About OEM & ODM

EBUYSOURCING

02/11/2022

About OEM & ODM

If you have an idea for a new product and are looking for a reliable manufacturer and partner to bring your product to market, you may come across the terms OEM and ODM manufacturing. Distinguishing the two can be confusing and you may not get a clear definition from internet sources.

In this article, we’ll explain what OEM manufacturing is, when an OEM manufacturer might be needed, and what an ODM can offer and what an OEM can’t.

The difference and the risks and benefits associated with the two are important.

What is OEM manufacturing?

OEM products are manufactured to the buyer’s product specifications. For example, any product with a custom design, material, size, function or even color can be classified as OEM. For some, OEM simply refers to a product designed entirely to the buyer’s specifications, while others classify the slightest modification of an existing ODM product design as an OEM. That said, most buyers and suppliers will agree that the primary definition of an OEM product is a product for which tooling (such as an injection mold) must be produced before production can begin.

Choose ODM if you want to sell on Amazon. ODM is the more popular model sold on Amazon because you don’t need resource-intensive requirements to run an OEM model. Startups should take advantage of the ODM model to learn the ropes of business without huge risks.

1.1 OEM Advantages:

The main advantage of OEM is that the designer retains full creative control over the design. ODM products are limited to pre-determined designs, while OEM products can be manufactured to any specification.
You can get a quote from the manufacturer quickly because you will get detailed specifications and designs.
This type of business relationship can be a great way to bring a product to market and start generating revenue.

1.2 OEM Disadvantages:

Changing suppliers is not easy because you need to change the entire supply chain.
Because sub-suppliers are not disclosed, factories can replace them without resorting to buyers. Material or process changes can have a serious impact on product quality.
If your sales are high, suppliers may want to compete with you.

2. What is ODM manufacturing?

ODM products are based on existing designs – developed to some extent by the manufacturer rather than the buyer. An ODM product can be the result of a supplier’s own product development work, or it can be a replica of an existing product on the market. ODM products, often referred to as “private label products,” can be marked with the buyer’s logo. Also, in many cases, ODM products can be modified to some extent. Changes may include packaging or product bundles, colors and branding, and some limited adjustments to components or functionality. It’s easy to find similar products on sale that have the same design, just different brand names, colors, and packaging. This model does not handle electronics.

2.1 Advantages of ODM

A significant advantage is that it frees customers from the costly product development process of designing and innovating new products. This allows the importer to focus on the product’s marketing strategy.
The ODM will handle all the technical resources required for the success of the product manufacturing process. This way, you don’t have to worry about expertise or resources to meet your design specifications.
Because the ODM owns all the key components to design, manufacture and brand the product, the cost of developing a new product is often much lower than the cost of working with an OEM.
ODMs typically have lower minimum order quantities (often referred to as MOQs) requirements.

2.2 Disadvantages of ODM

Changing suppliers is difficult because they have designs. If your sales are high, the supplier is likely to compete with you.
The buyer is taking a risk – how to ensure a supplier doesn’t steal a design from another company? For example, Amazon may ban your product and you may have to pay a fine.
If you inspire them and ask them to change an existing product, and they think it’s promising, they’ll probably keep doing it without you…
The main disadvantage is that it is difficult for consumers to tell the difference between your item and your competitors’ items because they have similar designs. The prices are more competitive and therefore less profitable. For example, consumers may buy products purely based on price rather than brand because they have similar designs. Importers have to be very creative in order to differentiate their products from those of their competitors.

3. What is OBM?

An OBM stand original brand manufacture. OEMs operate their own brands, or manufacturers create their own product brands, producing and selling products under their own brands. Since the foundry must have a complete marketing network to support OBM, the cost of channel construction is very high, the energy spent is much higher than that of OEM and ODM, and it often conflicts with its own OEM and ODM customers.

OEM vs ODM: What’s the Difference? Which should I choose?

The main difference between OEM and ODM is the way the product is developed. As a customer, you must consider differences in time, cost, and IP ownership.

It depends on your needs. Do you have a finished design ready for manufacturing? If so, OEM is the right partner for you.

If you are considering developing a product or are already working on it, we generally recommend working with an ODM partner. We believe that involving your manufacturing partners at the beginning of the process is a best practice you should follow.

4.1 Why OEM service?

Companies with R&D as their main business outsource the production and assembly of their products to foundry companies. Examples of innovative companies are Apple, Nintendo, Microsoft and IBM. Examples of foundry companies are Foxconn, Flextronics, Pegatron and Inventec.

