OEM vs ODM: Which is The Smarter Choice
This is a complete guide for the choice marker of OEM vs. ODM in .
So if you’re looking for everything about OEM and ODM, make the wisest decision in your business.
Then you’ll love the actionable advice in this new guide.
In the selling industry, finding the right partner or supplier is not always easy. It’s like testing the water; after several tries and errors, you’ll pick the right gem and the saving grace of your business. However, there are two manufacturing models that can save you time, effort, and money.
You might have heard about OEM ODM, so we have written this complete guide for you. We will explain the OEM ODM difference for you to decide what is right for your business.
OEM (Original Equipment Manufacturer) and ODM (Original Design Manufacturer) are popular cooperation models or manufacturers in the supplier chain. Both have advantages and disadvantages, so you must understand the concept and process for each How much is the suitable model for your business.
OEM manufacturers produce goods based on customer designs, whereas ODM manufacturers design the parts or overall products before manufacturing them. If you are planning to establish your brand, you need to consider factors and considerations before choosing OEM or ODM.
Choosing OEM and ODM manufacturers in China can be a solution to your business. Because of mass production and lower labor cost, you can benefit from what they can offer. As we go on, we will explain all the details for each model.
The manufacturing of goods is a rigorous process and demands attention while being keen on details. The quality of the product can only be satisfactory if all intricate details are followed based on the client’s standard or request.
Cost and efficiency are the two most important advantages of OEM ODM. Instead of building your own manufacturing department from scratch, you can have an existing company do the work for you and enjoy multiple benefits.
Do you want a company that can make your product with all your required specifications? Or do you only need changes on the labels and packaging? Naturally, there is a difference between the two. Thus, choosing the proper manufacturer is a tough job because risks and failures can cost you a lot of money.
OEM service and ODM collaboration were used for years by businessmen around the world. Some have grown from small to large-scale businesses by using these manufacturing models. So, whether you choose OEM or ODM, you can get your brand running successfully as long you find the right manufacturing company.
You need an OEM service when you have a product in mind and want all the specifications and features based on your requirements and demand. Original Equipment Manufacturer is a supplier model that produces the product based on your design and details.
Now let’s see their pros and cons.
OEM parts are less expensive than if the buying business or a startup created them. An OEM manufacturer can produce high volumes using their streamlined process. Their supply chain or network is large.
When you prefer an original equipment service, they can produce high-quality products that only price at a low or competitive cost. As a result, you can sell the product within the market price, and your sales profits and revenue will increase.
OEM manufacturers that have been in business for years have a significant advantage when it comes to expertise. They know the ins and outs and the best staging process for your product. They know when to be proactive and can fix issues right away.
With their years of experience servicing different clients, they know how to go about each specification and detail. Their pricing is reasonable, and even before you mention what you have in mind, they can suggest or recommend options.
OEM gives you complete control over your intellectual property. The manufacturer cannot use your ideas or product for their own benefit, or they will be subject to Copyright infringements.
Overall, your product is your intellectual property, and you own every right. That means you have a superior bargaining position with your suppliers. You have the right to switch if they will not abide by your agreed terms.
Companies will save money by outsourcing their manufacturing because they don’t have to invest in machinery or industrial space. The operating expenses like raw material costs and other manufacturing expenses will be reduced, if not totally avoided.
However, some OEM companies do not have the complete machines in their production process, so they hire the services of other companies too.
When the mass production of your product starts, you will save a lot of time so you can start your business as soon as possible. While waiting for the product delivery, you have time to do other essential parts of the business.
For OEM, the manufacturer will require a minimum number of orders for the production. The price or cost may vary depending on the volume of orders.
The developing cost of the product is high due to the sourcing of raw materials to match the requirements of the buying client. It also depends on the processes it will go through when developing the product. Thus, it is also not easy to switch to another OEM supplier.
Since the buying company does not have access to the making process and other components, it can incur a high cost for hiring customer service support. This addresses product inquiries that cannot be resolved initially by the company’s lack of product knowledge.
