OEM vs ODM: Pros and Cons for E-commerce
Though many people often confuse the terms OEM and ODM and use them interchangeably, they certainly do not mean the same thing. These terms refer to different approaches to manufacturing. In this article will explain the differences between them, their pros and cons.
ODM
ODM, or original design manufacturing, is also referred to as “private labeling.” An importer selects an already-existing product design from a factory catalog, makes a few small changes and sells it under his own brand name. Changes can include things like packaging or product bundles, colors and branding, and some limited adjustments to components or functionality.
An example of an ODM product is laser pointers. If you browse for them on Amazon, you will see multiple companies with essentially the same design. Each of them is custom branded, colored and packaged.
Pros of ODM
- ODM spares importers the need to invest into research and development in order to create a new product from scratch. Why reinvent the wheel when you can just improve one that already exists? And by eliminating or vastly reducing the expense of product development, importers can focus more on marketing strategies.
Cons of ODM
- With ODM it can be more difficult to differentiate your product from competitors’ products that are manufactured according to the same design. Although ODM requires less start-up capital, price competition tends to be steeper, resulting in slimmer profit margins.
For example, a customer looking to purchase an ODM laser pointer is more likely to choose based on price than based on differences in color or brand. To really differentiate your ODM product from the others on the market, while still remaining competitive price wise, can require a significant amount of creativity.
- You don’t get the protection of intellectual rights, as they are owned by the supplier.
Why choose ODM?
ODM is the way to go when you want to test a new niche or idea for the product. For example, a client works in the education industry and has found a gap in the market. He contacts an ODM factory about his idea to create a schoolbag that includes compartments that chill drinks, food, and snacks, while keeping other parts completely waterproof and stain-proof.
OEM
OEM stands for Original Equipment Manufacturing, and refers to products that are fully designed by one company and then licensed out to a manufacturer to produce. Many electronics and appliances brands are OEM. Another example is custom designed clothing, as opposed to a generic garment with a custom logo.
Pros of OEM
- You retain total creative control over the design. Whereas ODM products are restricted to a predetermined design, OEM products can be made according to any specifications.
- With OEM you will own all intellectual property rights, protecting you from copyright infringements.
Cons of OEM
- OEM manufacturing is much more resource intensive, because research and development process falls on your shoulders. You will also need to pay for any tools or molds needed for manufacturing.
- Components quality control must also be taken into consideration. A supplier may not have all the necessary equipment and will order components or materials from other factories.
Why choose OEM
OEM would suit companies that know their target audience and want to tailor the product for certain specific needs. If a product serves customers uniquely well, it helps to build strong brand loyalty and makes this particular market segment less attractive to competitors.
What is best for selling on Amazon?
Answering the following questions will help you decide whether OEM or ODM is best for you:
- What value you are planning to add to the product?
- What resources do you have for the project?
- Are you ready to invest time and money into developing the product yourself?
- What is your target audience and is it large enough?
You will find lots of useful information on this topic in the section “Cases” on our website and in our guides on supplier search and Chinese mentality.
Difference between OEM and ODM
It can be hard and a bit confusing to comprehend the exact difference between the two services for beginners, below you'll find the distinction between services in the simplest way possible :
- OEM involves
producing products under another company's brand
, while ODM involves producing products for a buyer's brand.
- In OEM, the manufacturer has limited control over the final product, while in ODM, the buyer has greater control over the design and manufacturing process.
- OEM is
focused on production
, while ODM is focused on design and development
.
- OEM is ideal for companies that want to expand their product offerings, while ODM is ideal for companies that want to sell products under their own brand name.
- OEM can lead to cost savings due to economies of scale, while ODM can result in more customized products that meet the buyer's specific needs.
- In OEM, the manufacturer receives only a portion of the profits, while in ODM, the buyer bears the cost of design and development, resulting in higher prices.
Who are the biggest OEM and ODM providers?
If you are contemplating about getting into this game then you must look up its major players, which will help you choose the right service provider.
- Foxconn - is a Taiwan-based company that specializes in electronic manufacturing services and is the world's largest OEM company.
- Quanta Computer - is also a Taiwan-based company that is a leading provider of ODM services in the computing industry.
- Flex - is a Singapore-based company that offers design, engineering, and manufacturing services to a variety of industries, including automotive, healthcare, and telecommunications.
- Pegatron - is a Taiwan-based company that provides ODM services for a wide range of electronics products, including laptops, smartphones, and game consoles.
- Wistron - is another Taiwan-based company that specializes in manufacturing and designing services for consumer electronics, such as smartphones, tablets, and computers.
- Jabil - is a US-based company that provides design, engineering, and manufacturing services to various industries, including healthcare, automotive, and aerospace.
- Sanmina - a US-based company that offers a wide range of manufacturing services, including design, engineering, and supply chain management, to customers in various industries.
Who are the biggest OEM and ODM users?
