Which is better, OEM or ODM?

Which is right for my manufacturing business?

Choosing the perfect manufacturing model for your company is challenging and shouldn’t be taken lightly. You know your business and its specific needs and processes, so there is no one-size-fits-all solution. One isn’t generally better than the other, but one could offer more benefits to your business. Here are some key points you may want to consider when deciding on a manufacturing model.

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Design expertise

If your business has strong design capabilities and can create unique and innovative products, then ODM may be your better option. On the other hand, if you lack design expertise and need products to be made to your specific requirements, OEM may be a better fit.

Cost considerations

ODM products are generally less expensive to produce, as the manufacturer has already invested in design and tooling. If manufacturing cost is a significant factor for your business, then ODM may be the better option.

Brand identity

If you want to build a strong manufacturing brand identity and market your products as your own, OEM may be the best solution for your business. However, ODM may be a better fit if you are willing to sell products under the manufacturer’s brand and focus on delivering quality products at a lower cost.

Industry and market requirements

Some industries and markets require specific certifications or compliance with regulations. If your products require particular certificates and standards, OEM may be the better option, as you can outsource to a manufacturer who has already taken the time to get certified.

How can Katana help manage your manufacturing?

Katana is a cloud-based production planning and inventory management software for small and medium-sized manufacturers, including ODM, OEM, and CM businesses. Whether you create your own products from scratch or outsource your manufacturing, in both cases, there are many areas of the business to oversee.

Inventory management

One of the most essential features of Katana is its inventory management capabilities. It allows manufacturers to track their inventory levels in real time, including raw materials, work-in-progress, and finished goods. This can help OEMs and ODMs optimize inventory levels and reduce waste and stockouts.

Outsourced Purchase Orders (OPO)

Outsourcing refers to sending some or all of your purchase orders to be fulfilled by a contract manufacturer outside your own business. Outsourcing can be useful for companies that don’t have the capacity to produce goods in-house or need to access specialized equipment or skills. We’ve even put together a video series explaining OPOs and how they work in Katana.

Production planning and scheduling

Katana allows manufacturers to schedule production, create and manage manufacturing orders, assign tasks to employees, and track the progress of each assignment. Shop-level workers can access their tasks in the Shop Floor App, where they can view and edit them, triggering changes in inventory levels and production operations. This way, manufacturers can streamline their production processes and eliminate inefficiencies.

Bill of materials management

Using Katana, manufacturers can create and manage bills of materials for their products. This can help ODMs ensure they have the necessary raw materials and components to manufacture their products, and OEMs keep track of their supplies and parts.

Live data and insights

Katana provides users with real-time information and manufacturing analytics about their production processes. With this feature, manufacturers can track sales, monitor the progress of production orders, and identify areas where to optimize their operations to reduce manufacturing waste and increase efficiency. The data and insights feature also includes customizable dashboards and reports, which allow users to visualize their data and highlight the statistics most essential to their business.

Integration with other software

With Katana’s open API, users can integrate with other software tools, such as accounting software, e-commerce platforms, and CRM systems, to fulfill their specific business needs. There are also many existing integrations to build a custom workspace and create personalized workflows.

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.

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.

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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:

• Lower production costs due to economies of scale
• Ability to focus on core competencies and outsource non-core tasks
• Opportunity to work with multiple brands and industries
• Reduced risk and responsibility for branding and marketing

Disadvantages:

• Dependence on the brand owner for business and revenue
• Limited control over the product and its branding
• Lack of differentiation from competitors who may be using the same OEM

ODM (Original Design Manufacturer)

Advantages:

• Cost-effective production due to specialization and efficiency
• Ability to customize and adapt to different client needs
• Opportunity to work with a variety of clients and industries
• Increased control over the manufacturing process

Disadvantages:

• Dependence on the client for business and revenue
• Limited control over the final product, which may not fully align with the ODM's vision
• Risk of product imitation and commoditization

OBM (Original Brand Manufacturer)

Advantages:

• Complete control over the product, from design to distribution
• Strong brand identity and recognition
• Opportunity to create unique products and differentiate from competitors
• Potential for higher profit margins

Disadvantages:

• Higher risk and responsibility for branding, marketing, and sales
• Higher upfront costs for design, production, and marketing
• Limited flexibility to adapt to changes in the market or client needs.

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.

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