OEM vs ODM manufacturing: what’s the difference? If you have an idea for a new product and are looking for a reliable manufacturer to partner up with and bring your products to market, you might have come across the terms OEM and ODM manufacturing. Before you contact a manufacturer, you’ll need to understand the key differences between these two unique business services. Alternatively, if you’re thinking of offering manufacturing services on a global scale, you’ll need to decide which of these two services you can offer.
In this article, we’re going to explain what OEM and ODM manufacturing is, when you might need an OEM manufacturer, and what ODMs can offer that OEMs can’t. Whether you’re an international factory trying to promote your services online, or you’re a company looking to expand your product range with help from a manufacturer, let’s start with the basics.
OEM stands for “original equipment manufacturer,” and refers to a manufacturer that provides goods or manpower to bring a product to market. OEMs often produce something that is used as a component to a product and is typically associated with a type of service called OEM services.
If you are a company hoping to launch a new product, you might require the services of OEM manufacturing through a B2B portal site like Alibaba.com. Well-established companies that already have products on the market will often have a product development team in place with designers, testers and marketing professionals who have all spent months, if not years, creating a new line of products. Because the company has the original idea, the designs, plans, manufacturing process, and branding ready to go, they only require a manufacturing facility and the manpower to help produce the items and meet product demand, or material to finalize the product and have it ready to sell. In this case, OEM manufacturing is the right service to choose.
If you are a manufacturer and don’t have the capabilities to design, create, test and brand products, you should offer OEM manufacturing and provide basic manufacturing services to help businesses mass-produce products.
A luxury sportswear company has designed a new line of sneakers. They have the designs, branding, market research, and product testing finalized, and they need each pair of sneakers to have a memory-foam sole.
The sportswear company finds a supplier on Alibaba.com that offers OEM service and contacts them about their services.
The OEM has previous experience working with fashion clients and can mass-produce the luxury range of footwear with the memory-foam sole element.
The sportswear company provides the designs, manufacturing requirements, branding, and logo designs, and if required, packaging requirements too.
If you are a contract manufacturer that offers OEM services, on Alibaba.com, you can claim your OEM capacity on your digital storefront. Also, you can showcase your professional certifications and third-party approvals to enhance your credibility with the buyers.
Now that we know what OEM manufacturing is, let’s take a look at how ODM is different.
But first, what does ODM stand for? The term ODM stands for “original design manufacturer”. Learning about the ODM meaning is beneficial for entrepreneurs who are looking to scale their businesses efficiently.
An ODM, or “original design manufacturer,” is a company that has the capabilities to design, develop, manufacture and sell products themselves. While OEM is often referred to as a service, ODM is referred to as a product. The ODM definition extends beyond manufacturing—it includes the design, engineering, and production processes. Also, it's worth noting that this ODM definition may vary slightly depending on industry-specific nuances and practices.
The products an ODM creates are often rebranded by a buyer as private label products and are sold for a profit. Unlike an OEM, which relies on a client brief and product design to manufacture items, an ODM often designs and develops products independently or in collaboration with a client. Many businesses opt for ODM services to leverage the expertise of manufacturers while focusing on their core competencies. This is the ideal manufacturing service if you have a great idea but are yet to design, develop, test, or brand it.If you are a manufacturer and have employees or teams who have the skills, experience, and capabilities to design products, develop them, and carry out testing, you will be able to market yourself as an ODM. Reliable ODM services enable businesses to stay competitive in rapidly evolving industries.
A client works in the education industry and has found a gap in the market. With their knowledge of the market, they contact an ODM about their idea to create a schoolbag that includes compartments that chill drinks, food, and snacks, while keeping other parts completely waterproof and stain-proof.
The ODM receives information about the new schoolbag idea and sets up a meeting with the client to discuss the demand for this product in more detail.
During the meeting, the client explains why there is a need for the product and what would be attractive to young students in terms of color scheme and style.
The ODM takes this market insight and develops a school bag that features cooling, water-proof, and stain-proof pockets. Their design team works on the style, fabrics, and specifications of the final design.
Now the ODM can sell the product to the client, which they can rebrand if they wish, or they can sell directly to the consumer.
ODM testing refers to the process of evaluating and assessing products manufactured by an ODM to ensure that they meet quality standards and specifications. It's all about putting your creation through a series of tests to ensure it's top-notch in terms of quality and performance before it hits the market.
During ODM testing, your product goes through a variety of examinations. It's subjected to functionality testing to make sure all the features work as they should. It is also put through performance testing to see how well it handles different situations, and durability testing ensures it can withstand everyday wear and tear.
It's important to compare the benefits and limitations of OEM vs ODM in order to choose the right manufacturing model for your specific needs. OEMs and ODMs offer clients two completely different manufacturing services, but both are highly valuable depending on the client and project.
