OEM vs. ODM: Selecting Your Manufacturer in China

If you have decided to outsource production to China, you must find a reliable contract manufacturer to partner up with. They can make or break your business. During your search, you’ll come across the terms OEM and ODM. You must understand these unique business services before contacting a manufacturer. In this post, we evaluate OEM vs. ODM manufacturing to help you choose the right producer to meet your needs.

OEM vs. ODM Meaning: What is OEM Manufacturing?

The abbreviation OEM stands for Original Equipment Manufacturer. It means that the production factory manufactures products as per the design specifications provided by the original company. An OEM firm plays a purely manufacturing role in the supply chain, allowing both companies to benefit from their strengths.

In many cases, a firm doesn’t have the resources needed to produce high-volume or highly-specialized goods. Outsourcing production to an OEM company cuts down on costs.

The client usually commissions the supplier to manufacture parts, components, and subsystems according to their specifications. Once the components are delivered to the client, they go through assembly. The client affixes the finished product with the company trademark, and sells it on the market under their name, and at competitive prices.

Common product categories that benefit from OEM production include the automotive industry, electronics, ICT equipment, plastic parts, cosmetics, toys, and garments.

Advantages of OEM

Some of the benefits of OEM vs. ODM manufacturing include:

Cost-Effective Products

The cost of producing components is highly competitive due to the economies of scale. Streamlined processes, large volumes, and efficient supply chains in countries like China make OEM components quite cheap. This translates to higher profit margins, increased sales, and more revenue.

Specialized Technology

Don’t have the right equipment or expertise to create certain components? Take advantage of the specialized technology offered by OEM manufacturers to get it done. This access to better technology and expertise leads to quality products.

Intellectual Property Rights

OEM gives you complete control over the trademarks and intellectual property rights. This allows you a better bargaining position, which makes it easier if you ever need to switch suppliers.

Disadvantages of OEM vs. ODM Manufacturing

The main disadvantage is that there is a limited selection of OEM suppliers for specialized items. This doesn’t allow you a good opportunity to capitalize quickly on innovative or new products. Requesting product samples can help circumvent this issue.

Many OEM suppliers prefer dealing with companies that can create a lot of demand. As such, this may not be your ideal route if you can’t sell goods fast.

There is also the risk of infringement of your intellectual property rights. The designs you create for components could be sold to competitors.

You cannot rely on OEM suppliers to troubleshoot or correct any faulty designs as they manufacture products based solely on the data you provide.

OEM vs. ODM Meaning: What is ODM Manufacturing?

The abbreviation stands for Original Design Manufacturer and refers to companies that design and manufacture products. The products are then sold to other companies, which rebrand and market them as their own.

ODM manufacturers produce goods in bulk. This allows smaller companies to benefit from the expertise of the manufacturing firm and economies of scale.

ODM companies are categorized under White Label & Private Label Production. White label suppliers distribute generic finished products to different retailers who sell them as their own. Private labeling firms sell finished products exclusively to a particular retailer.

Product categories that benefit heavily from ODM manufacturing include cosmetics, food, electronic cigarettes, consumer electronics, medicine, and clothing. Many supermarkets with their range of basic items share the same ODM supplier.

Advantages of ODM Manufacturing

Top benefits of manufacturing ODM vs OEM you should consider include:

Speeds Things Up

ODM companies don’t have to worry about researching, developing, and testing a product. They already did that a long time. All they have to worry about is rebranding an already made product to be uniquely linked to your firm.

Cheaper than Manufacturing Your Products

Designing and testing the effectiveness of a product requires capital and time. Partnering with an ODM manufacturer saves that much more money and allows you time to focus on the core aspects of your business.

Reliable and Tested Products

Depending on how complicated a product is, certification is required before it goes to market. ODM manufacturers handle all the quality inspections and testing and obtain product certifications long before you place your order.

Disadvantages of ODM Manufacturing

Working with an ODM manufacturer makes it difficult to stand out from the competition. The same product you purchase will be sold to other companies, with minimal variations. Unless you get creative with marketing or are a well-known brand, your product will get lost in the crowd.

If you do manage to kill it in sales and customers request an upgrade, convincing your ODM supplier to help you will be tough. Many ODMs aren’t quick to develop new products, especially if it calls for a partial or full redesign.

The intellectual rights belong to your supplier. As such, you’ll never have complete control over any legal decisions regarding the product, or who else the supplier sells to.

ODM vs OEM Manufacturing: What’s Right for Me?

The main difference between OEM vs. ODM lies in the approach to product development. This poses obvious implications for you as an importer in terms of lead time, IP ownership, and costs. Let’s take a closer look at a comparison between the two:

• There is no difference in price per unit
• Product development takes 1-8 months in OEM and 1-4 weeks in ODM
• Injection molds and tooling is paid for by OEM buyers and ODM supplier
• Both offer mass production
• The buyer provides the product design in OEM while ODM manufacturers handle product design
• OEM buyers and ODM suppliers own the intellectual property rights

Whether working with an ODM or an OEM works for you depends on your product, market, and goals.

OEM vs. ODM: Contact Shield Works to Learn More

Whatever your business model, outsourcing production can improve the efficiency of your supply chain and spark business growth.

Shield Works provides reliable precision assembly services that you can rely on for increased output and enjoy the benefits of product assembly in China. Contact us today to learn more about OEM vs. ODM manufacturing.