OEM and ODM are two items that you must have heard about before in business, but you may be confused about them. Actually, they are two important and common kinds of cooperation models in industrial society, especially in international trade.
This blog will explain OEM and ODM meaning, products and business models through typical examples, and tell you how to select OEM and ODM services and suppliers.
What's OEM Meaning in Business Model? (OEM Examples）
OEM stands for original equipment manufacturer, in my words, brand owners utilize the core technology to conduct design and development, control sales channels. They will cooperate with other companies to help them complete the production. The factories just focus on manufacturing without participating in the design.
Examples of OEM Business Model
Nintendo, a famous company in Japan that specialized in the development of computer games, completes the software design and development by itself. They just provide firmware, equipment for Foxconn, and assist Foxconn in analyzing statistics and testing products.
And Foxconn just completes the manufacturing, without any opportunities to access to source code. The final product sales, including time to market, sale price and sales areas, are all decided by Nintendo.
Besides, many processes are dominated by Nintendo, such as choosing the type and price negotiation of CPU, DDR or other components. Foxconn just conducts Nintendo’s decision accordingly. Except for Nintendo, Apple, also a typical OEM example, it cooperates with Foxconn in the same business model.
Hence, the typical characteristic of the OEM model is that the brand company has the ability of design and R&D, and they just cooperate with a factory located in human resource-intensive areas to help them conduct the manufacturing process. The cooperation model between Foxconn and Nintendo these brand companies is a typical OEM model.
You may think such examples about famous brand companies are uncommon for small businesses. Let’s take another example of OEM. Last year, we received an OEM order from the Middle East, and the buyers wanted to customize a kind of brand new design ring. But the design would be provided by themselves.
They prepared the ring’s design manuscript in advance, specifying specific parameters of the product, like length, width, diameter, material selection, the logo carving, etc.
What they wanted us to help them was just to find a reliable factory with a competitive price, help them follow up the production, arrange shipment, etc. Just like Nintendo, the client was in charge of the product design, and we helped them follow up the factory’s production and shipping.
What's ODM Meaning in Business Model? (ODM Examples)
ODM stands for original design manufacturer. Under this model, the brand company needn’t design and R&D. The factory will finish the whole process from design to maintenance, and provide several existing styles of products for the brand company to choose from.
In some cases, a manufacturer produces a kind of product, and this product is chosen by some other companies, they will ask the manufacturer to produce with their brand name or changing the design a little bit. In this way, the manufacturer is called ODM Manufacturer, the product it produces is called ODM Product.
This process is similar to booking a cake. When you want to book a cake, the staff usually provides you with several styles to choose from, and then you will choose a style and want to make some changes, like the material, decorations.
Examples of ODM Business Model
Just like the above example, small businesses that choose ODM manufacturing usually lack R&D ability. They will buy from the current products from China and make some small changes to products’ accessories or other aspects, and then they will print their own logo before sales.
Especially for some ordinary small items, what you need to do about customizing is just to tell the factory about your demands.
Take an ODM example of a small business, one of our customers intended to purchase beer bottle sleeves from China, but he found the existing product style was unsatisfactory. Then he wanted the factory to add an element: bottle opening function as the following picture shows:
Another example, many e-commerce courses tell you a tactic to make money by selling online: to increase your products’ competitiveness, you should sell products with your private label. Such products with private labels are also called ODM products.
What’s OBM Meaning?
OBM means original brand manufacturer. In other words, foundries themselves found their own brands as private brands (different from private labels), and use this brand to sell on the market. Its business covers from design, procurement to production and sale.
However, it requires them to put a lot of money and investments into building a perfect marketing system, OBM business costing more than OEM and ODM business, even conflicting with their own OEM and ODM customers.
So, fewer foundries would like to make a big production in the OBM business.
For instance, many manufacturers provide OEM or ODM products and services on Alibaba. And on this website, you can find many factories that produce a large number of different kinds of products. But most of these products seldom sell in the brand name of these factories. Why?
The reason is that they can benefit more from providing ODM and OEM products directly to their customers than investing a lot in marketing their own brands and products sales. But there also are some large ODM or OEM companies doing both businesses at the same time.
What's the Difference between OEM and ODM?
What’s the Process of OEM and ODM Services?
According to the process of ODM product above, I conclude shortly the whole process of ODM service as well as OEM service as the following charts shows:
From the charts, you can find that ODM manufacturing has more process steps than OEM manufacturing. The differences between ODM and OEM manufacturing processes are as follows:
- Involved in all aspects of products in ODM manufacturing
- While only involved in production in OEM products
- Provide all necessary information and materials to manufacturers in OEM manufacturing
- While involved less in ODM products, just making decisions in the final steps
What're the Pros and Cons of OEM and ODM?
|Compared Differences||OEM Manufacturing||ODM Manufacturing|
|Product Design||Provided by Customer||Provided by Manufacturer|
|Product Patent (IP Ownership)||Belong to Customer||Belong to Manufacturer|
|Product Spec Sheet||Provided by Customer||Provided by Manufacturer|
|Product Unit Price||No Difference||No Difference|
|Investment Fees||More on Product R&D||Mainly on Marketing|
|Production Time||No Difference||No Difference|
|Product Advantages||Unique Design, Flexible Production||Saving Time to Sell|
|Product Disadvantages||High Costs, Long Product Cycle||Competitive Price, Competition|
Detailed information on OEM and ODM must make you more clear about the two business models. For small businesses, I will list the pros and cons of OEM and ODM for your reference.
