The Difference Between ODM and OEM: Complete Guide 2022

You may have heard about the ODM and 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.

ODM VS OEM

OEM and ODM have often been found in the design and production industries, and people stay confused as they are pretty similar regarding the distinctions between the two names. The words ODM, OEM, describe various configurations of fabrication activities. The distinction between these production systems is the extent to which a brand owner undertakes design, engineering, and production activities.

If you have an idea for a new product and are looking for a reliable manufacturer to partner up with and bring your products to market. Before you contact a manufacturer, you’ll need to understand the key differences between these two unique business services, and this article covers everything you need to know.

What is ODM manufacturing?

An ODM, or “original design manufacturer,” is a company that has the capabilities to design, develop, manufacture and sell products themselves.  ODM often designs and develops products independently, or in collaboration with a client. All you need to do is give them the idea of the design you want, and they can also show you their existing product lines, and you can choose from them.

ODM: Advantages and Disadvantages

Advantages Of ODM Service

1. You don’t need to make large upfront investments for R&D and setting up a custom production line.

2. You can save a lot of capital because you don’t need to control the tooling costs.

3. you can focus more on marketing your products.

4. don’t have to worry about expertise or resources that meet your design specifications.

5. Save money even if you are purchasing low volumes of products. This is because ODMs usually produce significant quantities to sell in smaller lots.

6. Usually faster to market than OEM

Disadvantages Of ODM Service

1. Changing suppliers is difficult because they have the design.

2. If your sales volume is high, the supplier is likely to compete with you.

3. It is highly likely that your product appears similar to that of your competitors

4. Other companies may start selling the same product as you

5. You don’t get the protection of intellectual property

6. You are responsible for any problems during sampling and product control

ODM Manufacturing Industries

There are many industries that partner with ODM manufacturing firms, ODM products are more common in more R&D and capital intensive industries.

ODM More common industries: Electronics; Machinery; Medical devices; Kitchen utensils

ODM Less common industries: Clothing; Home textiles; Accessories

What is OEM manufacturing?

OEM stands for “original equipment manufacturer,” which refers to a company is in charge of developing, constructing, or selling the product to another company or company which is responsible for the distribution of its product following its standards. For example, the Apple iPhone was created and built by Apple and subsequently licensed to create Foxconn.

If you are a manufacturer and don’t have the capabilities to design, create, test, and brand products, you should offer OEM manufacturing and provide basic manufacturing services to help businesses mass-produce products.

OEM: Advantages and Disadvantages

Advantages Of OEM Service

1. You will own all intellectual property rights. Your product specifications will also be protected from copyright infringements.

2. You can quickly get quotes from manufacturers because you will have detailed specifications and designs.

3. You have a better bargaining position and can easily switch to other suppliers.

4. It may be more difficult to copy your product

5. Less risk in manufacturing because a working prototype is available

Disadvantages Of OEM Service

1. Changing suppliers is not easy because you need to change the entire supply chain.

2. It isn’t easy to negotiate a slow price increase.

3. Material or process changes may have a serious impact on product quality.

4. Product development can add significantly to the time it will take to get the product to market

Comparison Table Between ODM and OEM

Parameters of Comparison	ODM	OEM
Discovered	1906	1962
Full form	Original Design Manufacturing	Original Equipment Manufacturing
Meaning	developing and constructing a product following the specifications of another company	a company and business which is in charge of developing, constructing, or selling the product to another company
Feature	Design products on customer-based specifications	Designs products on its own based on specifications
Product design	Owned by the supplier	The external design is usually owned by the customer
Private Labelling	×	√
Product modification	The customer can usually request only basic changes	The customer gives input on specifications
Tooling and other IP	Belongs to the supplier	Usually, only external design owned by the buyer
BOM	The customer has little to no control	The customer has limited control or input
Category specialization	Specialized in a certain category	Specialized in a certain category

ODM vs OEM 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 a 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.

How to Start Your OEM and ODM Service

If you’re thinking of starting an OEM or ODM business you should consider the following things:

1. What resources do you have and where can you add value?
2. Do you have the ability to design, develop and test products?
3. Is it easier for you to produce a product to a design brief, rather than invest time and money into developing a product yourself?
4. How fast can you manufacture items and do you have any limitations?
5. How can you make a client feel comfortable working with your business?
6. Do you have legal documents in place to protect your team and assets?

Where to find OEM Or ODM suppliers？

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

Find China Suppliers Online

The biggest factories for manufacturing you can contact online are Alibaba, Made in China, and Global source. The suppliers explain their services details to potential customers. Some of the services they provide are OEM, ODM, Customizing. All this information is listed on the product listing page. Social media platforms also have many suppliers where you can check out a variety before reaching out to them. However, most are wholesale websites, so be specific in your search.

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 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.

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 lifelong 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 Union Source: our 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. No upfront charges, no experience needed. We will guide you step by step.

How to Identify the right ODM & OEM supplier？

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

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

ODM OEM – FAQ

 

What does ODM mean?

Original Design Manufacturer.It is a company that performs the designing and manufacturing process of a product. The product is manufactured following individual specifications. Another company later rebrands the product for sale.

 

 

What is OEM service on Alibaba?

It is the supplier’s ability and goodwill to manufacture products according to the client’s preferred design. The best suppliers for OEM are Global sources and Alibaba.

 

 

Which is the smarter choice between OEM and ODM?

You save valuable time with ODM since you can get a final product without engaging yourself in the tiresome project process. In OEM, you have to develop the product yourself, for example, designing and finding a suitable manufacturer to produce your product development.

Process of OEM & ODM products

Here are seven main steps in the process of OEM China & ODM products. They may step vary for different products.

Step 1: Creating a prototype or designing your product

The factory will determine the most suitable formula according to your needs and produce pre-production samples to meet customer needs. The customer receives the model for testing and proposes modifications or approves mass production.

Step 2: Inspection factory

After the test, the customer must go to the factory for internal inspection. This is assuming that they are satisfied with the samples and their pricing. Other factors that customers will check are R&D capabilities, production capabilities, and workshops.

Step 3: Signs a contract with the factory

After the customer visits the internal factory, he signs a contract with the factory. The factory charges customers a deposit for mass production, which varies from factory to factory.

Step 4: Packaging designs

Packaging design and purchasing packaging are the responsibility of the factory. This is usually a free service. However, customers will guide them based on the type of packaging design they like. Then hand over the work to a professional packaging factory to make several samples for selection before the contract.

Step 5: Product Testing

Confirm materials, ingredients, and packaging design. The factory entrusts the FDA to conduct product testing and filing.

Step 6: Delivering

The factory conducts product filling, packaging, and QC processes. The whole process takes fifteen to twenty days to complete. After the manufacturing process is completed, the customer pays the balance to the manufacturer.

Step 7: Shipment

If no purchasing agent is involved, the factory will arrange the delivery. Choose the transportation method according to the delivery time and the number of goods.

Conclusion

OEM focuses on manufacturing products according to customers’ preferences for design and specifications. Therefore, it is the customer’s responsibility to conduct research and develop the products they want. The project may take several months to complete.

On the other hand, ODM caters to all these processes. Since the project is completed faster, this is an excellent advantage for the time factor. You can also save a lot of money because you interact with fewer people in a shorter time. However, the client does not own the IP. The customer must compete with the product and customize the options provided by the model.

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.