Another is the lack of understanding of the end-users demand. The OEM companies cannot enhance it to match the market’s needs because the information is limited. Only the buying company understands the product improvement needs.
China OEM is a service provided by manufacturers in China to create a product for another company or brand. The company will provide all the details and requirements to the manufacturing company. Once manufactured, the buying company will sell the product under its registered brand name.
When you choose a Chinese manufacturer to create your product, they refer to it as outsourced or contract manufacturing OEM. Most companies outsource their products to low-cost factories in China to increase their profit and lower operational costs.
In China, the OEM Company offers a very competitive service to startups or companies based in the United States, Europe, or other countries who want goods and parts to be manufactured inexpensively and efficiently while maintaining high quality.
Many OEMs in China provide high-quality services and products that will suit your company’s requirements.
Use OEM or original equipment service when your company or if you’re a startup that has resources for R&D (research and development). Innovating a product and introducing it to the market has high potential when it has been carefully planned and developed.
Big companies like Apple, IBM, and Nike use OEM services from China. Basically, if you are a startup company, you can apply for OEM instead of building your own factory. Below are some of the famous industries that use OEM:
1. Computer and electronics industries
2. Automobile Industry
3. Fashion and beauty
4. Food products
5. Medical industry
Prices and costs vary from one industry or product to the next. The difference is that when you hire an OEM manufacturer in China, it is 10–50% lower than its counterpart. Material costs in China are roughly 50% to 66% lower than materials in other countries.
Given this, you already have an idea of how much it costs to get a product manufactured in China.
You need ODM service meaning Original Design Manufacturer if you wish to sell the manufacturer’s own product and only need rebranding. In this model, you can only do minor customizations on the product’s packaging, but you cannot modify the features.
Check out the pros and cons of ODM:
The only thing you’ll do is check and review the product. If the product is approved based on your qualifications, you can start ordering and making arrangements with the manufacturer. It saves you time and money.
Another good advantage is that you don’t need a big capital to start a business since you don’t need to put up your manufacturing area and produce the product from scratch. As a result, you can save on operational expenses.
ODM manufacturers have lower quantities on every order as compared to OEM. They also give special discounts and bulk sales prices for every order within their sales bracket.
ODM companies provide pricing structures to buyers based on their order volume. The goods are sold at reasonable prices, so the company can still profit when they sell them.
Some ODM companies provide ready-made content for the use of their resellers, distributors, or buying companies. It makes the product easy to market if you haven’t spent time working on your own marketing content yet.
If you are an Amazon FBA seller, the manufacturer can send the product directly to the warehouse of your choice. They can also facilitate faster shipping through their partner couriers. Again, this saves you time, money, and effort.
You don’t have full control of the product since you are just purchasing it from the original creator. They can demand that you follow agreements when selling their product.
An ODM business model can create competition between other companies that buy the same product. For example, if the manufacturer sells on Amazon, they will limit you to using the same platform to avoid being banned.
In some instances, some of your packaging designs and presentations can be copied by other buying companies. You don’t know if the design you’re using has been produced for other companies already.
ODM solutions give you fewer options in payment terms or mode. Unless you have a contract and a continuous flow of orders, you will have to settle everything on the company’s terms.
China ODM (original design manufacturer) creates their products in large quantities and then sells them to buying companies. Small business owners or startups can benefit from this model by re-branding the goods with more practical terms.
In this model, the supplier effectively does all R & D and manufactures the product. When you purchase their goods, they can offer a labeling service based on your customization request. Just like OEM, many Amazon FBA sellers and online eCommerce entrepreneurs benefit from the ODM service.
In ODM, you’re not required to have the technical expertise to handle custom designs and specifications. You can just purchase the products and sell them as your own. There are highly reliable ODM solutions in China that you can avail of. Just make sure you find one with expertise and a commitment to service.
Use ODM Original Design Manufacturer when you need goods produced quickly but do not require Intellectual Property ownership of the product. If you’re an e-commerce entrepreneur who wants to sell a supplier’s products, ODM is best for you.
