ODM and OEM

ODM is short for Original Design Manufacturing and OEM is short for Original Equipment Manufacturing. They may sound similar and many professionals use the terms interchangeably. However, these are two different concepts. Let’s look at both to understand them better.

Original Equipment Manufacturing

OEM products are designed by the principle company. This company will then license a third party manufacturer to manufacture the designed parts. Many electronic products are OEM manufactured. The principle company takes care of marketing and sales. The OEM manufacturer will handle all the logistics and operational aspects of the manufacturing process. The OEM manufacturer is a third party company and is directly responsible to authorities for licensing and other approvals necessary to conduct manufacturing operations. Principle companies have to share complete product specifications with the OEM manufacturers and hence there is some risk of loss of intellectual property. Some risk can be mitigated by having multiple partners manufacture different components of the same product that are put together in the principle’s premises. Nonetheless, when using an OEM manufacturer a lot of care must be taken to protect any and all intellectual properties, in order to prevent them from being stolen or sold.

Original Design Manufacturing

ODM manufacturers however offer buyers with a catalogue of products that they can produce. The buyer then selects the desired product, requests for differentiation of the product within allowable tolerances and finally markets and sells the product as their own. ODM manufacturers can also create new products based on requirements submitted to them by principles. Hence the ODM can also provide some degree of R&D services, product development services, product incubation services and other such services. In order to deliver a product that meets the client’s needs the ODM manufacturer will need to be provided with accurate parameters and clear objectives on deliverables expected.

Which is better OEM or ODM?

Both these services offer unique selling points. Hence, which type of manufacturer to select depends on the needs of the client. OEM products are built to the exact specifications of the principle and hence it will cost the client more money to conduct R&D and product development activities before and OEM manufacturer can be brought on board. This model works well for companies that need to rapidly expand existing manufacturing capabilities. The ODM model works well for companies that do not need to have high levels of differentiation for their products and/or do no have production facilities of their own.

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