Freight 101 Library

OEM & ODM Manufacturing: Meaning, Differences, Advantages & Disadvantages

Learn the differences between OEM and ODM manufacturing and choose which one is right for you.

Difference Between OEM & ODM

When you are sourcing products you are likely to come across the terms, OEM and ODM. These terms refer to different approaches to manufacturing. This guide covers what these terms mean and helps you decide which is the best option for you.

OEM (Original Equipment Manufacturer)

OEM manufacturing is normally best suited for people and businesses with new and innovative products.

OEM is essentially when a company designs a product from the ground up and then contracts another company to manufacture it for them. This happens, for instance, when you design a brand new widget, launch it on a crowdfunding site and need to get it produced. Apple uses OEM for producing the iPhone. They come up with the design, then contract a number of third-party manufacturers to handle the mass production.

The minimum order quantity will be higher than with ODM, because of the higher level of capital expenditure and technical understanding of the product required.

ODM (Original Design Manufacturer)

This type of manufacturing is often also referred to as private labeling. With ODM you contact a manufacturer of an existing product, often through a site like Alibaba, and have the product branded with your brand and company information. Sometimes, you can request modifications. Many suppliers are only prepared to make minor changes like product size, color, and packaging.

Many of the sellers and entrepreneurs you hear about importing from China and selling on Amazon are essentially following this method. The most popular place to find ODM manufacturers, especially in Asia, is Alibaba.com. Other sources include Aliexpress.com, GlobalSources.com, and Made-In-China.com. These sources are covered in more depth in the Supplier Marketplaces guide.

The minimum order quantity will be less than with OEM, because there are fewer set-up costs to recoup.

Expert Tip:

If you have a new product and are worried about IP infringement, don’t worry so much about copycat artists. Most cases of infringement are by the original supplier or manufacturer.
This isn’t really surprising since they went through the hard work of product development and getting the product into manufacture, and probably have a sense of their buyer’s business model.
If you do not want your supplier to turn into your competitor, you should take a few precautions.

1. Seek legal advice.
2. Register your trademark in China before production starts.
3. Have your supplier sign a non-disclosure/non-use/non-circumvention agreement.

ODM & OEM Advantages And Disadvantages

The following table lists some of the common advantages and disadvantages of both OEM and ODM manufacturing.

 OEM ManufacturingODM Manufacturing
ProsExclusivity to sell that product.Near complete customization available.Little or no product development costs.Lower minimum order quantity requirements.
ConsExpensive development costs.High minimum order quantity requirements.No product exclusivity.Fewer opportunities for customization.

This guide was contributed by Dave Bryant, EcomCrew

Summary
1. If you have a great idea for a new and innovative product, then OEM manufacturing is likely for you.
2. If, on the other hand, you want to import a pre-existing product and brand it under your own name with few or no product changes then you want ODM manufacturing.

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