You come across certain terms such as OEM and ODM when you are sourcing products. These are the different approaches to manufacturing of products. This chapter will enlighten with the meaning and concept of these two terms so that you may choose the best option for you.
OEM (Original Equipment Manufacturer)
If you have a business that includes new and innovative products, OEM should be your preference.
Original Equipment Manufacturer, as the name suggests, is when a company that has invented or designed a product on its own from square one; hires another company to manufacture it for them. For instance, when you have a new idea for an app and design it but need help producing it to the market. Foxconn is an example of OEM. It is a Taiwanese electronics company that manufactures certain parts of other companies’ products such as Nintendo, Dell, Apple, etc.
The minimum order of quantity with OEM would be higher than with ODM as it needs technical understanding of the product a higher level of capital expenditure.
ODM (Original Design Manufacturer)
Original Design Manufacturer is also known as private labeling. Here, you communicate with a manufacturer of an already existing product and have it branded with your own brand and enterprise information. This is often done with the assistance of an app called Alibaba.com. You can also request for any modifications required. Usually suppliers are not very thrilled to make many major changes to their product. They only agree on modifying certain aspects like the size of the product or its color and packaging.
The various sellers or entrepreneurs whom you hear of that import from Asia and sell on Amazon or Flipkart, use this particular method. The most frequently visited site to find ODM manufacturers, mainlyin Asia, is Alibaba.com. There are various other sources including GlobalSources.com, and Made-In-China.com, Aliexpress.com, etc. We would further learn about these resources at length in the Supplier Marketplace Chapter.
The minimum order quantity with ODM would be lesser than with OEM as it does not cost as much to produce already existing products than new ones.
Pros and Cons of OEM and ODM Manufacture
|OEM Manufacturing||ODM Manufacturing|
|Advantages||· You get exclusivity to sell the product.
· You can customize the product freely.
|· Cheaper or no manufacturing costs.
· The minimum order quantity required is lower.
|Disadvantages||· Expensive manufacturing costs.
· The minimum order quantity required is higher.
|· You do not get product exclusivity
· The opportunity for customization is more rigid.
1) OEM manufacturing is for you if you have a new invention you would like to mass-produce.
2) Conversely, if you want to import an already existing product under your brand name, with few opportunities to customize the product, ODM manufacturing is the way to go.