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, you might have come across the terms OEM and ODM manufacturing. Before you contact a manufacturer, you’ll need to understand the key differences between these two unique business services. Alternatively, if you’re thinking of offering manufacturing services on a global scale, you’ll need to decide which of these two services you can offer.
In this article, we’re going to explain what OEM manufacturing is and when you might need an OEM manufacturer, and what ODMs can offer that OEMs can’t. Whether you’re an international factory trying to promote your services online, or you’re a company looking to expand your product range with help from a manufacturer, let’s start with the basics.
What is OEM manufacturing?
OEM stands for “original equipment manufacturer,” and refers to a manufacturer that provides goods or manpower to bring a product to market. OEMs typically produce goods used as components in the products of another company.
If you are a company hoping to launch a new product, you might require the services of OEM manufacturing through a B2B portal site like Alibaba.com. Well-established companies that already have products on the market will often have a product development team in place with designers, testers and marketing professionals who have all spent months, if not years, creating a new line of products. Because the company has the original idea, the designs, plans, manufacturing process, and branding ready to go, they only require a manufacturing facility and the manpower to help produce the items and meet product demand, or material to finalize the product and have it ready to sell. In this case, OEM manufacturing is the right service to choose.
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.
Here is an example of how OEM manufacturing works:
A luxury sportswear company has designed a new line of sneakers. They have the designs, branding, market research, and product testing finalized, and they need each pair of sneakers to have a memory-foam sole.
The sportswear company finds a supplier on Alibaba.com that offers OEM service and contacts them about their services.
The OEM has previous experience working with fashion clients and can mass-produce the luxury range of footwear with the memory-foam sole element.
The sportswear company provides the designs, manufacturing requirements, branding, and logo designs, and if required, packaging requirements too.
On Alibaba.com, what does "OEM service offered" mean?
If you are a contract manufacturer that offers OEM services, on Alibaba.com, you can claim your OEM capacity on your digital storefront. Also, you can showcase your professional certifications and third-party approvals to enhance your credibility to the buyers.
What is ODM manufacturing?
Now that we know what OEM manufacturing is, let’s take a look at how ODM is different.
An ODM, or “original design manufacturer,” is a company that has the capabilities to design, develop, manufacture and sell products themselves. The products an ODM creates are often rebranded by a buyer and sold for a profit. Unlike an OEM, who relies on a client brief and product design to manufacturer items, an ODM often designs and develops products independently, or in collaboration with a client. This is the ideal manufacturing service if you have a great idea, but are yet to design, develop, test, or brand it.
If you are a manufacturer and have employees or teams who have the skills, experience, and capabilities to design products, develop them, and carry out testing, you will be able to market yourself as an ODM.
Here is an example of how ODM manufacturing works:
A client works in the education industry and has found a gap in the market. With their knowledge of the market, they contact an ODM about their idea to create a schoolbag that includes compartments that chill drinks, food, and snacks, while keeping other parts completely waterproof and stain-proof.
The ODM receives information about the new schoolbag idea and sets up a meeting with the client to discuss the demand for this product in more detail.
During the meeting, the client explains why there is a need for the product and what would be attractive to young students in terms of color scheme and style.
The ODM takes this market insight and develops a school bag that features cooling, water-proof, and stain-proof pockets. Their design team works on the style, fabrics, and specifications of the final design.
Now the ODM can sell the product to the client, which they can rebrand if they wish, or they can sell directly to the consumer.
OEM versus ODM: what’s the difference?
OEMs and ODMs offer clients two completely different manufacturing services, but both are highly valuable depending on the client and project.
Pros and cons of OEMs
This type of business relationship can be a great way to get a product to market and start generating revenue. By forming an OEM partnership, you will be able to create a product that is difficult to replicate by consumers or competitors due to the cost or time to produce it. You may also unlock access to new markets, industry sectors, and geographic locations by hiring the services of an OEM.
However, there are some disadvantages to working with OEMs. Providing design briefs to a manufacturer can sometimes cause confusion and require members of your team to travel to the factory and provide support and assistance. This can cost your company time and money. The OEM may also require changes to the product during the manufacturing process that are backed by their manufacturing teams rather than your design brief. Also, by not involving the manufacturing team during the development of the product, they won’t have the opportunity to provide their feedback and advice which could actually make it easier to manufacture and save you money when it comes to the production costs.
Pros and cons of ODMs
ODMs often have a lower minimum order quantity (often referred to as MOQ) requirement, which is why they can be more appealing to work with – especially for clients who want to test out an idea. As the ODM has all the key components to design, manufacture, and brand a product, the cost to develop a new product is usually far less than the cost of working with an OEM. Yet there are some downsides to ODM relationships, which can make clients wary of using an ODM. Because the client is providing an idea rather than a final product design, there are fewer opportunities to customize, make changes, and control product requirements. Some people also worry that their ideas might be stolen by an ODM because the factory has everything they need to make the product themselves without any further input or help from the client. Although this can be the case, there are ways that clients can protect their ideas and manufacturers can offer contracts that give reassurance to new customers.
A contract manufacturer can offer businesses additional services such as packaging products, printing labels and providing specific parts. A client might use an OEM to mass-produce a child’s toy, for example, but also require a company to package the final product and print instruction manuals and labels. On the other hand, a contract manufacturer may be given the task to provide additional parts to an end product. If we consider a food product, a contract manufacturing company could provide recyclable food containers, sachets of sauce, or perhaps utensils for fast food items.
If you’re thinking of starting an OEM or ODM business you should consider the following things:
- What resources do you have and where can you add value?
- Do you have the ability to design, develop and test products?
- Is it easier for you to produce a product to a design brief, rather than invest time and money into developing a product yourself?
- How fast can you manufacture items and do you have any limitations?
- How can you make a client feel comfortable working with your business?
- Do you have legal documents in place to protect your team and assets?