Most of the industries who benefit from ODM are the following:
When it comes to price and cost in ODM, suppliers or manufacturers give higher discounts for bulk sales and orders. However, the profit is much smaller than OEM because you compete with other sellers selling the same products to the marketplace.
The price also varies from manufacturers selling the same product. In addition, they have ready platforms like websites or apps where you can order directly. But to give you an example, in a company selling voice amplifiers, they have price variations:
Also, ODM manufacturers will add costs for labeling and packaging customization and the mode of shipping. Therefore, to compare prices and get the best deal, you must search for the suppliers selling the same product and request a quote.
To better understand the difference between OEM and ODM, we put it in summary below. For the two manufacturing models (ODM, OEM), here’s a table for comparison:
OEM and ODM are both essential and helpful depending on the scale of your business. Although today, more and more Chinese enterprises are attempting to migrate to the ODM model, which will provide great value to their supply chains and enhance innovation.
There are five necessary factors to consider when choosing between OEM ODM model:
Whether you choose OEM or ODM, both are advantageous to buying companies. The only significant difference is the approach to product creation and development. Therefore, finding the right and trustworthy ODM and OEM manufacturer is critical to achieving your goals and targets.
OEM and ODM suppliers or manufacturers can now be conveniently searched so you can compare and learn who among them works best for your business needs. If you want to find ODM or OEM service providers in China, you can search them through the following:
When you hire a sourcing agent, you can get a list of reputable ODM OEM companies that fit your criteria. Since they have a good network connection, they will be responsible for communicating and transacting on your behalf.
One excellent advantage of hiring a sourcing agent is they can speak in a foreign language so that you can communicate with them very well. In addition, once you agree with terms, they will negotiate with the suppliers and monitor your goods’ production progress.
These B2B platforms are the biggest factories you can inquire from because most startups and entrepreneurs find reputable suppliers here. You just need to verify and read through their listing page to learn what they can offer.
You can find them through the following:
If you have R&D allocation, going to trade fairs will be helpful to get to know more about factories and potential manufacturers in your niche. The wholesale markets in China are big, and you can choose from a factory in Shenzhen, Guangzhou, or Shanghai.
You need to plan for this trip, and it will be helpful if you hire a Chinese sourcing agent that can speak your language to avoid language barrier issues. But if you can talk to Chinese or bring someone who knows Chinese, it will be an incredible experience.
The five biggest trade fairs in China are the following:
Verification is essential before you close a deal with an ODM/OEM service provider, meaning, making them your official producer or manufacturer of your company’s products. If you don’t want to hire a sourcing agent, here are some of the crucial steps to take to check the factory:
Make sure you search through Chinese directories and verify every piece of information you can find about them. If their name appears on forums, check the reviews and testimonials to see if you can trace a record of scamming or fraud.
Dig deeper into your search. Check the profile and look for the company address and contact info.
Make a call to their company number. The best way to contact Chinese manufacturers for questions about their services and to verify their validity is to call their landlines. Scammers find it challenging to use a landline to commit fraud rather than cellphone numbers.
This is also a smart way of verifying a Chinese supplier’s legitimacy. Upon making a call, they can provide you with all the details about the supplier. If you cannot do this, ask the manufacturer if they have a license and get their business registration number to verify it.
A legit Chinese manufacturer will not hesitate to provide this information if they are serious about their business. Making a reference check is still one of the most reliable ways to appraise their clients’ quality of service.
If all else fails on your end but you are interested in a manufacturer, you can hire the service of an agent to do a background check and verify the company for you.
They provide a report that includes information about the scope of work of the suppliers, industry groups, legal compliance, licenses, stockholders, and financial information, among other factors.
When you have selected the type of supplier, it means you already know the OEM/ODM difference and the risks associated with it. When selecting a manufacturer in China, learn the geographical area to find your product niche and focus only on that specific location.
If you want a good-term relationship with a manufacturer, you’ll want it to be reliable and capable of providing you with consistently excellent service. When you hire a supplier, check if they can mass-produce the volume you require.
Most likely, if you hire a small manufacturing company, their capacity may not be sufficient to produce large volumes if they only outsource part of the process to create the product. For example, if a supplier does not have complete equipment in their factory, they will wire the third party to do it for them.