Pros of OEM Business Model
Customers can control the design of products totally. The product IP belongs to customers as well. So they can choose different OEM manufacturers to produce their products. They decide the flexible design of products as well as different product standards.
OEM manufacturing reduces the production burden of customers, especially large companies. They just need to pay the costs of materials and processing, without buying any production equipment or building any factory. They can place orders flexibly according to the market demand and change.
In the OEM business model, customers don’t worry too much about production but focus more on product R&D so that they can form their product competitive advantage with innovation. Like Apple, consumers would care about their product innovation more than how the product is produced when buying its electronics, right?
Cons of OEM Business Model
Product design requires a high level of resources, including R&D costs, professional knowledge, skills and ability. These investments always mean potentially high risks. Meanwhile, the design also needs to be protected from being copied by other companies.
If customers provide product design, it requires a long time to prepare and finish the design before production in large amounts. From design to final products, the whole product cycle is much longer than ODM products.
Pros of ODM Business Model
For small businesses, you don’t have enough resources to develop a new product from design to production, like cosmetics. It requires a lot of investment. But if you choose ODM, you can acquire the product and sell it in a short term.
In this model, customers can save a lot of costs on developing new products. They can focus more on product marketing strategies. Like the beer bottle sleeve, this product has already existed, so why design a totally new one? You can just add some differences and consider more on how to sell it.
ODM helps you save time and money on developing a new product. For you, the product cycle is short so that you can enter the market quickly with a full range of products.
Cons of ODM Business Model
ODM business model cannot avoid product competition with others in price, product types and designs. You don’t have price superiority in your products, and product similarities would reduce your profits.
Like the product of rings, if my customers choose ODM manufacturing, they would have no design styles or brand advantages on the market.
Customers don’t have the product IP, so what they can do to change product design or standard is little. Their product choice is limited, in most cases, they can only decide if they are satisfied with the product or how many products they want to order.
Summary, you may ask a question which is the better choice, OEM or ODM? There is no absolute answer to make a choice between them.
My advice is that the OEM model can help big or small business form their professional production to guarantee good product quality; while the ODM model is more suitable for those companies who want to save more costs and enter the market quickly.
Why and How to Select OEM and ODM Services？
Why Need and Choose OEM Service?
For many small businesses, it is costly to invest in constructing a factory, and the risk is uncontrollable. Besides, it is uneasy to recruit and manage tens of thousands of workers. Many companies will adhere to a principle tacitly: professional works should be distributed to professional companies.
For example, these companies that focus on R&D and innovation like Apple, Nintendo, Microsoft, IBM will let foundries like Foxconn, Pegatron, Flextronics, Inventec finish the production and assembly.
Why Need and Choose ODM Service?
There are 2 situations for adopting the ODM service.
Brand companies have wide sales channels and market operation ability, but they lack R&D ability. Then they will find a factory with strong R&D capabilities to make the product according to their demands.
Brands companies have R&D capabilities, but some low-end products with low profit are not worthwhile for them to invest a lot of time or labor into completing it. Then they usually choose one type from other companies’ existing products and make some adjustments, then sell products under their brand name.
In international trade, for many ordinary products like beer bottle sleeves, many companies usually make some small changes to existing products.
Where to find OEM and ODM Suppliers？
Through the explanation of OEM and ODM in the above section, you must have known that every kind of business needs OEM and ODM to make product ideas into reality or lower product cost, no matter for big or small businesses.
In this section, I will focus on teaching small business operators or startups how to find reliable ODM or OEM manufacturers and suppliers and how to identify them.
There are 3 main channels to find OEM and ODM manufacturers and suppliers:
- Online B2B websites
- Offline trade fairs or wholesale markets
- Souring agents
Online B2B websites
For small business operators, searching ODM and OEM suppliers online is the most convenient and economical way. There are many factories for you to choose to cooperate with. There are main B2B websites as follows,
Most suppliers on these websites will explain whether they provide OEM, ODM, Customizing, Private Label or White Label services on the product listing page. If they don’t state clearly whether they can provide the service, you can ask suppliers directly if they offer this service.
Offline trade fairs or wholesale markets
If you think finding suppliers online is not a reliable way, you can visit your local wholesale markets to find suppliers. There are two reasons for choosing the way: convenience and high efficiency.
