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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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.
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.
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.
Original design manufacturers (ODMs) and original equipment manufacturers (OEMs) both play a key role in helping companies bring new products to market, but with key distinctions in areas like product development, production, and branding.
In this article, you’ll get a foundational understanding of what ODMs and OEMs are, their differences and benefits, their value in the data center industry, and factors to consider when choosing an ODM or OEM partner.
What Is ODM?
An ODM, or original design manufacturer, is a company that develops products themselves before manufacturing them for another company – typically a brand or retailer. ODMs handle the entire product development process in house, including research and development (R&D), design, engineering, and manufacturing.
One application involves private labeling or white labeling, where the ODM produces its products and then licenses the products to another company to handle the branding and sales.
In the data center industry, ODM refers to original design manufacturers that specialize in the designing, testing, and manufacturing of data center hardware products and systems, including servers, networking equipment, storage devices, and related infrastructure products. They often partner with data center OEMs, who brand and sell the end products.
Examples of ODMs in the data center industry include Foxconn Technology Group, Wiwynn, Quanta Computer, and Inventec.
What Is OEM?
An OEM, or original equipment manufacturer, is a company that produces and assembles products or components for use in the creation of another company's end product.
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OEMs specialize in large-scale manufacturing and supply chain management, allowing for low costs and higher volumes. Additionally, OEMs can manufacture products to the exact specifications required by their clients, who then sell the final products to consumers.
In the data center industry, OEM refers to original equipment manufacturers that design, produce, and sell data center hardware components, systems, or infrastructure under their own brand name.
Examples of OEMs in the data center industry include Dell Technologies, Apple, Hewlett Packard, Cisco, and IBM.
What Is the Difference Between OEM and ODM?
For the uninitiated, it's easy to confuse these two terms – but understanding their key differences is crucial to any hardware strategy. The below table breaks down what you need to know when comparing OEM vs. ODM.
Yes. ODMs and OEMs can collaborate when a company wants to leverage the respective strengths of both ODMs (product design, engineering, prototyping) and OEMs (manufacturing, supply chain management, and large-scale production).
For example, an ODM can source specialized parts from an OEM to create a finished product. The ODM provides the product specifications, and the OEM produces and assembles the components.
Another example involves a company working with an ODM to research, design, and prototype a product. Once the design is finalized, the company can engage with an OEM to manufacture the components or products at a large scale.
Benefits of Working With OEMs and ODMs
ODMs and OEMs have extensive expertise in their respective domains, product design, and development for the former, and manufacturing processes for the latter. They also have well-established quality control procedures, quality assurance teams, and testing processes, ensuring exceptional quality products for clients.
ODMs can tailor existing designs to meet specific client needs, and OEMs can manufacture a part or product from scratch to meet a client’s exact specifications. The ability and flexibility to provide this level of customization can help clients cater to their consumer’s needs.
ODMs can help clients streamline their product development cycle because they specialize in product design and development, thereby significantly reducing the time needed to bring a new product to market.
Companies with limited in-house manufacturing capabilities can leverage an ODM or OEM’s manufacturing capacity and supply chains, thereby ensuring greater product availability.
ODMs and OEMs have highly-specialized expertise and optimized manufacturing processes, which allows companies to reduce costs through efficient resource allocation, reduced production costs, and bulk purchases than if they were to manufacture their own products.
Clients can experience a higher level of satisfaction from a combination of unique customization, product security, IP protection, efficient communication, timely delivery, and high-quality products by partnering with an ODM or OEM.
Clients who partner with reputable ODMs and OEMs can experience greater brand recognition and credibility for choosing trusted, industry-known manufacturing partners.
How To Choose an ODM or OEM Partner
Experience and expertise: Can the manufacturing partner provide examples of successful projects, positive references, and industry certifications that demonstrate competence?
Capabilities: Does the ODM or OEM possess the capabilities required to meet your specific requirements, such as customization options, scalability, and bandwidth?
Quality: Can they provide the quality your company is looking for through a well-documented quality control process, adherence to industry standards, and a track record of reliable and consistent product quality?
Cost: Does the cost and pricing structure provide you with a competitive price that does not compromise on your must-have requirements?
Supply chain management: Does the ODM or OEM have an efficient and comprehensive supply chain, strong supplier relationships, and effective sourcing strategies, thereby ensuring timely delivery and avoiding disruptions?
Location & logistics: Is the ODM or OEM located in an area that fits within your company’s needs, such as proximity to target markets, language or culture compatibility, shipping costs and times, and distribution centers?
Intellectual property protection: Can the manufacturing partner provide you with a commitment to safeguarding your proprietary information through measures like a robust information security practice and confidentiality agreements?
Financial stability: Is the ODM or EDM financially stable, able to manage long-term partnerships, and have a strong financial track record? This can provide insight into how not only have they manage their financials, but how they might invest in innovation and quality.
References and reviews: Can they offer references and customer testimonials from past clients with projects similar to yours? Do they have data demonstrating an insight into their overall reputation, reliability, and customer satisfaction?
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