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OEM vs ODM, What’s the Different and How to Choose? what’s best for manufacturers?

You probably know the words “ODM” and “OEM.” No matter where you are now, you have access to a wide range of ODM and OEM products. They mainly describe two relationship models of working with manufacturers.

Although there is only one letter difference between OEM and ODM, there is a big difference between the two modes in practical cooperation. The choice of different cooperation models will affect the entire process from RFQ, product samples, procurement, and manufacturing.

Knowing these terms and the differences between them is an important step in establishing yourself as a China sourcing expert.

What Does OEM Mean?

OEM, AKA original equipment Manufacturing.

OEM means that the product is designed by you (or designed for you by a specialized product company) and the manufacturer is responsible for producing the product according to your design drawings.

The ownership of the product belongs to you. You will need to provide the manufacturer with all design instructions, such as product shape, material, size, function, color, accessories specifications, etc.

Apple is the best example of OEM cooperation model.

As you know, the iPhone is owned by Apple, but does Apple make the iPhone?

Obviously, the answer is no. Because Apple doesn’t have its own factories. They were commissioned by a Chinese manufacturer called Foxconn.

The iPhone is designed by Apple’s talented designers and engineers, and then manufactured in collaboration with Foxconn. That means Foxconn can’t make any changes to the iPhone. Foxconn can only produce according to the documents provided by Apple.

What Does ODM Mean?

ODM, AKA original design and manufacture.

ODM means that the product is designed by the manufacturer and you are not involved in the design of the product at all. ODM products can be the result of a vendor’s own product development efforts, or they can be replicas of products already on the market.

You don’t need any knowledge of product design to buy this product directly from the manufacturer.

If you want to create a brand for your product, you can ask the manufacturer to print your logo on the product.

While ODM is based on existing products, that doesn’t mean you can’t add your own ideas. To some extent, the manufacturer allows you to modify the product. These include:

  • Color
  • Material
  • Pattern
  • Packing
  • Product Bundling

Many e-commerce owners, such as Amazon sellers, often deal with the ODM model.

Amazon sellers are better at marketing, not designing products. So many of them don’t have the ability to design a new product on their own. They prefer to make small customizations on existing products and then put their own labels on them.

This is known as Amazon Private Label by Amazon sellers.

OEM Vs ODM, Pros and Cons

After understanding the definition of OEM and ODM, you may find that the biggest difference between OEM and ODM is whether you have product design and R&D capabilities.

Of course, if your team does not have the ability to design and develop products, you can also spend money to hire people to do this part of the work, and then buy the ownership of the product.

In this way, even if you are not involved in the entire design and development process of the product, you are still the owner of the product.

If you do not have the product design and development capabilities and do not have enough budget to purchase the ownership of a product, then ODM is definitely your ideal choice.

Although OEM and ODM are two different cooperation models, they also have their own advantages and disadvantages.

Pros of OEM:

  • You are the owner of the product, and you can design your product exactly according to your ideas and the results of market research.
  • OEM products are solutions based on a current problem and are more easily recognized by customers.
  • Your ownership of the product is protected by law. Others who sell your products without your permission will be punished by law.
  • You have detailed product specifications and designs. The manufacturer can quote you quickly based on your documents.

Cons of OEM:

  • Strong dependence on manufacturers. Changing manufacturers would involve a whole supply chain adjustment.
  • Different manufacturers have different OEM capabilities. Some manufacturers may not be able to meet your OEM needs.
  • You have no control over sub-suppliers. Changes in materials or manufacturing processes from secondary suppliers can have a serious impact on the quality of your product.
  • Manufacturers have access to all technical information about your products. There may be a risk of disclosure of important information.

Pros of OEM:

  • No need to set up a product design or r&d team, and no need to prepare a huge amount of money to buy the ownership of the product.
  • Facilitate small to medium enterprises and e-commerce businesses to quickly establish their own businesses.
  • With product design and development done by the manufacturer, you have more time to focus on marketing.
  • It’s cheaper to test whether your audience likes your product. If the first product doesn’t work, you can quickly change your strategy and jump into the second.

Cons of OEM:

  • Changing suppliers will be cumbersome. Because all technical information is in the hands of the manufacturer. Even if the appearance of the product is the same, different manufacturers may have slightly different product details.
  • Since the product does not belong to you, you do not know to whom the ownership of the product belongs. Blindly selling products on e-commerce platforms, such as Amazon, maybe at risk of infringing patents.
  • Due to the nature of the ODM model, your competitors can easily obtain the same products as you.
  • In the ODM cooperation mode, your customization of the product is very limited. This makes your product look so different.

Which You Should Choose Based on Your Business?

The core difference between OEM and ODM cooperation models is whether you have the ability to design and develop products in the early stage.

A key factor in determining whether or not you have that ability is your budget.

So when you ask me “OEM Vs OSM, which you should choose based on your business?” I suggest you follow the following flowchart to understand the whole process of OEM and ODM and make a choice.

OEM and ODM flowchart | Chinasourcify.com

The above flowchart is mainly based on whether there is enough R&D budget to guide you in making a choice between OEM and ODM.

