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OEM and ODM: The Comprehensive Guide 2022

In the industrial society, OEM and ODM are commonplace. Because of the consideration of manufacturing cost, transportation convenience, saving development time, etc.,

 

Well-known brand enterprises are generally willing to find other manufacturers OEM and ODM.

 

So what do oem and odm mean?Next, I will introduce the difference between OEM and ODM in detail.

1. Definition of OEM and ODM

 

OEM

Original Equipment Manufacturer

 

OEM is the abbreviation of English (Original Equipment Manufacturer), translated into Chinese means “Original Entrusted Production”, which means that a manufacturer produces products for another manufacturer according to the requirements of another manufacturer, which is called OEM or authorized OEM.

 

OEM production is commonly known as OEM production. The basic meaning is that brand producers do not directly produce products, but use their own technology to design and develop new products, and entrust other manufacturers to produce them through ordering, and then affix their own brand trademarks.

 

ODM

ODM

ODM is the abbreviation of English (Original design manufacturer). Translated into Chinese, it means “original commissioned designer”, which means that one manufacturer designs, researches and produces products according to the specifications and requirements of another manufacturer. Produce products based on licensed contracts through efficient product development speed and competitive manufacturing performance.

 

In addition to providing OEM services for manufacturing, it also provides multiple sets of design solutions for components or complete machines, with design capabilities and technical levels. ODM retains intellectual property and provides it to multiple customers, and can also launch its own brand of products.

 

2. The Differences Between OEM and ODM

2.1 Product design and development

OEM processing enterprises do not own intellectual property rights to products produced by entrusted processing, and are not allowed to provide products of this design to third parties.

 

0DM processing enterprises have intellectual property rights for the products produced by entrusted processing. Unless the entrusting party (brand manufacturer) buys out the intellectual property rights of the product design and development, the ODM processing company can produce the same product for a third party.

 

2.2 Copyright

OEM from design to production is completed by the manufacturer itself. After the product is formed, it is bought by the OEM. Whether the manufacturer can produce the same product for a third party depends on whether the OEM buys out the design plan.

 

ODM depends on whether the brand enterprise has bought out the copyright of the product. If not, the manufacturer has the right to organize production by itself, as long as there is no design identification of the enterprise company.

 

2.3 Processing Form

OEM

NumberManufactureInfusionPackageEnd Product
1
2 
3  
4  

ODM

NumberOuter packaging design and developmentMaterial manufacturingInfusionPackageEnd Product
1
2 
3    
4   

 

3. The Impact of OEM and ODM on the Manufacturing Industry

3.1 Reduce investment in fixed assets and reduce product production costs

When brand manufacturers want to extend their own brand products, they may encounter difficulties such as lack of product design and development capabilities or insufficient production capacity.

 

Most brand manufacturers tend to adopt the practice of entrusting OEM & ODM processing. Because doing so can reduce the investment in fixed assets as much as possible for the enterprise, reduce the production cost of the product, and help the enterprise to increase its resource allocation in product innovation capability and marketing.

3.2 Learn advanced experience and improve management level

Because brand manufacturers have strong strength and a relatively complete management system in design and development, production process control, quality management, etc., when cooperating with OEM and ODM processing enterprises, brand manufacturers will put forward this or that rectification requirements.

 

This is an excellent learning and improvement opportunity for OEM and ODM processing enterprises.

 

4. How to choose OEM and ODM processing companies

When deciding to carry out OEM and ODM production and processing, brand manufacturers also have to bear a lot of responsibilities and risks. After all, the products entrusted to be processed are crowned with their own brands.

 

If there are complaints from consumers or customers due to product quality problems, penalties for market supervision and spot checks, and even a decline in brand sales, the impact on brand manufacturers is very serious.

 

Therefore, brand manufacturers will take a very strict and cautious attitude in the selection of OEM and ODM processing companies, and must conduct strict quality audits on OEM or ODM processing companies before making a decision. Only processing enterprises that pass the quality audit can become OEM and ODM customers of brand manufacturers.

 

5. The main scope of quality audit for OEM and ODM processing enterprises

Laws and regulations (including production license, environmental protection law, labor law, through certain certifications such as ISO.GMP.HACCP, etc.);

 

  • Organization, Plant Design and Layout
  • Human Resource Allocation
  • Equipment and Metering Management
  • Industrial Hygiene Management
  • Production Capacity and Production Process Control
  • Quality Inspection
  • Non-conforming Product Control
  • Warehouse Management
  • Safe Production.

 

The quality review of ODM processing enterprises also needs to increase the review of their product design and development capabilities.

 

6. Metrics for Qualified OEM and ODM Processing Enterprises

 

The main criteria for measuring whether 0EM or 0DM processing enterprises are qualified are:

 

Quality: Brand manufacturers are most concerned about whether the IS09001 quality management system of OEM or ODM processing enterprises is perfect. Some brand manufacturers even require OEM or ODM customers to pass cosmetics GMP management certification, product certification (Haccp), etc.

 

Service: Brand manufacturers are concerned about whether OEM or 0DM processing enterprises can deliver on schedule as planned, and whether they can provide better services for brand manufacturers in terms of finished product storage and transportation.

 

Price: Brand manufacturers will care about the quotations of OEM or ODM processing companies. The lower the price is, the better. The lower price will give the impression of vicious competition at low prices. At present, most domestic and foreign brand manufacturers may prefer reasonable processing prices to create a win-win situation for both supply and demand.

 

7. ODM: Advantages and Disadvantages

Advantages Of ODM Service

  1. You don’t need to make large upfront investments for R&D and setting up a custom production line.
  2. You can save a lot of capital because you don’t need to control the tooling costs.
  3. you can focus more on marketing your products.
  4. don’t have to worry about expertise or resources that meet your design specifications.
  5. Save money even if you are purchasing low volumes of products. This is because ODMs usually produce significant quantities to sell in smaller lots.
  6. Usually faster to market than OEM

 

Disadvantages Of ODM Service

  1. Changing suppliers is difficult because they have the design.
  2. If your sales volume is high, the supplier is likely to compete with you.
  3. It is highly likely that your product appears similar to that of your competitors
  4. Other companies may start selling the same product as you
  5. You don’t get the protection of intellectual property
  6. You are responsible for any problems during sampling and product control

 

8. OEM: Advantages and Disadvantages

Advantages Of OEM Service

  1. You will own all intellectual property rights. Your product specifications will also be protected from copyright infringements.
  2. You can quickly get quotes from manufacturers because you will have detailed specifications and designs.
  3. You have a better bargaining position and can easily switch to other suppliers.
  4. It may be more difficult to copy your product
  5. Less risk in manufacturing because a working prototype is available

 

Disadvantages Of OEM Service

  1. Changing suppliers is not easy because you need to change the entire supply chain.
  2. It isn’t easy to negotiate a slow price increase.
  3. Material or process changes may have a serious impact on product quality.
  4. Product development can add significantly to the time it will take to get the product to market

 

9. Conclusion

The above is my detailed introduction to OEM and ODM. If you have any other ideas, welcome to contact us!

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