This type of business relationship can be a great way to get a product to market and start generating revenue. By forming an OEM partnership, you will be able to create a product that is difficult to replicate by consumers or competitors due to the cost or time required to produce it. You may also unlock access to new markets, industry sectors, and geographic locations by hiring the services of an OEM.
However, there are some disadvantages to working with OEMs. Providing design briefs to a manufacturer can sometimes cause confusion and require members of your team to travel to the factory and provide support and assistance. This can cost your company time and money. The OEM may also require changes to the product during the manufacturing process that are backed by their manufacturing teams rather than your design brief. Also, by not involving the manufacturing team during the development of the product, they won’t have the opportunity to provide their feedback and advice which could actually make it easier to manufacture and save you money when it comes to production costs.
While OEM and ODM serve distinct purposes, it's important to evaluate your specific requirements and conduct thorough research before making a decision. The decision between OEM vs ODM would depend on factors like product uniqueness, time to market, investment costs, and desired level of control.
ODMs often have a lower minimum order quantity (often referred to as MOQ) requirement, which is why they can be more appealing to work with – especially for clients who want to test out an idea. As the ODM has all the key components to design, manufacture, and brand a product, the cost to develop a new product is usually far less than the cost of working with an OEM. Yet there are some downsides to ODM relationships, which can make clients wary of using an ODM. Because the client is providing an idea rather than a final product design, there are fewer opportunities to customize, make changes, and control product requirements. Some people also worry that their ideas might be stolen by an ODM product owner because the factory has everything they need to make the product themselves without any further input or help from the client. Although this can be the case, there are ways that clients can protect their ideas and manufacturers can offer contracts that give reassurance to new customers.
A contract manufacturer can offer businesses additional services such as packaging products, printing labels and providing specific parts. A client might use an OEM to mass-produce a child’s toy, for example, but also require a company to package the final product and print instruction manuals and labels. On the other hand, a contract manufacturer may be given the task to provide additional parts to an end product. If we consider a food product, a contract manufacturing company could provide recyclable food containers, sachets of sauce, or perhaps utensils for fast food items.
Irrespective of where you’re sourcing from, there are always two types of manufacturers, namely an OEM and an ODM. And alongside them are other more premium variants, such as an OBM and an OSM.
OEM, which stands for “Original Equipment Manufacturer,” refers to companies that produce components, parts, or products for use by another company in that company’s own products
To put it simply, an OEM company manufactures items or parts that are later purchased and integrated into the final products of another company.
OEMs typically serve well-established brands that have their own product designs but rely on OEMs for manufacturing. Examples of such brands include Apple, Samsung, Nike, Adidas, and others.
While many companies prefer to handle production entirely in-house, some industries, like the automotive industry, choose to diversify their partnerships. In the automotive sector, brands often engage multiple OEMs simultaneously to manufacture specific components for their vehicles.
This approach is driven by the specialization of OEMs, as they excel in particular areas of production rather than being generalists.
As a customer, you can expect to receive the following perks when using services from an OEM.
Creative control
An OEM might offer their advice on what part of the production process should be done or how you should optimize it, but they won’t interfere with anything that involves your designs or patents.
This makes it much easier to maintain creative control as opposed to working with an ODM where you might not have much say in the matter as they own the IP.
Competitive service rates
OEMs have their own network of suppliers that they can buy materials from in large bulks at a lower price, especially if the OEM is in low-cost regions like China. This translates into you getting more competitive prices and increased profit margins.
Cost-efficient
If you allocate production entirely to an OEM and do a one-time payment, then you effectively cut costs on equipment expenditure and maintenance. Not to mention, it safeguards you from potential price increases in material acquisition.
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You can actually negotiate a set price per unit for a set amount of time with manufacturers in China which saves you from nasty price spikes.
However, there’s also a possibility that this agreement might not hold in unforeseen circumstances (e.g., sudden chip shortages, wide worker strikes, etc.). Then again, this rarely – if not at all – happens.
Resource and time intensive
Referring to the fact that OEMs are essentially manufacturers for hire, they only manufacture the product with the exact specifications that you give them. In addition, the minimum order quantity requirements will be higher than with ODMs.
Before this, however, there are huge overhead costs associated with product research and development that you have to bear. And it’s not always a guarantee that you’d get a return on investment out of this, ideas tend to sound great on paper until you’ve put them to the test.
Lack of quality check
Typically, on top of employing an OEM for the creation of your product, a quality inspector should also be put in place. This is because OEMs mostly or if at all check for product defects during production since they act solely upon the design data you’ve given them.
