What Is an Original Equipment Manufacturer (OEM)?

An original equipment manufacturer (OEM) is a company whose goods are used as components in the products of another company, known as a value-added reseller (VAR). The VAR works closely with the OEM, which often customizes designs based on the VAR’s needs and specifications.

KEY TAKEAWAYS：

An OEM provides components for the finished products of another company, known as a value-added reseller (VAR).

OEMs usually focus on business-to-business sales, while VARs sell to the public or other end users.

OEM parts often compete with generic, aftermarket, replacement parts.

An OEM differs from an original design manufacturer (ODM), a company that customizes its products for resale.

Understanding OEM

OEMs make parts to sell to VARs. Although some OEMs make complete items for a VAR to market, they usually don’t determine the finished product. An OEM may manufacture electronic components for a company like Samsung, the VAR that makes HDTVs. An OEM may sell customized fasteners to Ralph Lauren with the branded monogram RL.

Traditionally, OEMs focus on business-to-business sales, while VARs target the public or end users. Car parts, such as exhaust systems or brake cylinders, are manufactured by OEMs. The OEM parts are then sold to an auto manufacturer, which assembles them into a car. The completed car is then marketed to auto dealers to be sold to individual consumers. However, OEMs may also sell to the general public. An individual can buy OEM parts directly from the manufacturer or a retailer who stocks those parts to make car repairs.

Original Equipment Manufacturer (OEM) vs. Original Design Manufacturer (ODM)

An OEM differs from an original design manufacturing (ODM), a type of private labeling for manufactured parts. An ODM produces a product to meet a client’s specifications. The client labels and sells the product under a brand name.

An ODM does not have as much flexibility as an OEM since the client customizes a design. However, original design manufacturing has lower costs for research and development, leading to lower prices for the end consumer. ODM products typically have a lower minimum order quantity, making them more attractive to smaller clients.

What is ODM manufacturing?

Now that we know what OEM manufacturing is, let’s take a look at how ODM is different.

An ODM, or “original design manufacturer,” is a company that has the capabilities to design, develop, manufacture and sell products themselves.While OEM is often referred to as a service, ODM is referred to as a product. The products an ODM creates are often rebranded by a buyer as private label products and are sold for a profit. Unlike an OEM, who relies on a client brief and product design to manufacturer items, an ODM often designs and develops products independently, or in collaboration with a client. This is the ideal manufacturing service if you have a great idea, but are yet to design, develop, test, or brand it.

If you are a manufacturer and have employees or teams who have the skills, experience, and capabilities to design products, develop them, and carry out testing, you will be able to market yourself as an ODM.

OEM versus ODM: what’s the difference?

OEMs and ODMs offer clients two completely different manufacturing services, but both are highly valuable depending on the client and project.

Pros and cons of OEMs

This type of business relationship can be a great way to get a product to market and start generating revenue. By forming an OEM partnership, you will be able to create a product that is difficult to replicate by consumers or competitors due to the cost or time to produce it. You may also unlock access to new markets, industry sectors, and geographic locations by hiring the services of an OEM.

However, there are some disadvantages to working with OEMs. Providing design briefs to a manufacturer can sometimes cause confusion and require members of your team to travel to the factory and provide support and assistance. This can cost your company time and money. The OEM may also require changes to the product during the manufacturing process that are backed by their manufacturing teams rather than your design brief. Also, by not involving the manufacturing team during the development of the product, they won’t have the opportunity to provide their feedback and advice which could actually make it easier to manufacture and save you money when it comes to the production costs.

Pros and cons of ODMs

ODMs often have a lower minimum order quantity (often referred to as MOQ) requirement, which is why they can be more appealing to work with – especially for clients who want to test out an idea. As the ODM has all the key components to design, manufacture, and brand a product, the cost to develop a new product is usually far less than the cost of working with an OEM. Yet there are some downsides to ODM relationships, which can make clients wary of using an ODM. Because the client is providing an idea rather than a final product design, there are fewer opportunities to customize, make changes, and control product requirements. Some people also worry that their ideas might be stolen by an ODM product owner because the factory has everything they need to make the product themselves without any further input or help from the client. Although this can be the case, there are ways that clients can protect their ideas and manufacturers can offer contracts that give reassurance to new customers.

That’s all for this article. I hope this article can help you understand OEM and ODM.