In various industries, you will often hear the terms OEM (Original Equipment Manufacturer) and ODM (Original Design Manufacturer). Both types of terms relate to manufacturing activities. Both are different. OEM refers more to production by a manufacturer with designs or ideas from other companies or brands. OEMs provide products according to ‘orders’ and are usually not private consumers as their target market. Then what is ODM? How is this different from OEM?
What Does It Mean When the Manufacturer Says ODM?
OEM is a provider who has permission to produce an item with a design from another company. It is different from ODM. It may be a more complex activity than the OEM. Customers come with their designs. It may also involve other manufacturing activities such as providing services such as product research and development, production, and maintenance.
ODM can also produce its products by considering current market conditions and analyzing trends. Then, they collaborate with other manufacturers and produce via OEM. Then, the perfect product is ready to circulate in society.
What is ODM? Even though they are different, many people confuse the terms and use them interchangeably. Many people refer to ODM as white-label or private-label products. Clients can make minor adjustments to the manufacturer’s existing product design to market it under their brand name. Changes and adjustments are common, such as using new brands, colors, or packaging.
In the marketplace, you may be looking for a product, for example, a water heater tank, and then find products from different manufacturers that are almost the same. The reality in the field and market is that ODM products are not limited to electronic types of equipment, but are more than that. You will notice that sports equipment, accessories, clothing, and furniture have a similar appearance but with individual brands, colors, and packaging. It is all an effort to meet consumer needs.
One advantage to doing business with ODM is that customers can create new products without spending millions of dollars or extensive time on research and development. Manufacturers may shift product manufacturing costs and focus on using them for marketing tactics.
Like all things that have two sides, ODM is not immune from that. What is ODM’s disadvantage? Some disadvantages may occur, for example, the difficulty of effectively building your product branding from competitors because they use the same design and price range. As a result, profit margins are often reduced because there is a lot of price competition. Buyers tend to choose ODM products with the lowest prices without caring more about the brand or color. That’s why creativity plays a lot in this business to truly differentiate their ODM products from other companies in the market.
Example of ODM Manufacturing Model
ODM is now increasingly popular with business people using it as a medium for producing products using existing products from manufacturers, labeling them as their own, and marketing and selling these products. Private label businesses are most of the clients of these ODMs. Anyone who wants to go into the retail business to form a large company and develop various levels of business can take advantage of ODM.
ODM contract creation may vary. If you want to start your business and become an ODM client, you will experience a similar scenario. For example, you want to make a portable fan product. A possible scenario is as follows.
A company approaches a manufacturer that produces various types of fans and then orders some portable fans in various colors. The manufacturer receives this order and makes the fan as usual but according to the consumer’s requirements, for example, the use of color, company logo, and delivery of the fan to the customer.
You don’t need to research how mini-sized fans can save power and others. You are supposed to determine the color, logo, packaging design, or other small details. Even if a client does not make adjustments in some cases and the manufacturer has previously produced portable fans in stock, all that is needed is to add the customer’s logo to the fan and send it.
So now you know what ODM is and can gain benefits from using ODM.
- The first thing is related to time and resources. You can save on these two things so that there is no need for a lot of hassle in designing, testing, and certifying new products. The reason is that the product, for example, the portable fan, is already on the market. With just a few adjustments, a portable fan product is ready to sell.
- Most of the time will only run out during the production process, not even if the manufacturer has prepared sufficient stock. You don’t need to bother introducing it to the market.
- For small-scale businesses to large companies, this is a solution that is very helpful and makes business easier.
- There is cost transparency when you start considering working together. ODM will offer a fixed price per product quantity.
Starting a business requires looking at what resources your strengths include types of business activity, OEM and ODM. Just knowing ‘what is ODM’ can help you get a knowledge and idea of the differences between the two. Using OEM is very suitable if the company has a limited budget for doing research and development. They may have limited trial time to produce the perfect product as well. ODM can be an alternative to launching a product if time and resources are limited.