• What’s the Difference Between OEM and ODM Products?

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    Difference OEM and ODM

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    Many suppliers on Alibaba.com, and other supplier directories, claim to offer Original Equipment Manufacturing (OEM) and Original Design Manufacturing (ODM) products. In this article, we explain what OEM and ODM mean in the context of manufacturing in China, and other Asian countries.

    Whether you decide to get an OEM or ODM product manufactured impacts the entire process, from supplier sourcing and RFQ to product samples and manufacturing.

    Definition of Original Equipment Manufacturing (OEM)

    An OEM product is made according to the buyer’s product specification. For example, any product with a customized design, material, dimensions, functionality, or even colors can be classified as OEM.

    Product specification examples

    • CAD files
    • Design drawings
    • Bill of materials
    • Color chart
    • Size chart

    To some, OEM only refers to products that are designed entirely based on the buyer specification, while others classify even the slightest modification of an existing ODM product design as OEM.

    That said, most buyers and suppliers would agree that the primary definition of an OEM product, is a product for which tooling (for example, injection molds) must be produced before production can start.

    Definition of Original Design Manufacturing (ODM)

    An ODM product is based on an existing design – to some extent developed by the manufacturer rather than the buyer. An ODM product can either be the result of the supplier’s own product development efforts – or a replica of another product that’s already on the market.

    ODM products, which are often called ‘private label products, can be branded with the buyer’s logo. Further, ODM products can in many cases be modified to a certain extent.

    Modification examples

    • Colors
    • Materials
    • Coatings
    • Platings

    However, you’ll enter “OEM territory” if you attempt to change the design or dimensions of an ODM product.

    What does it mean when a supplier on Alibaba.com claims to offer OEM services?

    ‘OEM service’ refers to the supplier’s ability and willingness to make products according to the buyer’s design. That said, basically, every supplier in Alibaba and Globalsources.com can make OEM products. In fact, that’s what they are accustomed to.

    Hence, you don’t need to go out of your way to search for suppliers that actually state that they offer OEM products, as it can be taken for granted.

    On the other hand, finding suppliers that offer ‘real’ ODM products can be much more of a challenge, as explained in this article. Some suppliers even reject quotation requests based on ODM products as they only work with OEM buyers.

    What does it mean when a supplier claims to offer ODM products?

    It’s easy to get mistaken by product listings in various supplier directories and assume that the suppliers actually ‘have’ all the listed products. It’s actually not that uncommon for suppliers to list products that they have never even manufactured.

    Here are some product types suppliers add to their directories:

    a. Customer products: These designs (and the tooling) may be owned by existing customers. The product is only shown to demonstrate what they have made in the past, but the supplier may not have a fixed spec sheet or even the design drawings for the product.

    b. Demo products / fake products: Some suppliers upload images of products that they never actually manufactured. Hence, the buyer must pay for the tooling, in which case it is questionable if the product can even be classified as an ODM product at all.

    That said, it can be acceptable, if it is a digital design created by a supplier to showcase what they can make.

    c. Supplier developed product: Some suppliers invest in product R&D and tooling, but this is only a small part of all listed products on the major supplier directories. If you go down this route, keep in mind that the supplier will have a lot of leverage as the product is their IP.

    Are ODM products off-shelf or stock products?

    ODM products are not necessarily products that are available to order directly from their existing warehouse. In most cases, ODM products only exist on paper – for example, product photos, renderings, or drawings. The supplier must still enter production before they can ship products – which normally takes at least 30 to 40 days.

    As such, all off-shelf products are ODM products – but not all ODM products are available off-shelf.

    In which industries are ODM products more common?

    ODM products are more common in more R&D and capital intensive industries – such as electronics, machinery, and medical devices. On the contrary, ODM products are less common in the clothing or textiles industry.

    More common

    • Electronics
    • Machinery
    • Medical devices
    • Kitchen utensils

    Less common

    • Clothing
    • Home textiles
    • Accessories

    Where can I find suppliers offering ODM products?

    There is no strict category of ‘ODM suppliers’. Essentially all manufacturers have started off as OEMs – which means that they are primarily making products based on their buyer design and product specification.

    Some suppliers have invested in developing their own ODM products, while other just uploads ‘for reference only’ products to their Alibaba or Global Source pages.

