In the world of manufacturing, there are different types of business models that companies use to produce goods. The three most common models are OEM, ODM, and OBM. These terms can be confusing, but they refer to different levels of involvement in the manufacturing process. Understanding the differences between OEM, ODM, and OBM can help you make informed decisions about your own business strategy.
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OEM (Original Equipment Manufacturer)
OEM refers to a company that designs and manufactures a product, which is then sold under another company's brand name. In other words, an OEM creates products that are sold by another company under a different name. The OEM is responsible for the design, production, and quality control of the product, while the other company is responsible for marketing, sales, and distribution.
For example, LG is an OEM that produces consumer electronics and consumer durables. These devices are sold under the LG brand name, they are manufactured under LG own factories.
OEM v/s ODM v/s OBM
ODM (Original Design Manufacturer)
ODM is similar to OEM, but the difference is that an ODM produces products based on the specifications and designs provided by another company. In other words, the ODM is responsible for the manufacturing process, but the design and branding are done by the company that commissioned the product. The ODM has the expertise and infrastructure to manufacture the product efficiently and cost-effectively.
For example, Apple is known for designing its own products, but it also uses ODMs to manufacture them. Foxconn, a Taiwanese electronics manufacturer, is one of the ODMs that Apple uses to produce iPhones, iPads, and other devices.
OBM (Original Brand Manufacturer)
OBM refers to a company that designs, produces, and sells products under its own brand name. OBM companies have more control over the entire manufacturing process, from design to marketing to sales. OBM companies are responsible for everything from concept development to customer support.
Tesla is an OBM company that designs, produces, and sells electric vehicles under their own brand name. They have control over everything from the design of the cars to the software that runs them.
Key Differences
The main difference between OEM, ODM, and OBM is the level of involvement in the manufacturing process. OEMs design and manufacture products that are sold under another company's brand name, while ODMs manufacture products based on the designs and specifications provided by another company. OBM companies design, produce, and sell products under their own brand name.
Another key difference is the amount of control each type of company has over the manufacturing process. OEMs have the least control, as they are only responsible for the design and production of the product. ODMs have more control, as they are responsible for the manufacturing process, but not the branding. OBM companies have the most control, as they are responsible for the entire process, from design to marketing to sales.
From OEM to OBM in Taiwan design development
Here are the advantages and disadvantages of each business model:
OEM (Original Equipment Manufacturer)
Advantages:
Disadvantages:
ODM (Original Design Manufacturer)
Advantages:
Disadvantages:
OBM (Original Brand Manufacturer)
Advantages:
Disadvantages:
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Which is Better?
There is no one-size-fits-all answer to this question, as it depends on the needs and goals of each individual company. Each business model has its own advantages and disadvantages.
OEMs have the advantage of being able to produce products for multiple companies, which can lead to economies of scale and lower production costs. However, they have less control over the branding and marketing of the product.
ODMs have the advantage of being able to manufacture products efficiently and cost-effectively, while allowing the commissioning company to focus on design and branding. However, they have less control over the final product and may face competition from other ODMs.
OBM companies have the advantage of complete control over the manufacturing process, which allows them to create unique products and build a strong brand identity. However, they also have the highest risk, as they are responsible for the entire.
In conclusion, OEM, ODM, and OBM are different types of manufacturing models with distinct levels of involvement in the production process. OEMs design and manufacture products for other companies to sell under their own brand name. ODMs manufacture products based on the designs and specifications provided by another company. OBM companies design, produce, and sell products under their own brand name. Each model has its own advantages and disadvantages, and the choice of which one to use depends on a company's needs and goals.
As a manufacturer, you will likely see two acronyms used a lot when referring to potential business models. These are OEM and ODM, and there’s a lot of discussion these days around which is which – and whether one is better than the other.
OEM stands for Original Equipment Manufacturer, and ODM stands for Original Design Manufacturer. Here’s what the two terms mean.
Original Equipment Manufacturers (OEM) sell highly customised products designed to suit a client’s specifications. Meanwhile, Original Design Manufacturers (ODM) produce their own products and essentially lease them out to clients on a private label or white label basis so they don’t have to invest in building their own consumer brand.
