Difference between OEM and ODM

Date: November 5, 2014

Difference between OEM and ODM

What is OEM and ODM?

Ever heard of OEM and ODM? These two acronyms are buzzwords in the manufacturing industry. While some people incorrectly assume they can be used interchangeably, an OEM (Original Equipment Manufacturer) is quite different from an ODM (Original Design Manufacturer). Buyers (that’s you!) provide the designs to OEMs, while ODMs take charge of the designs and overall specifications.

Sounds simple, right? It is! However, understanding these two types of manufacturing company in depth, and not just by their definitions, will help you to choose the right manufacturers for your business and the products that you’d like to build or design. You must also keep in mind that both imply some caveats which, if overlooked, could actually risk your business.

What is OEM?

Do you have a unique product design? Have you spent millions of dollars on research and development for that exceptional product, but you need a third-party company to assemble and make things happen for you? Then, you’d have to work with OEM companies on the manufacturing process.  This means licensing  them everything you’ve got on that blueprint and selling the finished products under your brand name. We don’t have to go further to think of good examples: Apple spends on R&D and innovations with their own product lines and lets Foxconn fabricate everything from scratch.

What is ODM?

Alternatively, if you want the manufacturer to create the overall design and specifications of your product, you must search for ODM companies within your industry sphere. If you have limited resources in building and creating designs, ODM companies can turn your concepts into concrete and tangible items.

Tell them what you need and the expectations of your company’s customers and stakeholders. In this approach, the ODMs take care of the R&D, product concepts, testing and manufacturing.

More insights on OEM and ODM

OEMs and ODMs aren’t limited to technology and consumer electronics; they also work in the fashion and other industries, depending on the business models and product designing process of the overseas buyers. China is now one of the top global destinations for OEM and ODM sourcing.

In a nutshell, with an OEM, you’re the provider of ideas and specs, while the ODM’s concept is the reverse of this.

But how far can you go working with these manufacturers? For OEMs, the greatest caveat is that allowing these manufacturers to see your top-secret product formulas could cause a breach of your intellectual property rights and the production of copycats of a product on whose R&D you’ve spent thousands of dollars. So, you have to find a supplier or manufacturer that’s reliable and honest, and send someone to the on-site production to monitor progress and quality.

Meanwhile, with the ODM, the greatest caveat is that the buyer has little or no control on the product specifications and designs. As a buyer, you have to set boundaries on these matters.

Choosing between the two depends on the type of products you want to sell, the resources you have and are willing to invest, and the budget on hand.

To mitigate risk as much as possible, make sure you use our directory of suppliers to check their credibility and previous records for validation. 

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