    It’s also important to note that ODM products are far more common in Mainland China, compared to Vietnam and India. I think the reason is that Chinese factories have simply accumulated more tooling, machinery, and capital over the years. Further, many also sell ODM products on the domestic Chinese market.

    My experience is that the ODM product approach is very difficult to apply in Vietnam and India – at least outside furniture and some other industries.

    How do I know if a supplier offers OEM and/or ODM products?

    As mentioned, there are very few manufacturers that don’t offer to produce OEM products. When it comes to ODM products I recommend that you request a product catalog to find out if they have any ODM products to speak of.

    That said, you must explain that they should only list products that they have already manufactured. Otherwise, you may receive random photos taken from other websites or even renderings of products.

    Is ODM the same thing as Private Labeling?

    Yes, ODM and private labeling is essentially the same thing. The concept behind ODM and private labeling is that the supplier provides a template product, that the buyer can brand with their own logo.

    Hence, the buyer can save time on money, as they don’t have to go through a lengthy product development process or invest in expensive injection molds and other tooling.

    Can I get a product specification for an ODM product?

    It’s quite rare that suppliers are able or willing to provide an actual product specification, including design files and a bill of materials. In case they have it they tend to be quite reluctant to share such files.

    Hence, buyers are often forced to sort of reverse engineer the product by creating a product specification by documenting the ODM product.

    Examples

    • Take product photos
    • List materials and create a BoM
    • Document functionality

    You may also need to create complementary materials, such as compliance marks, logo placement renderings, and mockups.

    How can I be sure that the ODM product is patented by another product?

    One major risk when buying ODM products is that of “accidentally” infringing the IP of another company. Imagine buying an ODM product only to find out that it’s a replica of an already patented product in your target market.

    My best recommendation is that you hire a lawyer to do a patent search before you go ahead with an ODM product.

    Is it easier to buy ODM than OEM?

    Many buyers assume that it’s always easier to buy ODM than OEM products. It’s actually often the opposite. This may sound counterintuitive, but trying to reverse engineer a product specification and work out the available customization options for an ODM product is often more time-consuming than creating an OEM product from scratch.

    Further, the OEM process often reasons better with suppliers.

    Are ODM products cheaper than OEM products?

    There is generally no difference in terms of unit prices between ODM and OEM products. That said, ODM products are cheaper and faster to bring to the market as no tooling is required.

    Is the MOQ lower for OEM or ODM products?

    There is generally no difference in terms of the minimum order quantity (MOQ) requirement between OEM and ODM products. However, some suppliers may offer a lower MOQ for standard materials – but such materials can often be applied to both OEM and ODM products.

    ODM and OEM Comparison Table

    Factor OEM ODM
    Unit price No difference No difference
    Injection molds and tooling Paid for by the buyer Paid for by the supplier
    Product development time 2 to 6 months 1 to 4 weeks
    Production time No difference No difference
    Product spec sheet Provided by the buyer ‘Reverse engineered’ by the buyer or provided by the supplier
    Product compliance No difference No difference
    Intellectual Property Ownership IP can be owned by the buyer IP owned by the supplier or another importer
    Benefits 1. The suppliers are at their core OEMs. Often less hassle to buy OEM products.

    2. You can freely customize the product (within what is technically possible to make)

    3. You own the IP (as long as you protect it)

    1. Shorter product development cycle

    2. Many ODM products can be customized to a certain degree

    3. You don’t need to pay for the tooling

    Disadvantages 1. You pay for the tooling

    2. It can take months to create new tooling

    1. Limited product selection (you get what the supplier can offer, which may only be a fraction of their list products)

    2. It is time-consuming and complicated to reverse engineer a specification. It can often take more time than to design an OEM product from scratch

    3. Many other companies are already selling the same product, or they will in the near future.

    4. You don’t own the IP of the product, and may even end up on the wrong side of an IP dispute.

     

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  • 11 Responses to “What’s the Difference Between OEM and ODM Products?

    1. Linda at 10:50 am

      OEM,All the design drawings are completely in accordance with the design of the upstream manufacturers for manufacturing processing.First popular in Europe and the United States and other developed countries, it is a kind of game rules for international large companies to find their own comparative advantages, which can reduce production costs and increase brand added value.
      ODM,The product plan designed by the manufacturer can be offered to the brand owner by means of buyout or non-buyout.