OEM Scenario 1

Your company provides the OEM with all materials, drawings, specifications and sometimes tooling designs related to product design. OEM manufactures your product according to your design.

OEM Scenario 2

Your company is sourcing a product from a manufacturer, but the manufacturing company either developed the product itself beforehand or acquired the rights to the product from a third party.

To find a good OEM supplier, you usually look for a manufacturer that already makes a product similar to what you need. The reasons are as follows:

They know the assembly process. They already have a supply chain (buying materials and components). They already know the main risks and testing procedures to be aware of.

4.2 Why choose ODM service?

There are two scenarios in which ODM can be used. Choosing an ODM manufacturer is easy. You just need to look for suppliers who have products that can be sold in your market.

Scene one

The company brand has multiple sales and marketing channels. However, they do not have R&D capabilities. These companies will outsource services from R&D specialist companies to produce their products according to the designs and specifications they want.

Scene two

Brand companies have research and development capabilities. However, low-margin products are not economically viable for companies to invest significant time or labor to complete them. The company will select a single type of such low-end product from another company’s existing products. All the company does is make slight modifications to the current product and then resell it as its own brand. A good example is the international trade market.

The previous section explained the importance of OEMs and ODMs and why every business needs them to thrive. OEM and ODM are the only way for companies to realize their ideas. Companies big and small need them. However, small businesses/startups can have a harder time identifying or finding a reliable manufacturer.

The bet advantage of OEMs and ODMs is to reduce production costs and thus maximize profits. This is an important factor for small businesses and start-ups that cannot risk high production costs and have low profit margins. This situation can kill the company very quickly. The following sections focus on teaching you how to identify and find reliable manufacturers.

5. Where can I find an OEM or ODM supplier?

B2B website 2. On-site trade fair or wholesale market 3. Purchasing agent

5.1 Online B2B Websites

Finding reliable suppliers online can be convenient and more affordable for small businesses and start-ups. The biggest manufacturing plants you can connect with online are Alibaba, Made in China and Global Sources. Suppliers explain the details of their services to potential customers. Some of the services they provide are OEM, ODM, customization. All of this information is listed on the product listing page.

5.2 On-site trade fairs or wholesale markets

You may find it unreliable to find suppliers online. Another option is to visit your local wholesale market in person to identify suitable suppliers. This is advisable if you are in a manufacturing powerhouse like China. It is convenient to meet with suppliers in person, and you can see the product in person, so the quality is guaranteed.

It also helps you reduce the risk of dealing with middlemen who often defraud online customers. If you live far from China, you can invest in a trade show. It will cost you, but it will be a one-time and worthwhile investment because you will find a reliable supplier who can be a lifelong partner in your business.

However, it is best to be prepared for some challenges, such as language barriers, travel and accommodation costs.

Also, you should know the location of the wholesale market. They are in Shanghai, Guangzhou and Shenzhen. Therefore, you need to make detailed plans before traveling. It’s also good to look on the bright side. You will choose among many OEM China and ODM suppliers. Prices will be more competitive and friendly.

5.3 Purchasing agents

New importers mostly prefer sourcing agents. However, make sure you hire a professional purchasing agent. Agents have many resources and information about the best suppliers or manufacturers to meet the needs of customers.

Like Ebuysourcing: Their services include: guiding you to choose the right manufacturer, negotiating prices, following up on production, ensuring high or standard quality, testing products, and arranging shipments. This is very convenient for you as a customer because you don’t have to get your hands dirty. But if you can afford it, it’s worth the cost.

6. Selling on Amazon? You may want OEM or ODM?

For readers who have or are looking to start their own FBA (Fulfillment by Amazon) business, ODM is currently the more common route. Most of us don’t have an R&D department that works for us 24/7. And, if you do have a successful OEM idea, private label sales are a great way to generate the startup capital and experience needed to launch it. If you’re interested in getting started or improving a business you’re already doing, try Guided Import. No one has made private label sourcing and manufacturing easier!

Additional Resources for Amazon Sellers.

Ebuysourcing works with hundreds of Amazon sellers every year, helping them securely source, manufacture, quality control and ship their products so that their products are safely accepted by Amazon warehouses around the world. Below are some Amazon seller services and resources that may be of interest to you.

Detailed Guide: How to Ship from China to Amazon FBA

QC Service: Amazon FBA Pre-Shipment Inspection

FBA Prep Services: FBA Prep in China