In fact, these two cooperation models are also very different in detail. By comparing the differences, you can also know how to choose.

Here is the difference chart between OEM and ODM.

Item OEM ODM
Price Cost per Unit No difference No difference
Product Development Time 1 to 6 months 1 to 4 Weeks
Injection Molds & Tooling Paid for by the buyer Paid for by the manufacturer
Mass Production Time No difference No difference
Product Design Designed by the buyer Designed by manufacturer or third-party
Product Spec Sheet Provided by the buyer Provided by the manufacturer
Intellectual Property Ownership IP can be owned by the buyer IP owned by manufacturer or third-party

How to Find OEM or ODM Manufacturers and Cooperate with Them?

There are usually 4 ways to find OEM and ODM manufacturers in China

  1. China Wholesale Websites (e.g., Alibaba.com)
  2. Exhibitions in China (e.g., China Canton Fair)
  3. China Wholesale Market (e.g., Yiwu International Market)
  4. Sourcing Agent Company

China Wholesale Websites

Through online Chinese B2B website search, small business owners and E-commerce sellers can quickly find reliable OEM and ODM suppliers.

These china wholesale websites include Alibaba, Made in China, global resources Dhgate, etc.

Suppliers often list OEM and ODM services as a highlight to attract buyers to their product pages. Of course, you can also directly ask them through online chat or send an inquiry.

Exhibitions in China

You may feel that online transactions are unreliable. You can invest to participate in a trade fair. This will cost you, but it will be a one-time and worthwhile investment because you will find a reliable supplier who can be your business partner for life.

However, it is best to be prepared for some challenges, such as language barriers, travel and accommodation costs.

If you are not clear about the products you want to wholesale, you can participate in the Canton Fair in Guangzhou. The Canton Fair will hold two sessions a year. You can come to Guangzhou to participate in April and October every year.

China Wholesale Market

The wholesale market in China is basically open all year round. Except during China’s Spring Festival, China’s wholesale markets will be closed for 15-20 days.

The wholesale market in China is like a larger exhibition. You can find a variety of suppliers in the wholesale market.

These suppliers will fill their shops with various samples. You can directly select the samples you like, and then communicate the details with the supplier.

If the product is in stock, you can also buy it directly on-site.

It’s just that you can’t complete transactions in U.S. dollars or other currencies. In the wholesale market, Chinese suppliers only accept payment in Chinese RMB. So you may need to prepare a little RMB in advance.

But if you know how to pay through e-wallets, such as Alipay and WeChat, the entire procurement process will become more convenient and faster.

Sourcing Agent Company

Whether it is OEM or ODM, you need to communicate with suppliers. You need to express your ideas to the supplier.

Sometimes, communication is a very difficult thing, especially when you face many different suppliers.

If you want the entire purchasing process to be easier and more efficient, you can delegate your purchasing tasks to a local sourcing agent company in China.

These sourcing agents can provide you with a variety of sourcing services, such as finding products, negotiating with suppliers, collecting samples, following up production, warehousing, shipping, etc.

Conclusion of OEM Vs ODM Services

OEM and ODM mainly describe the mode of cooperation between purchasers and manufacturers.

OEM mode has stronger control over products, and at the same time you need to have the ability to design products. Product design is a very time-consuming task, so in OEM mode, you may spend several months on product design. After the product design is completed, you can enter the stage of docking with the manufacturer.

And ODM, because the product belongs to the manufacturer, you don’t need to worry about designing the product. Through the ODM cooperation model, you can quickly establish your business.

Choosing the best model between OEM and ODM depends on the customer’s product, market, and goals. However, OEM is recommended in most cases because you own the IP. ODM is a cheaper option, but having IP is more important.

Common FAQ of OEM and ODM

1. What technical data should I prepare for OEM products?

According to the different types of OEM products, you need to prepare different technical materials, including but not limited to:

  • CAD files
  • Material list
  • Color Card
  • Size chart
  • Packaging design drawing

2. Can I get ODM product specification documents?

Product design and development require a lot of capital investment. Generally speaking, most manufacturers are unwilling to share product technical documents.

In many cases, common Chinese manufacturers do not have technical documentation for their products. Chinese manufacturers are more directly buying products on the market and then copying the same products through reverse engineering.

3. Will ODM products be cheaper than OEM products?

Product design and development require a lot of capital investment. Generally speaking, most manufacturers are unwilling to share product technical documents.

In many cases, common Chinese manufacturers do not have technical documentation for their products. Chinese manufacturers are more directly buying products on the market and then copying the same products through reverse engineering.

4. Will the MOQ of ODM products be smaller than the MOQ of OEMs?

There is usually no difference between OEM and ODM products in terms of minimum order quantity (MOQ) requirements.

However, some suppliers may offer lower MOQs for standard materials and larger MOQs for customized materials.

5. How to avoid the infringement risk of ODM products?

For the ownership of ODM products, you can be sure that it does not belong to you. But the specific ownership may belong to your manufacturer or others.

So when you decide to purchase ODM products, you can directly consult your supplier or ask a lawyer to conduct a patent search.

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