    2. Wouter Konings at 11:17 pm

      Hello Tomasz,
      Alibaba reverses the definitions: An OEM company is responsible for designing and building a product according to their own specifications, and then selling the product to another company or firm, which is responsible for its distribution. An ODM company or firm is responsible for designing and building a product as per another company’s specifications.
      https://service.alibaba.com/buyer/faq_detail/20153623.htm

    3. Tomasz at 7:00 am

      Hi,
      First of all, great article.
      I have 2 unclear topics..
      1. I’m importing to Europe electrical equipment to sell it. I’ve heard that I should label all imported products with my own label (with my company data) and give my own certificate of compliance.
      As I know, person responsible for the product is either importer or producer (in terms of fulfilling all standards and norms).
      When you have to put your own label on the product and when you can you sell/distribute product with manufacturer label? Where is the border? Does Cheese manufacturer has to have his company facility in Europe to take responsibility for their products in case of some accident?
      2. Second topic concerns IP.
      We can ask manufacturer to show documents proving that they own the patent for the ODM product but having in mind that “Chinese patent is only valid in China” we have no certainty that it’s not copied from some European or US producer? It gives us only information that it’s not copied from another Chinese producer?
      As I understood from article, we should avoid importing products which are already on the market, although company selling it, might not have patent for it (because they used ODM from China)?
      Thank you in advance,
      Tomek

      1. Ivan Malloci at 2:20 pm

        Hello Thomasz,

        1. If you are importing from an extra EU country, being China or another doesn’t matter, you are the one that is responsible to ensure product compliance. I think labeling plays a small role here, it’s more about “who is importing”. Of course, if the Chinese supplier has a company in EU and you are buying from its EU company, then he will take most of responsibility, but in this case you will probably lose the competitive advantage of “buying cheaper from China”. I mean, you aren’t even an importer anymore, you are just buying from a European wholesaler.

        2. If the Chinese supplier has a patent only for China, yes, then you shall still check that no other company own a patent in the country where you want to sell.

        1. Tomasz at 11:16 pm

          Thank you for the reply Ivan.
          It clarifies a little bit.

    4. Rea O. at 2:50 am

      What is the difference between OEM and ODM in terms of QUALITY? Who has a higher quality between them?

      1. Fredrik Gronkvist at 4:42 am

        Hi Rea,

        OEM and ODM are only different product development procedures. It’s the materials and other technical specifications that impacts quality.

    5. L.willemsen at 3:32 pm

      how does this work with Pokemon plushies?
      there is a certain brand (just a name though not really a brand) in china making their own models of Pokemon plushes. they design them themselfs with pictures found in the internet. they are not copying existing products. but they dont got a license of nintendo.
      in the past nintendo didnt want to give them a license because their factory was to small. so nintendo knows their existence. and they still producing awesome Pokemon plushies.
      they do offer to put my store name on their tags. since i request plushies from them, which are my costumers are actually asking for. but is that a risk putting my store name on the tag? i live in the netherlands, so not china hehe.
      can you tell me more about this all?

      1. Fredrik Gronkvist at 7:59 am

        Hi L,

        If you import unlicensed products you can expect an invoice from the Dutch customs authorities, for the destruction of the goods – or, a letter from Nintendo. It doesn’t matter what this Chinese factory does or tell you – importing or selling unlicensed products is illegal. IP protection also cover characters.

        It doesn’t matter if it’s your logo or the factory brand (or none at all). It’s still illegal.

        That said, if they design their own plush toys, then it’s a different story.. but it’s not a Pokemon unless it comes from Nintendo, so based on reading your comment, I assumed that they are making replicas of Pokemon characters.

    6. erez at 3:52 pm

      Hi guys
      It was a great article Although I have a questionthat I did not understand something.
      If I want to take a stainless steel tray from the supplier. Paint it in color and draw an example that I designed. Is it odm or oem?
      Thanks
      Erez

      1. ChinaImportal at 3:08 am

        Hi Erez,

        Great question. Technically, that is OEM, but many suppliers refer to ODM as long as no custom tools are required.

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