If you can come to China directly, you can attend some Chinese fairs or visit wholesale markets. Compared with finding suppliers in your country, it may be more troublesome to find suppliers in China while it can also be a more cost-saving solution for your business ultimately.
Troubles you can expect include language barrier, much more expenses on hotel and transportation. Besides, you need to know the main district the wholesale markets and fairs located at, Shenzhen, Guangzhou, or Shanghai.
So, you need to make a detailed agenda before visiting China. But there are also merits for you to visit China. The most advantageous point is that you can have more OEM or ODM suppliers to choose from and get products at a very competitive price.
In recent years, sourcing agents are popular among importers, especially for new importers. A professional sourcing agent has abundant OEM or ODM factory resources, like us Jingsourcing. We can help you select the right manufacturer to make your products, negotiate price, follow up production, control quality, inspect products, arrange shipment, etc.
Our thoughtful and comprehensive service will be helpful for your business.
How to Identify a Good Supplier of OEM and ODM Services and Products?
No matter you find OEM and ODM suppliers online or offline, remember these 5 critical points of selecting a good manufacturer and supplier to cooperate with.
- A good balance of the quality and price
- Good communication
- A good attitude towards problems and ways of solving them
- Own complete factory qualification authentication
- If using a new mold, make sure the mold can fetch back or not
Warm prompt: big factories are not always suitable for you, and you should select the best one according to your actual situation. Remember to choose the factory that is serious with your order and patient to communicate with you.
What're the Processes of OEM and ODM Products in China?
OEM products meaning is the products designed by customers and produced by manufacturers; while ODM products refer to those products both designed and produced by manufacturers. Most products can be chosen as OEM or ODM products.
Here are 7 main steps in the process of OEM & ODM products. There will be a little difference in some steps for different products. Take cosmetics as an example of ODM and OEM, I will tell you their working process. But I will mainly focus on explaining the process of ODM products as both models’ process is similar.
Step 1: Create a prototype or design of your product
The factory will choose the suitable cosmetic formulations and make a sample according to your requirements of products, and then give it to you for a test.
Step 2: Find a China manufacturer
After the test, if you are satisfied with the cosmetic sample and the price, it will be necessary for you to come to the factory for an inspection in person, including R&D ability, production capability, the workshop, etc.
Besides, as make-up will be directly used on the skin and its security must be guaranteed, it is very important for you to cooperate with reliable and qualified factories. But if you import some other small items like beer bottle sleeves mentioned above, you can choose not to make a field visit to the factory.
Step 3: Estimate the cost of the whole project
After the field visit, you will sign the contract with the factory. In the meantime, the factory will charge a certain deposit. (NOTICE: the sum varies from different factories.)
Step 4: Make a pre-production sample
The factory will be responsible for the package design and sourcing package material, which is usually a free service provided by factories. Of course, they will design the package to meet your demands and then let the professional package factory make some package PP samples for your choice.
Step 5: Choose private label and packaging solutions
After confirming the cosmetics material, ingredients, and package design, the factory will go to FDA for product tests and filing.
Step 6: Start massive production
After the test and filing, the factory will conduct the product fill, packing and QC process. Generally, it will take 15-20 days to complete the whole process. After finishing the whole manufacturing process, you need to pay for the balance.
Step 7: Delivery
The factory will arrange the shipment, and they will choose the best shipping method according to the delivery time and goods volume. The cosmetics are usually shipped by sea.
FAQs about OEM and ODM
What is OEM service on Alibaba?
As mentioned before, OEM services can be found on online B2B websites, and Alibaba is always the first choice for big or small businesses. Many suppliers or manufacturers on Alibaba can provide such products. You can also find other product services on Alibaba, like ODM service and customizing.
What’s the difference between ODM and Private Label?
There is no clear distinction between ODM and Private Label. Both of these two models’ essence is that sellers make improvements against an existing product for adapting to the end customers’ needs and sell the products under their own brand name. Actually, many foreign clients of us also refer to “ODM” as “Private Label”.
How to Start OEM or ODM Services？
Before choosing OEM or ODM services, you should be clear about your actual situation and which kind of products or business models you want. No matter you choose OEM or ODM, the common point is that decrease your production cost and increase your profits for a safer business.
What does CM mean?
Contract manufacturing means companies sign contracts with other manufacturers, and these manufacturers produce products, while those companies are responsible for selling. This cooperation is beneficial to improve the utilization of existing resources and refine industrial chains to make the chains on large scales and specialization.
What does JDM mean?
JDM means joint design manufacture. This model means that manufacturers work with their clients to develop products, and then promote new products into more industries and customers. It is raised by Chinese server manufacturers; they make the joint design with many big Internet companies to acquire their position on the Internet market.
Thanks for reading, if you have any questions about ODM and OEM, let me know by leaving a comment below. Or you can consult us about what you want to know about OEM and ODM products in China.
We’re Jingsourcing, a leading sourcing agent in China. If you want to find OEM & ODM suppliers and manufacturers from China, please CONTACT US without hesitation!