Here are a few examples of big companies using the OEM and ODM services that we recommend you study them in order to better understand this business :
Apple
- The iPhone and MacBook are manufactured by Foxconn and Quanta Computer respectively, both of which are major ODM/OEM providers.Samsung
- The Korean tech giant uses ODM services from companies like Wistron and Foxconn to manufacture its smartphones and tablets.HP
- The computer and printer manufacturer uses ODM services from companies like Quanta Computer and Inventec to produce their products.Dell
- Dell outsources some of its manufacturing to ODM providers like Foxconn and Quanta Computer.Microsoft
- The software company uses ODM services from companies like Pegatron and Flex to manufacture its Surface line of tablets and laptops.
Should I choose OEM or ODM?
The decision to choose between Original Equipment Manufacturing or Original Design Manufacturing depends on your specific business needs and goals.
When deciding, considering the following is a must :
- With OEM, you work with a manufacturer to produce a product that already exists, but with your branding. The manufacturer produces the product to your specifications and you sell it under your brand name. This can be a good option if you want to focus on marketing and sales, and don't have the resources to design and produce your own product.
- With ODM, you work with a manufacturer to design and produce a product according to your specific requirements. The manufacturer handles the entire process, from design to production, and you sell the product under your brand name. This can be a good option if you have a unique idea for a product but lack the expertise or resources to design and produce it yourself.
It's also important to research and vet potential manufacturers to ensure they have the experience and expertise to meet your needs.
What to consider when choosing an OEM/ODM service provider?
here are the steps to follow when choosing an OEM/ODM service provider for your manufacturing needs:
- Consider experience and expertise: Look for a company with a proven track record in manufacturing products similar to yours and has expertise in your industry and the type of product you want to manufacture.
- Evaluate quality control: Make sure that the OEM/ODM service provider you choose has a robust quality control process and is committed to producing high-quality products.
- Check communication and collaboration skills: Effective communication and collaboration are critical when working with an OEM/ODM service provider. Check if they have good communication skills and are willing to work closely with you throughout the manufacturing process.
- Evaluate production capacity: Consider the production capacity of the OEM/ODM service provider and ensure that it aligns with your manufacturing needs.
- Compare pricing: Compare the pricing of different OEM/ODM service providers and choose the one that offers the best value for your money.
- Check delivery time: Ensure that the OEM/ODM service provider can deliver your products within your required timeframe.
- Consider intellectual property protection: Ensure that the OEM/ODM service provider has adequate measures in place to protect your intellectual property.
- Check certifications and compliance: Ensure that the OEM/ODM service provider has the necessary certifications and compliance requirements.
- Evaluate customer service: Check the customer service of the OEM/ODM service provider and ensure that they are responsive and willing to address any concerns you may have.
By following these steps, you can choose the right OEM/ODM service provider that meets your manufacturing needs and provides you with the best value for your money.
Steps to follow if decided to use an OEM/ODM services in china :
Now that you have made up your mind about using this service, the first thing that you must do is Defining your product requirements meaning that you have to Clearly define your product design, specifications, quality standards, materials, and production volume and after that you must choose à service provider.
TIP : Most people use OEM/ODM services in China because it offers lower production costs, access to technology and expertise, efficiency, customization, and scalability. With a large manufacturing industry, Chinese OEMs/ODMs can produce products quickly and efficiently, often in large quantities. Additionally, customization services allow companies to tailor their products to meet specific customer needs, and scalability means that production can easily be increased to meet growing demand and that is exactly why we recommend that you start there and do your own research.
Here is a list of the biggest OEM/ODM service providers in china :
- Foxconn Technology Group
- Quanta Computer Inc.
- Wistron Corporation
- Compal Electronics Inc.
- Pegatron Corporation
- BYD Company Limited
- Inventec Corporation
- Flex Ltd.
- Jabil Inc.
- Celestica
Once you identify potential partners, evaluate their capabilities by reviewing their portfolio, production facilities, quality control systems, and certifications. To ensure that the partnership is satisfactory for both parties, negotiate the terms of the agreement including pricing, lead times, minimum order quantities, payment terms, and other details. after you agree upon terms, finalize the partnership by signing a contract that outlines the agreement's terms and conditions, including quality control measures, intellectual property rights, and dispute resolution procedures.
Now that you did all the hard work, all that is rest for you do as à client is the following :
- Manage the production process: Maintain communication with your OEM/ODM service provider throughout the production process. Conduct regular inspections to ensure that the product meets your specifications and quality standards.
- Arrange shipping and delivery: Once production is complete, arrange for shipping and delivery of the products. Make sure that all necessary documentation, such as customs clearance and certificates of origin, are in order.
- Follow up: After the products are delivered, follow up with your OEM/ODM service provider to ensure that everything went smoothly and to address any issues that may arise. This will help establish a long-term relationship with your service provider and ensure that future orders are handled efficiently.