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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.
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.
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:
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.
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.
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.
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 |
There are usually 4 ways to find OEM and ODM manufacturers in China
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.
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.
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.
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.
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.
According to the different types of OEM products, you need to prepare different technical materials, including but not limited to:
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.
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.
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.
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.