Not all Chinese manufacturers can speak English or other languages. The language barrier can be an obstacle, so set your expectations. This is why most foreign companies hire an agent that can mediate and communicate on their behalf to ensure understanding.
Put everything in writing that both parties can agree on. Lines of communication, such as , , or company contact numbers, should be open at all times for updates and inquiries. When your manufacturer replies all the time, you’ll not worry about getting in touch with them.
In the middle of the process, some issues and conflicts can arise. Before you close a deal with your manufacturer, cite some scenarios and ask how they will resolve them.
Find a supplier that is open to resolving issues proactively and willing to make adjustments, especially if the problem is due to their diligence.
Your satisfaction matters when deciding to proceed with the partnership and choosing your manufacturer. When you are fully satisfied with the product presented, whether OEM or ODM, the next step is to evaluate their safety standards and other qualifications.
When it comes to timetable commitment, if your supplier agrees to produce it at a specified time, they must update you accordingly at every stage. Ensure that the delivery procedure is in order because delays in shipping can be frustrating and unpredictable too.
Now we will explain the process and stages of OEM and ODM services.
Creating the model is the first stage of OEM. The manufacturer will design and make the product based on your given blueprint. They will follow all your requirements and features.
For ODM, this stage is not applicable because the supplier creates the product based on its design and features.
In OEM, this is the stage when they will send you the finished pre-production sample product. You will inspect and give feedback to the supplier on needed modifications or adjustments. They will re-send the revised sample for your approval.
The client may send their representative to do an in-house inspection of the factory and ensure all product standards will be followed for the consumer’s safety.
In ODM, the manufacturer sends a product sample to the buying company to physically check the product and its features. This is when the buyer can decide if they will order from the supplier.
In OEM, after the client’s inspection, this is the approval stage where everything will be put into writing, and the contract will be signed.
In ODM, this is where the buying company decides to purchase and order the product. Both parties shall agree to the terms and conditions of the contract as well.
For OEM, the manufacturer will finalize the packaging and product presentation. The buying company decides on the overall design. Once approved, mass production will start.
When you choose ODM, you can request customization on packaging and labeling. For example, you can put your company logo, change the layout of the product’s box, and make the product look like your “own” brand.
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This is the production stage for OEMs. The agreed time in the contract is followed for the completion. This stage includes quality inspection of the products and testing. Then, it will undergo packaging and additional product inspections to ensure they are free from damage and all uniform.
However, in ODM, the manufacturer already has stocks. If the volume is insufficient, they will also inform you of the lead time they need to reproduce and complete the buyer’s orders.
During OEM, a pre-payment is made in the earlier stage. Payment terms are discussed in the contract. Usually, the completion of payment is done before delivery or once the shipment arrives at the destination.
For ODM, the payment is settled upon ordering. For ODM, the payment is settled upon ordering.
The shipping and delivery for EOM are also stated in the contract. Since this is a large quantity, the shipment is made via air or sea freight.
In ODM, the seller and buyer will arrange the option on how to deliver the order. The buyer can choose between DDP (Delivered Duty Paid) or DDU (Delivered Duty Unpaid). To know more about these shipping options, you can read this: (Insert link to The Most Complete Guide: DDP Shipping Risks When Shipping from China)
Ensuring every process and the quality result of the production is critical for OEM. OEM service means Original Equipment Manufacturing is required to have quality audits in certain stages. The following are the stages of quality control being done during OEM development and production:
Even before a client signs a deal, they ensure that the manufacturer passes the highest standards in the facility where the goods are mass-produced.
The product will undergo quality testing before the manufacturer sends the client or informs them that the model or sample is done.
The manufacturer conducts quality checks and tests before starting the volume production. They will ensure that all molds and stages the product will go through are all ready and free of any damage. In addition, they prepare and check the materials they will use in the process.
The auditor will inspect what has been done halfway and see if the production is fault-free. If damages or adjustments are needed, they will need to make some decisions and ensure that the problems are all fixed by the end of production.
