OEM vs ODM Guide: What is oem/odm Service?

Mar 31, 2024 Chapter 1. Sourcing

You may have heard about the ODM vs OEM types of suppliers. Differentiating these two may be confusing, and you may not get clear definitions from internet sources. The two terms are vital in the industrial world, and they are common types of cooperation models.

In this article, you will learn the difference between OEM vs ODM, the pros, and cons, and why we need OEM or ODM Service.

 

 

What Does OEM Meaning?

In supply chains, OEM stands for original equipment manufacturing. It’s a type of contract or outsourced manufacturing. It means that the production factory can manufacture products according to the specifications and clients’ preferred designs. Producing products that conform to customer specifications.

 

 

Here Are Some Advantages Of OEM Service

    • With OEM, you gain full control of all your intellectual properties. You will own all intellectual property rights. You will be in a better bargaining position with your suppliers, and you can switch them easily. Your product specifications will also be protected from copyright infringements.
    • You can quickly get quotes from manufacturers because you will have detailed specifications and designs. However, it can be disadvantageous for small business owners because they have to provide accurate details to the manufacturer.
    • When choosing a production company, keep in mind that not all companies have in-house resources for production processes. They cannot afford to hire third parties; hence, the best alternative can be an ODM.

 

OEM Disadvantages:

    • Changing suppliers is not easy because you need to change the entire supply chain.
    • Since it is not transparent about the cost of purchasing components, it isn’t easy to negotiate a slow price increase.
    • Since sub-suppliers are not disclosed, they may be replaced without resorting to the buyer. Material or process changes may have a serious impact on product quality.
    • If your sales volume is high, the supplier may want to compete with you.

 

 

You can understand better by reviewing this ODM OEM illustration:

ODM/OEM difference
ODM/OEM client company relationship

 

 

 

 

What Does ODM Stand for?

ODM stands for Original design manufacturing, and it’s a type of contract manufacturing process. There is a contrast between OEM vs ODM, but the scope of ODM is broader. With that said, OEMs are responsible for manufacturing processes while ODM majors in product development services and other product lifecycle services. The scope of these services depends on the capacity of ODMs.

 

 

Here Are Some Advantages Of ODM Services

  • With ODM, there is no need for huge investments because ODM will handle the product development process. You can save a lot of capital because you don’t need to control the tooling costs.
  • ODM will handle all the technical resources needed for the success of the product manufacturing process. That way, you don’t have to worry about expertise or resources that meet your design specifications.

 

ODM Disadvantages

  • Changing suppliers is difficult because they have the design.
  • The buyer is taking a risk-how to ensure that the supplier does not steal the design from another company? For example, Amazon may ban your product and you may have to pay a fine.
  • If your sales volume is high, the supplier is likely to compete with you.
  • If you give them inspiration and ask them to change an existing product, and they think it is promising, they may continue to do it without you…
  • It may be difficult for you to negotiate favorable terms (payment terms, liabilities, etc.).
  • You don’t get the protection of intellectual rights, unlike OEM. Due to this factor, you may find yourself in a contractual disagreement.

 

 

What is OBM?

An OBM stand for Original Brand Manufacture. The OEM factory operates its brand, or the manufacturer creates its product brand, produces and sells products with its brand.

Since the foundry must have a complete marketing network to support OBM, the cost of channel construction is very high, the energy spent is much higher than that of OEM and ODM, and it often conflicts with its own OEM and ODM customers. 

 

 

 

OEM vs ODM Suppliers Comparison

 

What Is the Difference Between OEM and ODM?

You may have noticed earlier that there is the main difference between the OEM and ODM regarding their product development life cycle.  The difference is evident when you look at importers’ businesses. There is a vast difference in costs, lead time, and intellectual property ownership for importers.

 

The illustration below shows more details about ODM  vs OEM comparison.

Differences Between OEM vs ODM

Variable OEM ODM
Price per unit no difference no difference
Development time 1-8 months 1-4 weeks
Injection molds Tools paid by buyer paid by ODM
Production Time No difference No difference
Product Design Provided by Buyer Provide by ODM
Product spec sheet Provided by Buyer Provide by ODM
IP Ownership Owned by buyer Owned by ODM

 

 

Working with ODM suppliers

Choosing an ODM manufacturer is quite simple. You only need to look for suppliers who have products that you can sell in your market.

In most cases, you can make some changes for the ODM products. 

Here are some examples of changes:

  • The customer’s logo on the product
  • Change the color of the material
  • Different material types, such as replacing PU

 

It is usually impossible to make some other changes:

  • Different sizes (especially molds)
  • Different functions or performances-for example making a blender with a catching gripper

 

 

Working with OEM Suppliers

To find a good OEM supplier, you usually look for a manufacturer with already produced products similar to what you need. Here are the reasons:

    • They know the assembly process
    • They already have a supply chain (buy materials and components)
    • They already know the main risks and test procedures to be aware of.