An OEM is a type of manufacturer capable of creating a product to a customer’s precise specifications – or at least as close to spec as the manufacturer is capable of, given any equipment or supply restrictions.
OEMs are a vital piece of the product development puzzle for companies that have all the skills and resources required to ideate a product and perform the required market research, but lack the manufacturing capacity to produce it (especially at scale). Essentially, OEMs allow a business to produce a product and get it to market without needing to build, staff and run a factory.
Depending on the client’s requirements, an OEM may produce a wholly custom new product or a product from the OEM’s range that has been heavily customised. OEMs also sometimes offer guidance on product design to ensure the end result can actually be manufactured. In any case, the client generally retains their intellectual property rights as it is their design, and would only give up parts of their IP if they have had to rely on the OEM for more than just manufacturing.
Additionally, OEMs may produce sub-components, for their clients to use within their own manufacturing process.
What the OEM’s customer does:
What the OEM does:
Contract Manufacturing (CM) is a step beyond OEM. While an OEM may offer products to be customised or may otherwise guide and help in the product design stage, a CM is just that – a manufacturer for hire.
If you run your business as a CM, clients approach you with their product specs and all you are required to do is produce the product. The client retains all IP rights but, in return, must provide all design requirements.
Apple’s relationship with Foxconn is one of the most well-known examples of the OEM model. Apple is a multinational corporation with huge R&D resources, but it lacks a manufacturing component. Instead, Apple outsources its manufacturing to the Chinese company Foxconn which then builds products such as the iPhone. Apple retains its IP and receives a high-quality manufactured product.
In addition, Apple also frequently engages other OEMs to produce sub-components that are then sent to Foxconn.
Original Design Manufacturers work differently from their OEM counterparts in that they typically do a lot of the product design work in-house, and in a sense lease out their products for other businesses (clients) to sell.
Companies will often use ODMs as either a way to get an idea to market very quickly, with less R&D cost, or because they see an opportunity in the ODM’s line of products and decide to approach the ODM to lease some of them. In these cases, the products are actually the ODM’s, and they have simply been altered in some way – usually just rebranded, but sometimes slightly customised in other ways – to suit the brand that wishes to sell them. This is also known as white label manufacturing.
That said, not all ODMs operate exclusively as white label manufacturers. Some offer a custom product service for clients who have great ideas but lack the resources to design them.
For example, if a client had an idea for, say, a new footwear item but could not design it on their own, they might approach an ODM – almost like pitching a new business idea. If accepted, the ODM would manufacture it to be sold as a private label product (see below). In this case, most of the IP rights remain with the ODM.
What the ODM’s customer does:
What the ODM does:
First, some definitions. It’s common for the terms ‘white label’ and ‘private label’ to be used interchangeably, and while they are close in definition, they’re technically different.
As we’ve hinted, you can get either of the above from an ODM. In both cases, the ODM does most of the product development legwork and retains the majority of IP rights. It is, after all, their product.
When clients want to take advantage of a market opportunity quickly without minimal up-front investment, they may opt to buy white label products that are market-ready more or less instantly. However, their product may look like a clone of some of their competitors depending on how many businesses in their area also purchase the same white label product.
If a client feels they have a little extra time to ‘get it right’, as it were, they might choose the more exclusive private label option and opt for an extra degree of customisation – with the added advantage of exclusivity.
Of course, if they really want heavy customisation, they may look instead to an OEM instead of an ODM.
There are cost benefits to being an OEM, from a product development standpoint. One of the big pros is that you will have few if any costs associated with researching, designing and testing new products – clients will bring their ideas to you, and you just have to be able to make them.
Additionally, you may not need to upgrade your facility yourself to produce custom products for big clients. A lot of the time, OEMs pass on the cost of new tooling and moulding equipment to their clients in the form of up-front fees, or by building them into their pricing. Of course, this may mean they have more leverage over your facility and can demand that you only use the equipment to service their needs, but even in that scenario you’re getting an upgrade that you pay comparatively little for.
The flip side, however, is that there are a lot of OEMs on the market. The global healthcare OEM market alone is worth US$250 billion, with 40% of facilities residing in North or South America. That means, right out of the gate, you will have strong competition in a lot of specialist niches and will need to work harder to differentiate yourself and grow your customer base.
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