OEM Vs. ODM is often heard in the manufacturing industry. OEM is the acronym for Original Equipment Manufacturer, and ODM is for Original Design Manufacturer.
These two can easily be confused, and you may not be able to get a clear definition from the Internet. Being clear on these terms and their differences is essential in making yourself a China sourcing expert.
In this article, you will learn the differences between OEM and ODM, the pros and cons, and what is better for you.
What does OEM Mean?
OEM means Original Equipment Manufacturer. It allows the manufacturer to produce a product that meets the specifications and the customer’s preferred design.
The product is designed entirely by the customer and then licensed to the manufacturer for production.
Depending on the customer’s requirements, OEM can produce a completely customized new product or many custom products from the OEM’s product line.
Sometimes, OEM provides design guidance to ensure that the final product can be made well. In any case, customers usually retain their intellectual property because it is their design.
One famous example is Apple works with Foxconn. Apple is a multinational company with enormous R&D resources, but it lacks a manufacturing division.
Instead, Apple outsources its manufacturing operations to Foxconn in China to produce products such as the iPhone. Apple retains its intellectual property and gets high-quality manufactured products.
What does ODM Mean?
ODM means Original Design Manufacturer. It allows the buyer to select from the existing product design from the factory, make some minor changes, and sell them under his brand.
You can make the changes like packaging or product colors and branding or adjustments to components or features.
For example, if you look for headphones on Amazon, you will see multiple companies with essentially the same design.
Although the products are manufactured to the same general design, you will find that each product’s branding, colors, and packaging are different because they can be customized.
What is the Difference Between OEM and ODM?
The main difference between OEM and ODM is who develops the product. As a customer, your consideration is the differences in time, cost, and intellectual property ownership.
Understanding the terms and differences between them is essential to creating a successful business.
OEM Vs. ODM: Which one should I choose?
It depends on your demands. Do you already have a finished design that is ready for production? If so, OEM is the right partner for you.
Suppose you are considering developing a product or are already in the process of creating it.
In that case, we generally recommend working with an ODM partner, and we believe that getting your manufacturing partner involved at the beginning of the process is the best practice you should follow.
Note: If you are a seller on Amazon, please go with ODM. ODM is the more popular model for sale on Amazon because you don’t need to run the resource-intensive requirements of OEM.
Startups should use the ODM model to learn the ropes of the business without taking huge risks.
OEM Pros and Cons
If you are considering an OEM, let’s know some of its advantages and disadvantages.
OEM Pros
- You own the intellectual property of the product
- You can customize the product
- Replicating your product may be more difficult for others
- Manufacturing is less risky coz there is a working prototype to work with
OEM Cons
- You will be required to pay for the molds fees or any other special tools
- It will cost lots of time for product development and product to market
ODM Pros and Cons
There are advantages and disadvantages when making an ODM project.
ODM Pros
- The manufacturer will pay the molds fees or any other special tools
- Usually, it is faster to enter the market time than OEM
- You will not be responsible for paying for the molds or equipment needed for manufacturing.
- Save your time and cost on R&D because it’s already done for you
ODM Cons
- The supplier or another company owns the product’s intellectual property.
- Some companies are selling the same products as you.
- Maybe Another company may ask you to stop production because they think you are using their intellectual property
- You are responsible for any problems during sampling and product control
OEM Vs. ODM: What is Better for You?
It’s a question of “how long is a piece of string,” and you need to determine the right path for your situation.
The table below shows more details about OEM Vs. ODM.
| Variable | OEM | ODM |
|---|---|---|
| Price per unit | No difference | No difference |
| Development time | 1-8 months | 1-4 weeks |
| Injection molds & tools | Paid by buyer | Paid by supplier |
| Production time | No difference | No difference |
| Product design | Provided by buyer | Provide by supplier |
| Product spec sheet | Provided by buyer | Provide by supplier |
| IP ownership | Owned by buyer | Owned by supplier |
OEM allows you to build a dedicated facility to produce high-quality goods for potentially large brands.
By taking this approach, you can become an expert in your niche market and find your business associated with some of the most popular products in your industry.
ODM is more suitable for companies with expertise beyond manufacturing products and great ideas of their unique way of attracting the market’s attention.
It tends to suit companies with good product ideas, but they don’t necessarily want to invest the marketing budget to build own brand.
They can package their unique intellectual property and sell it to consumers through a brand they already know and love.
OEM Vs. ODM: FAQ
1. What is the difference between private labels and OEM and ODM?
Private label products are very similar to ODM. The manufacturer sells you the product, and you can brand it yourself before marketing and selling it.
The product is not explicitly made for the seller but is offered to other companies to apply their brand and market.
The product is not unique and can be purchased under multiple brand names, but it is one of the fastest ways to launch and sell a product.
2. What is the difference between OEM and Contract Manufacturing (CM)?
Contract manufacturing (CM) goes further than OEM. While an OEM may offer custom products or provide guidance and assistance in the product design phase, a CM is just that – a hired manufacturer.
If you run your business as a CM, the customer provides you with their product specifications, and all you have to do is produce the product.
The customer retains all intellectual property but has to provide all design requirements.
3. Selling on Amazon? You may need ODM more
For readers who have or are looking to start their own FBA (Fulfillment by Amazon) business, ODM is a more common approach. Most of us don’t have an R&D department working around day and night.
Furthermore, if you do have a successful OEM idea, private label sales are a great way to generate the startup capital and experience you will need to get it landed.
If you are interested in starting a business or improving a company you are already doing, give Yansourcing a try. No one can make it easier to private label sourcing and production.
OEM Vs. ODM: Conclusion
The main difference between OEM Vs. ODM is how and who develops their products. When deciding to use them, it comes down to available resources.
If a company has an R&D(Research and Development) budget and a reasonable time-to-market plan, then OEM is a good choice. If time and resources are scarce, ODM would be the way to launch a product.
Yansourcing, as the best sourcing agent in China, we’ve helped many customers purchase and customize their products in the past few years. If you want to find OEM/ODM suppliers from China, contact us to get more information.
