OEM vs ODM Products - What's The Difference and Why Does It Matter?

Manufacturing Sourcing

When it comes to manufacturing a product we often get asked about two types – OEM vs ODM. If you are thinking of getting a product produced, it’s important to understand the difference between the two and the risks and benefits attached to both.

Man in hard hat looking at products being manufactured in a Chinese factory

What is OEM?

The abbreviation OEM stands for Original Equipment Manufacturer. A company that designs and builds a product to its own specifications is undertaking OEM. The company usually sells the product to another company for distributing to the market. The selling company may use their brand on the product for sale under a private label arrangement.  OEM may be referred to as a service while ODM is a product.

What is ODM?

The abbreviation ODM stands for Original Design Manufacturer. A company that designs and builds a product to another company’s specifications is undertaking ODM. They usually take on the cost of the equipment and building to make the product.

How is Private Labelling Different to OEM and ODM?

A private label product is quite similar to ODM. The manufacturer sells a product to you which you can brand your own before marketing and selling. The product is not made specifically for the seller and is made available to other companies to apply their brand and sell. 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.   

Even if a product is private label, it is not without its risks. As simple of printing your logo on the product can go wrong if you don’t fully brief the manufacturer. Also, you don’t know if someone already has a patent on the product or part of the product.

A private label product still needs to be full tested and quality assurance conducted. Before purchasing, conduct testing to ensure the product isn’t defective and meets the requirements of the market you are selling it in.

Risks & Benefits of Original Equipment Manufacturing (OEM)

If you are thinking about undertaking OEM, consider some of the associated risks and benefits for this type of manufacturing.

Risks of OEM:

  • If any special tools or moulds are required, as the buyer you will be expected to pay for them
  • Product development can add significantly to the time it will take to get the product to market
  • You will need to pay for any tools or moulds needed by the OEM Manufacturer

Benefits of OEM:

  • As the buyer, you own the intellectual property of the product
  • You can customise the product
  • It may be more difficult to copy your product
  • Less risk in manufacturing because a working prototype is available

Risks & Benefits of Original Design Manufacturing (ODM)

Just like OEM, there are risks and benefits with undertaking an ODM project.

Risks of ODM include:

  • The intellectual property of the product is owned by the supplier or another company
  • Other companies may start selling the same product as you
  • Another company may threaten you to cease production because they believe you are using their intellectual property
  • You are responsible for any problems during sampling and product control
  • Late in the process, you may realise it would have been faster to design the product rather than try to reverse engineer it.

Benefits of ODM include:

  • If any special tools or moulds are required, the supplier pays for them.
  • Usually faster to market than OEM
  • Your company isn’t responsible for paying for new tools or equipment required to manufacture.
  • Save time and money on R&D because it has already been done for you
  • The risks of the product being copied can be greatly reduced by only dealing with proven, reliable manufacturers. One of the biggest areas in which Vara Allied can bring value for you is a long-term relationship with Chinese manufacturers which, based on the volume of our contracts and strong relationships, are not likely to put you in that situation.

Whichever method of manufacture you choose, know the risks and attempt to mitigate them by carefully selecting your supplier. Ensure they are reputable and experienced in your type of product. Be prepared to provide product specifications and instructions, no matter which method you go with. Request samples and test thoroughly.

 

If you have more questions about ODM or OEM, ask one of the experts at Vara Allied by calling (08) 6161 8041 or contact us.