ODM stands for “Original Design Manufacturer” and refers to companies that not only manufacture products but also design them.
ODMs follow a practice known as white-label manufacturing. This involves ODMs providing pre-made prototypes of their own products to other companies, which can then modify or rebrand these prototypes.
This practice allows business clients to expedite their product development process and start selling products more quickly, as they don’t need to invest as much time and resources in research and development.
Another variation of ODM manufacturing is private labeling, where the ODM designs and produces a finished product exclusively for a specific retailer.
Low product development costs
ODMs can save you a lot of money spent on hiring designers, producing prototypes, and conducting market research which on average amounts to hundreds of thousands.
Coming to an ODM means you get access not only to their finished products but also to the expertise and engineering prowess involved in making them. Plus, the minimum order quantity will be less compared with OEMs.
Trustworthy products
Another tangential benefit to an ODM’s one-stop business model is that you don’t have to worry about acquiring licenses or subjecting your products through extensive vettings. All have been done by the ODM a long time ago before they set the products up for sale.
This is especially useful if you plan to sell electronics as there are all kinds of certifications you have to go through before the products can make it to the market.
Tried-and-true method
Most ODMs on the market right now have already been contacted by industry giants like Alibaba and Amazon. This means there’s a high chance you get to work with the same ODMs that have had extensive experience dealing with a wide variety of products.
Low customization options
Don’t expect to go to an ODM and get a unique product right off the bat, what you see is what you get. Not to say there aren’t any ODM out there that can offer more customization but they’re generally harder to find without a sourcing agent.
Although private labeling can be used to counteract this, this would also mean that the client has to conduct their own research which entails additional investments. As such, there’s only a handful of products that this might work with, namely cosmetics, conventional household items, etc.
High probability of competition
This might come as a shocking revelation to some people but ODMs are also businesses, and businesses compete with each other. Once you’ve given them the idea of how to improve on a certain product, there’s really no guarantee that they won’t just produce it without you.
Furthermore, you can’t really opt for any legal protection in such a case because chances are your ideas aren’t substantially unique enough to qualify as a patent. Even if you try to go for a non-competitive agreement, it rarely carries much weight in foreign judiciaries.
But there’s a silver lining in how much you choose to disclose with your manufacturers.
For example, if you’d like to produce a mask with certain alterations to make it stand out, you can just use a product similar to what you’re describing. This way the secrets are kept and you also get to know if the manufacturer agrees to make it for you.
OBM stands for “Original Brand Manufacturer” This term refers to a type of manufacturing company that not only produces products but also develops and owns the brand associated with those products. Unlike other two manufacturers, OBMs are responsible for the entire product lifecycle, including design, production, branding, and marketing.
OBMs often take the lead in creating their own product concepts, designs, and intellectual property. They are responsible for building and promoting their brand identity and typically sell their products under their own brand name. This level of control over both the product and its branding allows OBMs to establish a direct connection with consumers.
Just to name a few, Giant and Merida is a popular company that bikes under their own brand names. What many people may not know is that this company started as OEMs, manufacturing products for other brands.
Over time, they honed their skills and design capabilities through collaboration with industry professionals. Fast forward several decades, and they have become industry powerhouses, producing bike frames for renowned brands like Trek, Cannondale, Cervélo, and Scott.
The most convenient way to find either of these manufacturers is through sourcing agents as they’re the ones that have the connections and the experience. Instead of toiling to find just a few manufacturers, you can leave that to the professionals and focus on growing your business instead.
Alternatively, you can also look on B2B sites that list these manufacturers in clear detail and performance track records.
Amazon is a good example of this, they have a dedicated “Solution Provider” section that houses some of the most popular OEMs and ODMs. A good amount of them has personally been involved in the production of some of Amazon’s iconic Alexa products.
But if direct contact is what you’re looking for and you happen to be in the same area as your ODMs and OEMS, it’s better to just visit trade fairs or wholesale markets. These are where industries’ finest often gather to prospect or showcase their products/technologies.
Meeting the manufacturers directly will not only mean better communication but also reduce the odds of being scammed by a middleman. You might even turn an eventful meeting into a long-term business relationship!
In conclusion, deciding between an OEM and an ODM should come after you’ve established what you want out of it.
Are you looking to play it safe selling evergreen products? In this case, it might be better to go with an ODM. You get veteran hands on the job without paying premium prices, the product you sell has already been field-tested and deemed commercially viable, and you save months of doing research. All of this is at the cost of not owning the IP and having little say in how they make your product.
OEMs are more straightforward to work with but you have to do some legwork before approaching them. They also take longer to make your products and you might have to put extra effort into quality control. But switching to a new OEM is also easier since you own the IP.
Put into perspective these variables against your own vision for the business before deciding.
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