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.

OEM and ODM are terms commonly heard in manufacturing, but while they sound similar, they are not two names for the same concept. There are fundamental differences between an OEM and ODM, but these two words are often used interchangeably, adding to the confusion. In this article, we’ll review the characteristics of both OEMs and ODMs, and understand the key differences between them.

What is a Product Company?

Product companies perform market research in order to market and sell products to consumers. We encounter product companies on a daily basis. For example, Apple is a product company that sells iPhones, MacBooks, iMacs, and other Apple-branded devices to their customers. Similarly, HP is a product company that sells desktops, laptops, and other equipment, and Samsung is a product company that sells a wide range of electronic devices.

Samsung has the capability to design, market, and sell products to end users, but not all product companies have the ability to design or manufacture the products they sell. These functions can often be outsourced to other companies with the expertise to design or manufacture the products needed.

Product companies generate ideas for new products. They perform extensive market research to test the validity of the product idea, and if it’s not validated by market research, the product company will often go back to the drawing board. If the product idea is validated, the product company will then proceed with the next steps to bring the product to the market.

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What is an Original Equipment Manufacturer (OEM)?

Once a product idea is validated, the next step is to design the specifications, functions, and other considerations required to manufacture the product. This can involve significant research and development expenditure, plus R&D expertise to execute the design phase.

In instances where product companies have an R&D budget and the necessary design expertise, the design phase is performed within the product company itself. For example, Apple has the budget and the capability to design CPUs, and so the Apple silicon chips are designed in-house. However, they don’t have the capability to mass produce the chips and rely on TSMC to meet their production needs.

Here, TSMC is the original equipment manufacturer (OEM) for Apple, as they manufacture the chips in their foundry. Other product companies also rely on OEMs to manufacture the products they design. In short, OEMs manufacture end products for product companies that have the capability to design products but not the ability to manufacture them. Product companies then sell the product they designed with their branding.

What is an Original Device Manufacturer (ODM)?

When the product company lacks the R&D budget and/or design capabilities, they’ll depend on an Original Device Manufacturer (ODM). ODMs design the product for a fee, license, or some other business model.

In many countries, cell phone carriers sell devices with their branding but rely on ODMs to design and manufacture smartphones for them. This is where ODMs shine, providing design and manufacturing expertise for product companies.

In most instances, ODMs will have the capability to both design and manufacture the product. However, if the ODM does not have the necessary manufacturing acumen, the product company will need to find a suitable OEM to manufacture the product for them. When this happens, the product is researched by the product company, designed by the ODM and then manufactured by the OEM.

Many ODMs also produce white-labeled products and will have a range of electronic devices designed and ready for manufacturing. Product companies can then choose a design from the ODM’s white-labeled portfolio and the ODM will manufacture the product with the product company’s branding.

‘White-labeled electronics’ can be a major revenue stream for ODMs. In such instances, ODMs perform market research and then design and manufacture the product themselves. All that remains is for the branding to be customized to suit the respective product companies.

As we have seen, OEMs and ODMs do not perform the same functions. OEMs have the capability to manufacture designed products, but they often lack design capabilities. ODMs have the capability to design products for their clients and will typically have the manufacturing expertise too, but there are some ODMs that only perform the design side of the equation.

OEMs and ODMs are integral to the product supply chain of product companies, as they share their expertise in design and/or manufacturing with product companies that need those services.

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