Which is better, OEM or ODM?

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.

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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.

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.

In the world of manufacturing, there are different types of business models that companies use to produce goods. The three most common models are OEM, ODM, and OBM. These terms can be confusing, but they refer to different levels of involvement in the manufacturing process. Understanding the differences between OEM, ODM, and OBM can help you make informed decisions about your own business strategy.

OEM (Original Equipment Manufacturer)

OEM refers to a company that designs and manufactures a product, which is then sold under another company's brand name. In other words, an OEM creates products that are sold by another company under a different name. The OEM is responsible for the design, production, and quality control of the product, while the other company is responsible for marketing, sales, and distribution.

For example, LG is an OEM that produces consumer electronics and consumer durables. These devices are sold under the LG brand name, they are manufactured under LG own factories.

OEM v/s ODM v/s OBM

ODM (Original Design Manufacturer)

ODM is similar to OEM, but the difference is that an ODM produces products based on the specifications and designs provided by another company. In other words, the ODM is responsible for the manufacturing process, but the design and branding are done by the company that commissioned the product. The ODM has the expertise and infrastructure to manufacture the product efficiently and cost-effectively.

For example, Apple is known for designing its own products, but it also uses ODMs to manufacture them. Foxconn, a Taiwanese electronics manufacturer, is one of the ODMs that Apple uses to produce iPhones, iPads, and other devices.

OBM (Original Brand Manufacturer)

OBM refers to a company that designs, produces, and sells products under its own brand name. OBM companies have more control over the entire manufacturing process, from design to marketing to sales. OBM companies are responsible for everything from concept development to customer support.

Tesla is an OBM company that designs, produces, and sells electric vehicles under their own brand name. They have control over everything from the design of the cars to the software that runs them.

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Key Differences

The main difference between OEM, ODM, and OBM is the level of involvement in the manufacturing process. OEMs design and manufacture products that are sold under another company's brand name, while ODMs manufacture products based on the designs and specifications provided by another company. OBM companies design, produce, and sell products under their own brand name.

Another key difference is the amount of control each type of company has over the manufacturing process. OEMs have the least control, as they are only responsible for the design and production of the product. ODMs have more control, as they are responsible for the manufacturing process, but not the branding. OBM companies have the most control, as they are responsible for the entire process, from design to marketing to sales.

From OEM to OBM in Taiwan design development

Here are the advantages and disadvantages of each business model:

OEM (Original Equipment Manufacturer)

Advantages:

• Lower production costs due to economies of scale
• Ability to focus on core competencies and outsource non-core tasks
• Opportunity to work with multiple brands and industries
• Reduced risk and responsibility for branding and marketing

Disadvantages:

• Dependence on the brand owner for business and revenue
• Limited control over the product and its branding
• Lack of differentiation from competitors who may be using the same OEM

ODM (Original Design Manufacturer)

Advantages:

• Cost-effective production due to specialization and efficiency
• Ability to customize and adapt to different client needs
• Opportunity to work with a variety of clients and industries
• Increased control over the manufacturing process

Disadvantages:

• Dependence on the client for business and revenue
• Limited control over the final product, which may not fully align with the ODM's vision
• Risk of product imitation and commoditization

OBM (Original Brand Manufacturer)

Advantages:

• Complete control over the product, from design to distribution
• Strong brand identity and recognition
• Opportunity to create unique products and differentiate from competitors
• Potential for higher profit margins

Disadvantages:

• Higher risk and responsibility for branding, marketing, and sales
• Higher upfront costs for design, production, and marketing
• Limited flexibility to adapt to changes in the market or client needs.

Which is Better?

There is no one-size-fits-all answer to this question, as it depends on the needs and goals of each individual company. Each business model has its own advantages and disadvantages.

OEMs have the advantage of being able to produce products for multiple companies, which can lead to economies of scale and lower production costs. However, they have less control over the branding and marketing of the product.

ODMs have the advantage of being able to manufacture products efficiently and cost-effectively, while allowing the commissioning company to focus on design and branding. However, they have less control over the final product and may face competition from other ODMs.

OBM companies have the advantage of complete control over the manufacturing process, which allows them to create unique products and build a strong brand identity. However, they also have the highest risk, as they are responsible for the entire.

In conclusion, OEM, ODM, and OBM are different types of manufacturing models with distinct levels of involvement in the production process. OEMs design and manufacture products for other companies to sell under their own brand name. ODMs manufacture products based on the designs and specifications provided by another company. OBM companies design, produce, and sell products under their own brand name. Each model has its own advantages and disadvantages, and the choice of which one to use depends on a company's needs and goals.