The auditor will check the packaging and labels. They will also make sure that the products are safely placed in boxes or containers. This is the last stage of checking before it will be loaded into the container for transporting to the destination.
OEM service is legal and safe. As long as you do not use other companies’ intellectual property to create your own brand, your OEM manufacturer will protect your interest through a contract. To ensure you will get quality and risk-free service, you need to hire only a trustworthy and reliable OEM manufacturer.
OEM parts are manufactured by the manufacturer that originally produced the item. They are the same parts that came originally in equipment or machine without the logo, so they are less expensive.
Genuine parts are components that are placed in equipment, machines, or automobiles when they are built. Because genuine parts bear the company’s logo, they are more expensive than OEM parts.
1. Computer and electronics industries
This includes spare parts, hardware, and software for computer products, gadget spare parts, electronic products, etc.
2. Automobile Industry
This can be anything from exhaust systems of cars or motors, spare parts, plastic injection molded parts, tires, car electronics, accessories, etc.
3. Fashion and Beauty Industry
This includes cosmetics, clothing, fashion materials, accessories, shoes, makeup, etc.
4. Food Industry
This includes ingredients for food products or food chains, beverages, coffee, biscuits, chips, instant food, etc.
5. Medical Industry
This includes OEM medical devices and supplies and all related products in the medical field.
OEM is more expensive in the sense that you pay for all the related expenses in all stages of your product development. For example, the buying company must shoulder the cost of injection molds and tools to follow the order blueprint.
At the same, the manufacturer must adhere to the global product standards for safety and consumer protection. The cost of OEM ODM is determined by a number of factors and where you’re getting it from. The ODM and OEM difference in China than other countries is the cost which is 20-50% cheaper.
Another factor is the type of product that you want to produce. Is it technically advanced or just standard? Is it multifunction or basic? The more advanced the product is, the more it is costly. Plus, the quantity or volume of orders is a variable because bigger orders get more discounts.
You can verify the company or manufacturer by checking on the Chinese Bureau of Commerce using their unique business registration number. You can also hire an agent to do a background check for the company. You can also use apps like Nuna to see all the details or information of the manufacturer.
You might probably want to hear more on some tips to select the best model for your business. So, here are a few suggestions:
A sourcing agent in China is an expert who can assist you in searching for the right OEM or ODM supplier. When you hire a licensed agent, they will provide an intensive list of reliable and legitimate factories because of their access to the databases of verified sources.
You can avoid scams and incompetent companies that can cause troubles because the agent can transact and negotiate for you. If you want to have a seamless transaction, only choose a dependable company like JustChinaIt.
If you find a good OEM or ODM supplier, continue business with them. The advantage of partnering with a good supplier is that you can have your business running without worries.
Some suppliers may offer you low prices, and you may opt to choose them or give them a try. However, those who may offer too low prices can also come with a catch! Remember that when it is too good to be true, stay away from it. Keep the good ones and stick to them!
ODM is being popular now a days because most eCommerce entrepreneurs use this model to sell on their platforms. The manufacturing lead time only takes days or 1 month at the most. The supplier may also have a ready stock of the items so the buying company can expect faster delivery.
Most manufacturers partner with courier providers to ship the items to their buyers on time. Restocking of your inventory becomes more manageable when you use this model. You can also arrange a door-to-door delivery to an Amazon warehouse if you are an Amazon FBA seller.
Manufacturing is just the tip of the production iceberg. Before that, a whole world of design goes into creating unique products. Depending on your business, you might be doing your own design or using preexisting designs. It’s like choosing between baking a cake from scratch or using a mix from the store. Both can be delicious, but one requires a little more creativity and effort.
There are distinct names for these different business models: OEM and ODM. They might sound like some elaborate spy code or illegal party drugs, but they do belong to the manufacturing industry:
But what endless manufacturing possibilities lie behind those words?
OEM means a company designs and develops a product but often outsources manufacturing to a third-party company. The third-party manufacturer then creates the product under the brand name of the company that designed it. In other words, the company that developed the product doesn’t actually manufacture it itself. Instead, they focus on product design, marketing, and sales.
