ODB OEM OBM

KNOW THE DIFFERENT BETWEEN OEM AND ODM AND AS MUCH OBM

Original Equipment Manufacturers (OEM) sell highly customized products designed to suit a client’s specifications. Meanwhile, Original Design Manufacturers (ODM) produce their own products and essentially lease them out to clients on a private label or white label basis so they don’t have to invest in building their own consumer brand.

OEM explained in detail

An OEM is a type of manufacturer capable of creating a product to a customer’s precise specifications – or at least as close to spec as the manufacturer is capable of, given any equipment or supply restrictions.

OEMs are a vital piece of the product development puzzle for companies that have all the skills and resources required to ideate a product and perform the required market research, but lack the manufacturing capacity to produce it (especially at scale). Essentially, OEMs allow a business to produce a product and get it to market without needing to build, staff and run a factory.

Depending on the client’s requirements, an OEM may produce a wholly custom new product or a product from the OEM’s range that has been heavily customized. OEMs also sometimes offer guidance on product design to ensure the end result can actually be manufactured. In any case, the client generally retains their intellectual property rights as it is their design, and would only give up parts of their IP if they have had to rely on the OEM for more than just manufacturing.

Additionally, OEMs may produce sub-components, for their clients to use within their own manufacturing process.

The responsibility of OEM’s customer:

• Product design
• Market research
• Marketing
• Product testing

What the OEM does:

• Manufactures the product

OEM versus Contract Manufacturing (CM)

Contract Manufacturing (CM) is a step beyond OEM. While an OEM may offer products to be customized or may otherwise guide and help in the product design stage, a CM is just that – a manufacturer for hire.

If you run your business as a CM, clients approach you with their product specs and all you are required to do is produce the product. The client retains all IP rights but, in return, must provide all design requirements.

Apple’s connection with Foxconn is one of the most famous illustration of the OEM model. Apple is a multinational corporation with huge research and development resources, but it lacks a manufacturing component. Instead, Apple outsources its manufacturing to the Chinese company Foxconn which then builds products such as the iPhone. Apple retains its IP and receives a high-quality manufactured product.

In addition, Apple also frequently engages other OEMs to produce sub-components that are then sent to Foxconn.

ODM explained in detail

Original Design Manufacturers work differently from their OEM counterparts in that they typically do a lot of the product design work in-house, and in a sense lease out their products for other businesses (clients) to sell.

Companies will often use ODMs as either a way to get an idea to market very quickly, with less R&D cost, or because they see an opportunity in the ODM’s line of products and decide to approach the ODM to lease some of them. In these cases, the products are actually the ODM’s, and they have simply been altered in some way – usually just rebranded, but sometimes slightly customized in other ways – to suit the brand that wishes to sell them. This is also known as white label manufacturing. 

That said, not all ODMs operate exclusively as white label manufacturers. Some offer a custom product service for clients who have great ideas but lack the resources to design them.

For example, if a client had an idea for, say, a new footwear item but could not design it on their own, they might approach an ODM – almost like pitching a new business idea. If accepted, the ODM would manufacture it to be sold as a private label product (see below). In this case, most of the IP rights remain with the ODM.

The responsibility of ODM’s customers:

• Product ideation
• Spots a new market opportunity for their brand

What the ODM does:

• R&D
• Product testing
• Product manufacturing
• White or private label offerings

All these forms of manufacturing process have pros and cons. Every business man knows where he compromise and benefit more than the other. 

OBM - Original Brand ManufacturerOBM 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