On Alibaba.com and other directories, suppliers claim to offer ‘OEM service’ and ‘ODM products’. In this article, we explain what OEM and ODM really means, and the difference between them.
Keep reading, and learn how product development and IP protection procedures differ, based on whether you go OEM, or select an ODM product.
The 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, functions or even colors can be classified as OEM.
To some, OEM means a product that is 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 would agree that the primary definition of an OEM product, is a product for which tooling (i.e., injection molds) must be produced before production can start.
The Definition of Original Design Manufacturing (ODM)
An ODM product is based on an existing design, developed by the manufacturer. An ODM product can either be the result of the suppliers own R&D, or a (legal or illegal) replica of another product or brand.
ODM products, which are often called ‘private label products’, can be branded with the buyer’s logo.
This practice has been very common in recent years among Amazon sellers and other eCommerce companies.
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.
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 these products.
First of all, factories ‘make to order’ even when it comes to ODM products. They don’t have stock waiting for buyers.
Second, ‘product listings’ can fall within any of the following three categories:
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. Demonstration 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.
That said, it can be acceptable, if it is a digital design created by a supplier to showcase what they can make. However, it is not acceptable if that is not the case.
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 is their IP.
In which industries are ODM products more common?
ODM products are far more common in more developed industries, such as electronics, machinery and other hardware that is costly to develop.
Hence, it is much more common to find factory products, developed by Chinese manufacturers, when it comes to kitchen appliances, LED lighting and so on.
ODM products are much less common in low cost industries, that are more design rather than function focused. This includes, for example, apparel, accessories and jewelry.
Where can I find suppliers offering ODM products?
There is no strict category of ‘ODM suppliers’. In all industries, essentially all manufacturers have started off as OEMs, making products based on their buyer specification.
That said, some suppliers have invested in developing their own ODM products, while other just upload ‘for reference only’ products to their Alibaba or Global Source pages.
There is nothing wrong with the latter, but you must understand this fact, in order to not make critical mistakes.
Is ODM the same thing as Private Labeling?
In theory, yes. 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.
How do I reverse engineer and ODM specification?
ODM products often are customized. As a matter of fact, suppliers expect their buyers to provide them with product specifications – even if the product they buy is a so called ODM product.
As said, many products are for reference only, and the PDF files and spreadsheets that contained the original product specification, are long gone.
Hence, it is up to you, as a buyer, to do the following:
a. List all relevant product specifications (i.e., dimensions, buttons, collar type)
b. Confirm all available customization options with the supplier (i.e., what fabrics and colors they can offer)
How can I be sure that the ODM product is not the IP of another company?
This is the million dollar (lawsuit) question. One that we get multiple times every week.
As mentioned in this guide, many ‘list products’ are not actual ODM products, but photos of goods made for other buyers in the past.
Now, what if those product designs are the IP of that buyer?
First, you should not use brand names and trademarks that you don’t own, but you probably understand that already.
Second, go to Amazon.com, and see if you can find similar products on the market already. Keep in mind that not every product or function can be patented.
In many cases, it’s only the brand name that is the IP. Yes, even if the product itself was designed by another customer.
For example, you cannot patent a T-shirt. But you can patent a new LED light bulb.
Third, you can go into further detail, and do a patent search – or ask the supplier to show documents proving that they own the patent for the ODM product.
Just keep in mind that a Chinese patent is only valid in China.
Or, you just go OEM. It’s not as hard as you might think.
ODM and OEM Comparison Table
|Unit price||No difference||No difference|
|Injection molds and tooling||Paid for by the buyer||Paid for by the supplier|
|Product development time||1 to 6 months||1 to 4 weeks|
|Mass 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 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.
ODM can make sense. We have customers that have seen great success selling ODM products, while others act as the agents of up and coming Chinese brands (of course, with an agent exclusivity contract to back that up).
Then again, what you gain in shorter lead times, can take even more time in terms of uncovering product specifications, remaking design drawings and searching for existing patents.
Do you want to launch your own private label or custom designed product?
It can be hard to go from a design drawing to finished product. To help you manage the entire process – from creating a specification, to sampling and quality control – we created a Starter Package:
a. Private Label & OEM Product Manufacturer Lists
b. Product Specification Templates
c. Product Label Samples
d. Tutorials, Video Walkthroughs and Task Lists that guide you step-by-step through the entire process
In addition, you can also book quality inspections, lab testing and shipping directly from the platform. Click here to learn more.