Understanding The World Of Manufacturing: ODM, OEM And OBM 

Irrespective of where you’re sourcing from, there are always two types of manufacturers, namely an OEM and an ODM. And alongside them are other more premium variants, such as an OBM and an OSM.

What is an OEM?

OEM, which stands for “Original Equipment Manufacturer,” refers to companies that produce components, parts, or products for use by another company in that company’s own products

To put it simply, an OEM company manufactures items or parts that are later purchased and integrated into the final products of another company.

OEMs typically serve well-established brands that have their own product designs but rely on OEMs for manufacturing. Examples of such brands include Apple, Samsung, Nike, Adidas, and others.

While many companies prefer to handle production entirely in-house, some industries, like the automotive industry, choose to diversify their partnerships. In the automotive sector, brands often engage multiple OEMs simultaneously to manufacture specific components for their vehicles.

This approach is driven by the specialization of OEMs, as they excel in particular areas of production rather than being generalists.

Why go for an OEM?

As a customer, you can expect to receive the following perks when using services from an OEM.

Creative control

An OEM might offer their advice on what part of the production process should be done or how you should optimize it, but they won’t interfere with anything that involves your designs or patents. 

This makes it much easier to maintain creative control as opposed to working with an ODM where you might not have much say in the matter as they own the IP.

Competitive service rates

OEMs have their own network of suppliers that they can buy materials from in large bulks at a lower price, especially if the OEM is in low-cost regions like China. This translates into you getting more competitive prices and increased profit margins.

Cost-efficient

If you allocate production entirely to an OEM and do a one-time payment, then you effectively cut costs on equipment expenditure and maintenance. Not to mention, it safeguards you from potential price increases in material acquisition. 

You can actually negotiate a set price per unit for a set amount of time with manufacturers in China which saves you from nasty price spikes. 

However, there’s also a possibility that this agreement might not hold in unforeseen circumstances (e.g., sudden chip shortages, wide worker strikes, etc.). Then again, this rarely – if not at all – happens.

What are the downsides?

Resource and time intensive

Referring to the fact that OEMs are essentially manufacturers for hire, they only manufacture the product with the exact specifications that you give them. In addition, the minimum order quantity requirements will be higher than with ODMs.

Before this, however, there are huge overhead costs associated with product research and development that you have to bear. And it’s not always a guarantee that you’d get a return on investment out of this, ideas tend to sound great on paper until you’ve put them to the test. 

Lack of quality check

Typically, on top of employing an OEM for the creation of your product, a quality inspector should also be put in place. This is because OEMs mostly or if at all check for product defects during production since they act solely upon the design data you’ve given them.

What is an ODM?

ODM stands for “Original Design Manufacturer” and refers to companies that not only manufacture products but also design them.

ODMs follow a practice known as white-label manufacturing. This involves ODMs providing pre-made prototypes of their own products to other companies, which can then modify or rebrand these prototypes.

This practice allows business clients to expedite their product development process and start selling products more quickly, as they don’t need to invest as much time and resources in research and development.

Another variation of ODM manufacturing is private labeling, where the ODM designs and produces a finished product exclusively for a specific retailer.

Why go for an ODM?

Low product development costs

ODMs can save you a lot of money spent on hiring designers, producing prototypes, and conducting market research which on average amounts to hundreds of thousands. 

Coming to an ODM means you get access not only to their finished products but also to the expertise and engineering prowess involved in making them. Plus, the minimum order quantity will be less compared with OEMs.

Trustworthy products

Another tangential benefit to an ODM’s one-stop business model is that you don’t have to worry about acquiring licenses or subjecting your products through extensive vettings. All have been done by the ODM a long time ago before they set the products up for sale. 

This is especially useful if you plan to sell electronics as there are all kinds of certifications you have to go through before the products can make it to the market.  

Tried-and-true method

Most ODMs on the market right now have already been contacted by industry giants like Alibaba and Amazon. This means there’s a high chance you get to work with the same ODMs that have had extensive experience dealing with a wide variety of products.

What are the downsides?

Low customization options

Don’t expect to go to an ODM and get a unique product right off the bat, what you see is what you get. Not to say there aren’t any ODM out there that can offer more customization but they’re generally harder to find without a sourcing agent.  

Although private labeling can be used to counteract this, this would also mean that the client has to conduct their own research which entails additional investments. As such, there’s only a handful of products that this might work with, namely cosmetics, conventional household items, etc.

High probability of competition

This might come as a shocking revelation to some people but ODMs are also businesses, and businesses compete with each other. Once you’ve given them the idea of how to improve on a certain product, there’s really no guarantee that they won’t just produce it without you. 

Furthermore, you can’t really opt for any legal protection in such a case because chances are your ideas aren’t substantially unique enough to qualify as a patent. Even if you try to go for a non-competitive agreement, it rarely carries much weight in foreign judiciaries.

But there’s a silver lining in how much you choose to disclose with your manufacturers. 

For example, if you’d like to produce a mask with certain alterations to make it stand out, you can just use a product similar to what you’re describing. This way the secrets are kept and you also get to know if the manufacturer agrees to make it for you.

What are OBMs?

OBM stands for “Original Brand Manufacturer” This term refers to a type of manufacturing company that not only produces products but also develops and owns the brand associated with those products. Unlike other two manufacturers, OBMs are responsible for the entire product lifecycle, including design, production, branding, and marketing.

OBMs often take the lead in creating their own product concepts, designs, and intellectual property. They are responsible for building and promoting their brand identity and typically sell their products under their own brand name. This level of control over both the product and its branding allows OBMs to establish a direct connection with consumers.

Just to name a few, Giant and Merida is a popular company that bikes under their own brand names. What many people may not know is that this company started as OEMs, manufacturing products for other brands.

Over time, they honed their skills and design capabilities through collaboration with industry professionals. Fast forward several decades, and they have become industry powerhouses, producing bike frames for renowned brands like Trek, Cannondale, Cervélo, and Scott.

Where can you find them?

The most convenient way to find either of these manufacturers is through sourcing agents as they’re the ones that have the connections and the experience. Instead of toiling to find just a few manufacturers, you can leave that to the professionals and focus on growing your business instead. 

Alternatively, you can also look on B2B sites that list these manufacturers in clear detail and performance track records. 

Amazon is a good example of this, they have a dedicated “Solution Provider” section that houses some of the most popular OEMs and ODMs. A good amount of them has personally been involved in the production of some of Amazon’s iconic Alexa products.

But if direct contact is what you’re looking for and you happen to be in the same area as your ODMs and OEMS, it’s better to just visit trade fairs or wholesale markets. These are where industries’ finest often gather to prospect or showcase their products/technologies.

Meeting the manufacturers directly will not only mean better communication but also reduce the odds of being scammed by a middleman. You might even turn an eventful meeting into a long-term business relationship! 

Conclusion

In conclusion, deciding between an OEM and an ODM should come after you’ve established what you want out of it. 

Are you looking to play it safe selling evergreen products? In this case, it might be better to go with an ODM. You get veteran hands on the job without paying premium prices, the product you sell has already been field-tested and deemed commercially viable, and you save months of doing research. All of this is at the cost of not owning the IP and having little say in how they make your product.

OEMs are more straightforward to work with but you have to do some legwork before approaching them. They also take longer to make your products and you might have to put extra effort into quality control. But switching to a new OEM is also easier since you own the IP.

Put into perspective these variables against your own vision for the business before deciding. 

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