labeled products and build a portfolio of these products. Product companies can go through this portfolio and choose the products they want. The ODM will then manufacture the product with the company’s branding.

Now that you know what an ODM is, let us look at the pros and cons associated with the ODM model.

Pros

• Ability to produce a highly cost-effective facility

• Ability to scale up operational efficiency with experience

• Opportunities to increase sources of revenue rapidly

• Access to high-quality products

Cons

• The upfront costs associated with becoming an ODM are high

• Need to create additional R&D and marketing budgets to make revenue from the manufactured products

Example

XYZ is a company that sells mobile phones in the Asia Pacific region. It is a large and internationally renowned company with a reputation for selling one-of-a-kind smartphones. The company aims to launch a new flip-style smartphone, however, it doesn’t possess the engineering capability to do so and is trying to find suppliers to partner with.

Thus, XYZ approaches ABC, an ODM specialising in smartphone design and manufacturing including flip-style smartphones. ABC agrees to manufacture the new line of smartphones with XYZ’s branding so that the new product can be launched and promoted as planned.

What is an Original Equipment Manufacturer (OEM)?

While ODMs manufacture products based on their designs, Original Equipment Manufacturers or OEMs can manufacture products based on the specifications and customisations of product companies.

If a product company has the necessary expertise and resources to ideate a new product and conduct market research but lacks manufacturing capacity, it will approach an OEM. OEMs will take the specifications given by the product company, maintain an inventory of raw materials, take over the complete production process, and deliver a product ready for the market.

OEM businesses can produce a new product based on the requirements and specifications of the client or even customise a product from their range, depending on the task. In some cases, where OEMs have design expertise, they may also suggest additional improvements to the design and go ahead with production accordingly.

One of the most important things that one must remember in this situation is that the client will retain the IP rights in most cases, and will only share it with OEM if the latter has contributed to more than manufacturing.

Now let’s look at some of the pros and cons associated with the OEM business model:

Pros

• Lower production and operational costs

• Ability to increase customer satisfaction levels

• Maintain high quality and good reputation in products

Cons

• No share in IP rights unless there is a substantial contribution to product design

• Requires extensive resources to set up an appropriate facility

Example

Let us consider an example similar to the one we discussed before. XYZ is a mobile phone company that promotes and sells smartphones. XYZ is known for its unique product lines and has a reputation for putting out high-quality products on the market. However, what it has in R&D research, it lacks in terms of manufacturing capacity.

As a result, XYZ approaches ABC, a renowned OEM with a lot of production capacity and an appropriate facility. ABC has gone through the product designs and specifications set down by XYZ and has agreed to produce smartphones with XYZ’s branding that are ready to be launched in the market.

OEM vs ODM: The Primary Differences

Now that we have looked at the definition of ODM vs OEM, and the pros and cons associated with both business models, let us draw up a comparison between the two and highlight the differences in the form of a table.

It is good to consider all the differences between the ODM and OEM models before settling on one that would be a good fit for your brand.

What to Seek in an OEM and ODM Partner?

Apart from the information that we have discussed so far about both business models, you should also consider some of the following factors when choosing an OEM vs ODM partner for your brand.

Cost and Pricing

Manufacturing costs are likely one of your top considerations when choosing an OEM vs ODM manufacturing partner to associate with. Partnering up with a company that is way out of your budget will only reflect poorly on your bottom line.

Instead, ensure that the OEM or ODM partner you select offers you a cost and pricing structure that does not have to make you compromise on your requirements or quality at the expense of a better bottom line.

Quality Control

With an ODM, you might have lesser control over your manufacturing processes and quality, but even then you can set down some of the key parameters they need to adhere to in terms of quality.

On the other hand, an OEM will give you more control in determining the quality and specifications of the final product. But in both cases, you must list down the most crucial quality protocols you want to follow in your products.

Then, ensure that the company you partner with can exercise those protocols and have a track record of delivering consistent quality.

Capabilities

A crucial factor that you must consider when determining the right OEM or ODM partner for manufacturing your products is whether they have the necessary skills and resources. These capabilities can include the customisation options offered by the company, scalability, and the availability of the necessary equipment.

What’s more, you must also consider the bandwidth and turnaround times associated with their manufacturing processes and see if they align with your requirements.

Supply Chain Management

Partnering with an OEM or ODM also entails considering whether they have a comprehensive and efficient supply chain process in place. At the same time, determine whether they can adhere to the industry standards.

At the same time, assess whether the OEM or ODM has good and functional supplier relationships, and leverage effective sourcing strategies. This ensures that you don’t have to endure any unforeseen delays and can avoid potential disruptions.

Experience and Expertise

Before you sign a major contract to manufacture products for your brand to an OEM or ODM, it is important to assess whether they can execute it well. To determine this, it is a good idea to know more about past successful projects and positive references that highlight their experience.

Also, ask more about the necessary and desirable industry certifications that can demonstrate the competence of the OEM or ODM, and highlight their credibility and expertise.

Summing Up

By now, you must have a foundational understanding of OEMs and ODMs and the many pros and cons they can offer if you partner with them. For product companies with the capability and resources required to launch and promote products in the market, OEMs and ODMs can bring in the necessary expertise and production capacity.

For the rest of theorder fulfillment process, it is a good idea to partner up with an experienced company like PACK & SEND that can help you navigate it seamlessly. Get a quote and contact us to discuss your requirements and get started.