 

 

There is also an alternative that many people overlook: use CM (contract manufacturer). 

Contract Manufacturer: similar to OEM, but the supplier is typically open to manufacturing a wider range of products. This is a particularly good idea if your product does not require a specialized process.

 

A professional CM can bring the following benefits:

    • Able to optimize the production process.
    • They only focus on production, not distribution; So they can’t sell the product to your competitor.
    • Their relationship is easier to manage.

 

 

 

OEM vs ODM Which Should I choose?

It depends on your needs.

  • Do you already have a finished product design ready for manufacturing? If so, an OEM is the right partner for you.
  • If you are considering developing a product or are already in the process, we generally suggest working with an ODM partner.

 

We believe that getting your manufacturing partners involved right at the beginning of the process is a best practice you should follow.

 

Note: If you want to sell on Amazon, choose ODM. ODM is the more popular model for selling on Amazon since you don’t require the resource-intensive requirements to run an OEM model. A startup should utilize the ODM model to learn the business ropes without huge risks.

 

 

oem-versus-odm
OEM-versus-ODM

 

 

 

How to Start Your OEM and ODM Business?

The section above has explained OEM and ODM’s importance and why every business needs them to thrive. OEM and ODM are the only ways for a company to actualize their ideas. Both small and big companies need them.

However, it may be a bit more difficult for small businesses/startups to identify or find reliable manufacturers. The section below focuses on teaching you how to identify and find a reliable manufacturer.

 

 

Where Do I Find OEM Or ODM Suppliers?

There are three primary ways to find OEM and ODM manufacturers.

  1. B2B websites
  2. On-site trade fairs or wholesale markets
  3. Sourcing agents

 

Online B2B Websites

Finding a reliable supplier online offers convenience and is more economical for small businesses and startups. The biggest ODM China manufacturers you can contact online are Alibaba, Made in China, and Global source.

 

Offline Trade Fairs or wholesale markets

You may find it unreliable to find suppliers online. Another option is physically visiting wholesale markets in your locality to identify suitable suppliers.

This is advisable if you are in the big manufacturing countries such as China. Meeting a supplier physically is convenient, and you are assured of quality since you can see the products for yourself.

It also helps you reduce the risk of dealing with a middle man who often scams online customers. If you live far from China, you can invest in a trip to a trade fair. It will cost you, but it will be a one-time and worthwhile investment since you will find a reliable supplier who can become a life long partner for supplying your business.

 

Sourcing Agents

New importers mostly prefer sourcing agents. However, ensure you engage a professional sourcing agent. The agents have many resources and information on the best supplier or manufacturer to meet a client’s needs.

Like supplyia sourcing: Their services include: guiding you to choose a suitable manufacturer, negotiating prices, following up on production, ensuring high or standard quality is met, testing the products, and arranging for shipment. As a customer, this is very convenient for you since you don’t have to get your hands dirty. However, it comes at a cost that is worthwhile if you can afford it.

 

 

 

 

How to Identify The Right ODM & OEM Service?

Whether you find a supplier offline or online, there are key indicators of finding a suitable manufacturer that you should follow:

    • The quality and price of a product should match.
    • Effective communication is vital for every relationship, a business relationship included.
    • Be ready to face challenges and unexpected hitches. Have a positive attitude towards this, and meet them head-on.
    • Complete ownership of factory qualification authentication.
    • If using a new mold, find out if it can fetch back or not.

 

Note: 

  1. Big factories don’t mean the best quality;
  2. therefore, don’t always rush to do business with them. They are not always suitable for you, especially for a small business that requires a little stock.
  3. Choose a supplier, depending on your financial and product needs.
  4. Engage a factory that has good customer service and effective communication.

 

 

China OEM Products: What Are the Potential OEM Risks?

 

OEM ODM Services Conclusion

OEM China focuses on manufacturing goods according to the customer’s preference on design and specifications. Therefore, it is entirely the customer’s responsibility to conduct research and develop the product they want. The project can take months to complete.

On the other hand, ODM China caters to all of these processes. This is an excellent advantage for the time factor since the project is completed faster. You also save a lot of money since you engage fewer people and at a shorter time frame. However, the customer doesn’t own the IP. The customer has to contend with the products and customizing the options provided by the model.

The choice of the best model between OEM vs ODM depends on the customer’s product, market, and goal. However, OEM’s are mostly recommended since you own the IP. ODM is the cheaper option, but owning IP is more important.

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