OEM vs ODM: What are the Differences between OEM and ODM?
OEM and ODM are two important terms widely used in the manufacturing sector. Often you will see people trying to compare these two types like using OEM vs ODM. Both these terms are correlated and it can be confusing at times. Some of the startup companies seldom have the resources to design and manufacture products. In such a scenario, these companies outsource the production of certain components to contract manufacturers, also known as the OEM and ODM manufacturing firms.
What is OEM?
OEM or the Original Equipment Manufacturer designs a product based on the buyer’s specifications. When a company manufactures an OEM product-the designs, functions, colors and materials can be customized according to the requirements of the buyer. OEM manufacturers seldom design any product on their own. All the products are designed according to the data provided by the buyer. OEM companies are only responsible for manufacturing these products. Buyers can then sell the finished products in their own brand name. The services that the companies provide are also refer to as OEM services. Usually the companies are private label manufacturers who are able to print logo on the product for you in the product that they manufactured. In electronics, Foxconn is the OEM company that provides electronic manufacturing services to Apple, where Foxconn manufactured all the iphones for Apple. In this case we also call Apple outsourcing manufacturing to Foxconn. In fact, Outsourcing to China is a common practice in the west due to the cheap labor in China manufacturing.
However, it is quite pertinent to choose a reliable OEM manufacturer as you are providing confidential product spec and blueprints to another company.
What is ODM?
ODM or the Original Design Manufacturer designs and manufactures products on their own. These companies are in charge of R&D, concepts and manufacture of the products. Many companies approach an ODM when there is a dearth of resources to build product designs. When you approach an ODM company for services, the product designs and specifications are chosen by the company and there is hardly any specification that can be altered largely. However, some minor changes can be made if it is a bulk order.
OEM Vs ODM
OEM companies manufacture products based on the designs provided by another company. The OEM manufacturer only manufactures what the buyer requires. In this manner, both the companies benefit from the strength’s of one another. In some cases, companies seldom have the required machineries to manufacture high volumes of products within the stipulated time frame and outsourcing the production may be cheaper compared to in-house production. So these companies outsource the production to an OEM company.
On the other hand an ODM company creates the designs and manufactures the products themselves. These products are often known as Blank Products or White Label. It can be rebranded and sold by the buyer company as their own products.
OEM Vs ODM- Difference in Production
In most of the OEM productions, buyers usually demand the production of specific components or parts of machines which are based on particular designs. These product parts are assembled and sold by the buyer under a trademark. Most of these products are available at competitive price rates as the costs incurred from the OEM manufacturing process are comparatively lower.
On the other hand, ODM companies produce the type of products that you require. But only a negligible change can be made in these products. However, buyers can benefit from such suppliers as there is hardly any need to design the products and spend time on R&D. Buyers can utilize the expertise of the ODM companies which manufacture goods in bulks for the benefit of smaller companies. There are basically two types of categories in ODM manufacturing namely the private label and white label. Private label products are finished products that are sold to a particular retailer. On the other hand white label products are generic products that are sold to different retailers who sell them under different brand names.
OEM Vs ODM- Components and Complete Products
OEM products are basically components that are sold by the manufacturer based on the buyer’s specification where as ODM products are finished or pre-designed products that will be sold with the brand name of the buyer company. ODM products are complete and finished products compared to the OEM products.
When it comes to OEM Vs ODM, there are several aspects you need to consider while including the pros and cons of both these types of manufacturing system.
OEM vs ODM : OEM- Pros
OEM companies are becoming quite popular among Multinational companies as well as small startup companies. It is a cost effective business for MNCs as they can save on bulk orders. OEM companies that manufacture components provide services at a cheaper rate compared to other companies. OEM solutions are apt for startup companies as there is a dearth for expertise in manufacture and production field. In countries like China, there is an abundance of skilled labor and large supply chains. This explains why there are a larger number of OEM manufacturers in China. Moreover, due to the advent of globalization, majority of the small and medium industries benefit from OEM projects.
Another advantage of OEM manufacturing business is that you can procure high quality products in bulk amounts at cheaper rates. All these products are quality checked according to the testing standards of the manufacturer.
Perfection is the key to the OEM industry. Most of the companies that outsource production to OEM manufacturers expect top notch quality. Therefore you may find fewer OEM suppliers in the markets that are well above par. However, most of the companies provide sample products to the buyers before signing an agreement for mass production.
Majority of the OEM companies deal with mass production of products so buyers must be able to sell enough to procure the services of an OEM.
OEM Manufacturing Industries
There are a large number of companies that are linked to the OEM production. The automotive and electronic industries benefit from outsourcing to OEM firms. As there are more than thirty thousand components in a car, most of the automobile manufacturers outsource the production of these components to OEM manufacturing firms as it is cheaper and easier to obtain. The same logic applies to the electronic industry such as the mobile companies. For example, Apple partners with the OEM manufacturing company Foxconn which produces the components in China. When these companies partner with OEM firms, it makes production easier and quicker. There are a large number of OEM manufacturers in China. Most of the companies such as Apple, Nike, Cisco and IBM outsource their production to OEM manufacturing units in China. All these MNCs prefer to outsource production to China due to the abundance of skilled labor, state-of-the art technology and global standards.
OEM vs ODM : ODM-Pros
One of the greatest advantages of ODM manufacturing is that there is hardly any need to conduct R&D and spend time and money on designing products. When you partner with a skilled ODM company, you can focus on how to expand your business with the procurement of complete products from these firms. Prototype manufacturing is a common form of ODM.
ODM firms also charge a low price for the products and there is no need to design the products too. So when you consider OEM Vs ODM, ODM may be more beneficial to business enterprises. However, there are pros and cons for both these types of manufacturing units.
ODM helps to save time as you can obtain complete products from these manufacturing firms. When you opt for an OEM firm, you need to design the products and even spend time searching for a reliable OEM manufacturer. But when you choose the services of an ODM manufacturer, you obtain a range of complete products in bulk amount at lower price rates. When you obtain a finished or complete product rather than a component, it is easy to market the product quickly. As most of the technical aspects undertaken by the ODM companies, you can focus on brand development and marketing the products.
As ODM firms manufacture similar products, businesses will face tough competition as most of the products are similar in the markets. So it is important to choose a unique ODM company to manufacture your products of you require exceptionality.
Secondly ODM firms manufacture only certain types of products. It is not possible to obtain any specific design on products when you approach an ODM firm. In such cases, it is essential to choose an OEM firm. ODM firms can make some alterations in your product designs but it may be only some minor changes. Moreover, ODM firms also insist on bulk orders for customizations.
ODM Manufacturing Industries
There are many industries which partner with ODM manufacturing firms which include food, consumer electronics, cosmetics, clothes, medicines and so forth. In China, there are a large number of ODM companies and it is growing at a rapid rate. The country has been providing ODM solutions to different companies around the world.
China is one of the largest manufacturers in the world that focuses on innovative designs and modern technology. The country has emerged as the powerhouse of technical know-how and production that has escalated to great heights in the recent time period. The magnified operational skills and capabilities of the Chinese workforce have enabled the country to undertake a wide range of OEM and ODM projects from different parts of the world. The general economic development of the country has contributed to the emergence of a wide number of OEM and ODM manufacturing firms that cater to the vast product requirements of various MNCs.