OEM vs ODM – Understanding the Difference

When it comes to contracting a manufacturer, there are two main options: OEM and ODM. Regardless of where companies are outsourcing their manufacturing operations, many of their suppliers are usually either OEM or ODM. As such, if your business is planning to get a product produced, understanding the difference between the two manufacturers, including the pros and cons of each, are essential in choosing the right partnership and ensuring you have a successful start on your new project. That’s why in today’s AVer Experts, we will be looking at the fundamentals of both business solutions and help you make a more informed decision on which type of manufacturer you should pick.

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What is OEM?

The first type of manufacturer is OEM, which stands for Original Equipment Manufacturer. It is a manufacturing business model in which the contracted company/supplier develops and produces the product based on a design from the buyer. This means once you have the finalized product design, you can proceed to contract an OEM, who will provide the labor and expertise to begin production. Essentially, you can think of them as the handyman to your business operation – you provide the ideas, and they provide the equipment and experience.

There are several advantages to contracting an OEM, including creative control, mature supply chain, and cost efficiency. Generally speaking, an OEM will have an established supply chain that allows them to provide the necessary components needed for the buyer’s specifications, thus reducing the development of production time. Working with an OEM is also relatively cost-efficient because of the increasing demand for business solutions sought by startups and established corporates alike. As a result, the competitive service rates allow OEM companies to offer their services at a lower rate. The biggest benefit of contracting an OEM, however, is the greater freedom of customization you’d have in the product design. But due to the bigger creative control, an OEM project would also require more input and time commitment from the buyer as the supplier won’t interfere with anything that involves the patents or designs.

What is ODM?

ODM, on the other hand, is an abbreviation for Original Design Manufacturer. As the name suggests, ODM is a business model that produces the design and the final product. Therefore, they operate as both the designers and manufacturers, but allow the buyer/customer to make slight changes to the products. Alternatively, the buyer may also purchase prototypes that are made available by the suppliers and make small alteration requests to the existing design before selling it as a rebranded product.

One of the main advantages with an ODM model is the low product development costs; since ODM develops their own design and manufacture accordingly, they do not require much in terms of technical input. Subsequently, the speed to market interval is also generally shorter than that of OEM, allowing companies to save time on project development. Additionally, choosing a reliable ODM means lower risk of the product being faulty or copied since they will already have the necessary licenses and conducted thorough assessments on the prototypes. The minimum order quantity is also normally lower with ODM compared to OEM services due to existing prototypes/products that are being sold to various customers. However, as the intellectual property of the product usually belongs to the supplier, the buyer’s creative control is generally more limited.

Which manufacturer to pick and factors to consider

So now that you know the difference between OEM and ODM, let’s go over some of the important factors to consider when deciding which manufacturer to contract. The first is the sensitivity of your intellectual property (IP). If you hire an OEM, the IP belongs to the buyer in most cases since you are usually the one that would be providing the product design and be involved in the development process. However, if you choose ODM, the product design, as well as tooling and other IP, will be owned by the supplier (unless otherwise contracted). The second factor is the complexity of your product and how distinct you’d want it to be from the crowd. Depending on your preference, you may prefer to have a higher level of customization by choosing OEM, or you may prioritize the speed to market efficiency and focus on marketing by going with ODM. Aside from that, it’s also important to consider the quality and reliability of your chosen manufacturer since not all manufactured products will have the same quality. It’s also common for manufacturers, whether it be OEM or ODM, to specialize in a specific type of product. Hence, irrespective of your preferences over the manufacturing processes, it would be wise to contract a supplier that has strong expertise in the specific product market you’re interested in.

Here at AVer, we have a versatile research and development team with a wealth of experience that is dedicated to product design and innovation, offering both OEM and ODM services worldwide. Thus, if your business is looking for an OEM or ODM partner that is specialized in education technology, business communication, or retail technology products, AVer would be an ideal choice of supplier to consider.

Though many people often confuse the two terms and use them interchangeably, they certainly do not mean the same thing. OEMs build products based on designs provided to them from customers, while ODM manufacturers design some or all of the product themselves before manufacturing them for customers. This article will help explain the differences and benefits between the two types of manufacturers.

Original Equipment Manufacturer

An OEM (Original Equipment Manufacturer) builds a customer’s product that is fully designed by that customer and then contracted out to produce. The Apple iPhone, for example, was invented and designed by Apple, and then contracted to Foxconn to build. With this, the iPhone has a much higher level of product differentiation because the design is only available to Apple and its contracted manufacturer.

The main advantage of an OEM is that the customer retains total creative control over the design. When using an OEM, there will also be little to no intellectual property restrictions that may prevent switching to a different manufacturer in the future, if needed.

Another benefit of using an OEM vs ODM is the flexibility in the product design. OEMs can build products to any specification while ODM products are restricted to a predetermined design. 

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The disadvantage of OEM manufacturing is the high level of resources required to produce a unique product. These resources include the research and development costs along with the time needed to create the design before it is ready to be manufactured. These investments are often quite high and bring a certain amount of risk to a company.

Referring back to Apple, they invest millions of dollars into research and development over several years in order to create their unique products. Apple has a market share that ensures they will see the return on this investment, however many companies do not have this guarantee. 

Original Design Manufacturing

ODM (Original Design Manufacturer) is also referred to as private labeling or white label products. In this case, the manufacturer has an existing product design and the customer may make slight changes to sell it under their own brand name. Some examples of changes include branding, colors, or packaging. 

An example of an ODM product is car chargers. If you browse for car chargers on Amazon you will see multiple companies with essentially the same design. While the products are manufactured according to the same general design, each is custom branded, colored and packaged according to each buyer’s specifications.

ODM doesn’t refer to just electronics either. Have you ever noticed how furniture, clothing, or sports equipment often carry similar looking products? This is another example of ODM manufacturing. 

The advantage of ODM manufacturing is the low amount of resources that the customer needs to create a product. With ODM, the customer does not need to invest millions of dollars, or time, into research and development in order to develop a new product. By reducing the expense of product development, the customer can focus more time and money on marketing strategies. 

Another benefit to using an ODM manufacturer is the availability of the economies of scale. This means that the product's unit cost is lower since the manufacturer is building the same design at large volumes. 

The disadvantage of ODM is it can be difficult to stand out from competitors that are essentially offering the same design at a similar price point. This amount of price competition often means lower profit margins.

For example, an end user looking to purchase an ODM car charger is more likely to choose the lowest price instead of caring about the color or brand. It requires a great amount of creativity from the customer to really differentiate their ODM product from competitors in the market.

Key Takeaway

When deciding to use an OEM vs an ODM, it really comes down to available resources. If a company has a research and development budget, along with a reasonable time-to-market plan, then using an OEM is a good fit. If time and resources are scarce, then ODM is the route to go to launch a product.