The ODM approach involves the manufacturer not only producing the items but also designing them from scratch. In this case, the manufacturer is responsible for the entire product development process, from design to production. The company that hires the ODM manufacturer will then sell the product under its own brand name.
To conclude, the main difference between OEM and ODM is that with OEM, the company that designed the product outsources the manufacturing, while with ODM, the manufacturer produces and designs the product.
OEM and ODM services can be offered in a variety of industries, including electronics, consumer goods, and health devices. Both services provide advantages to businesses, as they save money on production costs while offering high-quality products. Here are some examples of the services provided by each.
OEMs typically focus on manufacturing and assembly services, with some also offering troubleshooting and product service for the manufactured components.
Services offered by OEMs include:
ODMs offer a more comprehensive range of services, as they are involved in the entire product development and manufacturing process.
Services offered by ODMs are mainly similar to OEM services but also include the following:
Choosing the perfect manufacturing model for your company is challenging and shouldn’t be taken lightly. You know your business and its specific needs and processes, so there is no one-size-fits-all solution. One isn’t generally better than the other, but one could offer more benefits to your business. Here are some key points you may want to consider when deciding on a manufacturing model.
If your business has strong design capabilities and can create unique and innovative products, then ODM may be your better option. On the other hand, if you lack design expertise and need products to be made to your specific requirements, OEM may be a better fit.
ODM products are generally less expensive to produce, as the manufacturer has already invested in design and tooling. If manufacturing cost is a significant factor for your business, then ODM may be the better option.
If you want to build a strong manufacturing brand identity and market your products as your own, OEM may be the best solution for your business. However, ODM may be a better fit if you are willing to sell products under the manufacturer’s brand and focus on delivering quality products at a lower cost.
Some industries and markets require specific certifications or compliance with regulations. If your products require particular certificates and standards, OEM may be the better option, as you can outsource to a manufacturer who has already taken the time to get certified.
Katana is a cloud-based production planning and inventory management software for small and medium-sized manufacturers, including ODM, OEM, and CM businesses. Whether you create your own products from scratch or outsource your manufacturing, in both cases, there are many areas of the business to oversee.
One of the most essential features of Katana is its inventory management capabilities. It allows manufacturers to track their inventory levels in real time, including raw materials, work-in-progress, and finished goods. This can help OEMs and ODMs optimize inventory levels and reduce waste and stockouts.
Outsourcing refers to sending some or all of your purchase orders to be fulfilled by a contract manufacturer outside your own business. Outsourcing can be useful for companies that don’t have the capacity to produce goods in-house or need to access specialized equipment or skills. We’ve even put together a video series explaining OPOs and how they work in Katana.
Katana allows manufacturers to schedule production, create and manage manufacturing orders, assign tasks to employees, and track the progress of each assignment. Shop-level workers can access their tasks in the Shop Floor App, where they can view and edit them, triggering changes in inventory levels and production operations. This way, manufacturers can streamline their production processes and eliminate inefficiencies.
Using Katana, manufacturers can create and manage bills of materials for their products. This can help ODMs ensure they have the necessary raw materials and components to manufacture their products, and OEMs keep track of their supplies and parts.
Katana provides users with real-time information and manufacturing analytics about their production processes. With this feature, manufacturers can track sales, monitor the progress of production orders, and identify areas where to optimize their operations to reduce manufacturing waste and increase efficiency. The data and insights feature also includes customizable dashboards and reports, which allow users to visualize their data and highlight the statistics most essential to their business.
With Katana’s open API, users can integrate with other software tools, such as accounting software, e-commerce platforms, and CRM systems, to fulfill their specific business needs. There are also many existing integrations to build a custom workspace and create personalized workflows.
And there you have it.
Now that you know the difference between OEMs and ODMs, it’s time to start skyrocketing your manufacturing business with Katana and also impress your friends at your next dinner party with all this new knowledge. Just don’t blame us if they start asking you to design and manufacture their products.
Contact us to discuss your requirements of OEM&ODM Tables And Chairs Wholesaler. Our experienced sales team can help you identify the options that best suit your needs.