Whenever someone decides to start a business, the first step is deciding what to sell and where to source it. Should you manufacture your own products or purchase them from a wholesaler? In both cases, you’ll often hear the terms OEM and ODM.
OEM stands for Original Equipment Manufacturer, and ODM stands for Original Design Manufacturer.
What is OEM?
An Original Equipment Manufacturer is a company that allows customers (the purchasing company) to use their own designs and specifications, rather than predetermined designs, to manufacture products that are unique and hard to replicate.
Example:
One example of an OEM product is the Apple iPhone. Every iPhone design is specifically created by Apple, which is then manufactured by contracted OEM company Foxconn accordingly.
OEM sells to?
OEMs directly sell to other businesses, not to the end-user.
Companies have the product under their own brand name
OEMs help purchasing companies maintain brand consistency. They ensure the products meet the standards of the brand they supply. Companies also gain an edge through exclusivity and demand, because the product belongs to a single seller. When availability is limited, demand tends to rise.
Companies have total control over the design
Yes, we can count it as one of the benefits. Companies that want to maintain their standards are finicky about designs and want total control. Therefore, they go for an Original Equipment Manufacturer instead of private labeling. For example, Apple has complete control over the design of its products, and this makes it easy for them to change them based on changing customer preferences.
Companies need a heavy budget
While OEM products help you stand out from the competition, they also require a heavy budget for research and development. This can be costly for brands that are just launching. For brands like Apple, with an established customer base and brand identity, budget is less of a concern than customer satisfaction.
Supply chain role:
OEM manufacturers are crucial partners in global supply chains. Companies do not always opt for full in-house design and manufacturing; instead, they design certain valuable components and contract OEMs to produce them. This includes essential parts for industries such as automotive, electronics, and healthcare. The purpose is to maintain a high level of precision and product value.
No intellectual property restriction
With OEM, you don’t face intellectual property restrictions that could halt your operations or force you to switch manufacturers in the middle of a crisis.
What is ODM?
ODM stands for Original Design Manufacturer. These companies design products and sell those pre-designed products to other companies with minor customization to match their branding. This is also called private labeling. In ODM, companies can change the color or add their logos to sell the products as their own. However, compared to OEM products, the latter is not as unique.
Example:
You can see ODM examples everywhere: on Amazon, Instagram, and Facebook. Similar products with slight color changes are sold with different companies’ brand logos on them.
Here’s a difference between OEM and ODM in an actual scenario.
Companies have less design flexibility
Companies that opt for ODM have less flexibility over product design. They can only adjust the branding to align with their brand.
ODM is budget-friendly
ODM companies manufacture in bulk, which makes their products economical and budget-friendly, especially for companies that are just starting.
ODM makes it hard to stand out
When several competitors are selling the same thing, how exclusive can you make your products? It’s hard, right? But with the amount you save by choosing ODM, you can invest in marketing strategies that position your brand as the go-to option, regardless of how many sharks are in the sea.
End Note
It largely depends on the company whether to choose between OEM and ODM. If you have a large market share and investing heavily in research and development does not pose a significant risk, you can go for OEM. If deep design development carries risks for your business, consider ODM instead. Do your research, choose between OEM and ODM products based on your current situation, and launch your product.
