The abbreviation ODM can be seen commonly when large retailers and wholesalers are looking for import options. Original Design Manufacturing, ODM, refers to the outsourcing of manufacture to an external factory or production facility because the client doesn't always have enough technical know-how or tools required for building their own product.
However, there is another sort of manufacturing outsourcing that goes by the term OEM, which many people confuse with ODM. Original Equipment Manufacturing (OEM) is distinct in terms of purpose and characteristics. In this short article, we'll go over their differences with emphasis on ODM and how it's employed in the industry.
Table of Contents:
Introduction to ODM Manufacturing
In a nutshell, Original Design Manufacturers (ODM) produce their own products and then make them available to clients, with some tweaking eg. packaging, under a private label or white label deal, avoiding the need to invest in their own consumer brand or marketing.
Whilst Original Equipment Manufacturers (OEM) wholly follow the instructions and specifications given by the big brand company or the large retailer ordering a production.
Companies will frequently employ ODMs as a method to swiftly get a concept to market while saving money on R&D, or because they identify a potential in the ODM's product range and decide to contact the ODM to brand, market and sell them.
Why Would Manufactures Want to Be An ODM?
The ODM approach is better suited for companies who have strong design and manufacturing capabilities but don't want to compete in the hyper-competitive world of consumer-level branding and marketing for high-street and online retail. They may bundle their distinctive intellectual property and sell it to well-known brands and retailers.
They can produce familiar items with the equipment, techniques, materials and local workforce they are familiar with. Since they are product specialized, there are cost-effective efficiencies to boost productivity with automation, re-used tooling, and bespoke production software.
When compared to other types of manufacturing, ODMs that offer white label services can see rapid revenue growth since they can supply generic, off the shelf, market-ready items to a variety of competing retailers without having to deal with the consumer levels of branding, marketing, and customer services.
The initial expenditures of establishing an ODM might be substantial. Product design necessitates an expensive R&D process in order to identify market possibilities and generate profitable items. Then there's the business-to-business budget in which to hook in big brands and high street retailers.
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Advantages of Using ODM Manufacturing
1. No Investment of Time and Costs in Product R&D
The primary benefit of ODM production, whether for white label or private label, is that you don't have to invest time and money creating the product. This allows you to focus more on your core activities while still making use of the original design manufacturer's talents and knowledge.
2. Utilise the Specialist Technical Skills of the Manufacturer
While you may be well-versed in how to expand your company, the manufacturing side may be alien ground. You may benefit from the expertise and knowledge of an experienced developer and manufacturer by developing a collaboration with an ODM manufacturing company.
3. Economies of Scale
You will also benefit from lesser pricing in most cases. When compared to both manufacturing it yourself and finding an OEM, this pricing is significantly lower. There is no expenditure on time and resources creating the product, and you can also take advantage of the ODM manufacturing firm's economies of scale.
Even if you just buying a relatively small order, they're probably making a larger production run including the components and parts of the final item as a large bulk production which has inherent cost savings. Your final item may have constituent components sourced from the supplier as used by well-known companies with much more expensive products.
4. Faster Time to Market – Lead Time is Shortened
It's a considerably shorter time to put the product on the shelf or publish the listing to start selling. It might take a long time to create your own product as well as set up a unique production process. Here, the ODM manufacturing company handles the technical elements of production and assembly. You will be able to spend more time on the branding, marketing, product launch eg. consumer testing of your product if you have an essentially ready product in your hand.
Related Article: 10 Benefits of Private Labelling for Your Brand
Industries Taking Advantage of ODM Manufacturing Firms
ODM products are used in a variety of sectors throughout the world. Tools, Electronics, computers, equipment, and the food industry are among them. Many supermarkets have their own stock of basic commodities, although they frequently share their supplier with a well-known brand. The products are renamed after themselves.
ODM goods are commonly used in mature and established businesses that demand more expensive production tooling. For instance, industries that offer kitchen appliances. Medium and big businesses in this area use an ODM manufacturer to create a specific item or new line to attract a different consumer segment. These items are then branded to match the rest of the company's offerings. Such businesses do not need to invest in appliance components since the ODM company handles it for them.
Other sectors include consumer electronics (Bluetooth products, desktop PC components, chargers, phone accessories and so on). The retailers don't have to invest in specialist and expensive machines and assembly lines or any R&D because the ODM manufacturing company will take care of everything; all they have to do is effectively brand and market the products since they understand the consumer best.
Even clothes and pharmaceuticals, with many items coming from a single source, before being branded to a particular business. Many generic medication items look like aspirin, however not every manufacturer makes its own aspirin. It's all made by a small group of companies.
Sectors Not Suited to ODM Manufacturing
In general, ODM goods are less commonly seen, where the function of the product is secondary to its aspects of being very personalized, uniquely designed, or high-end or luxury. Cosmetics and jewelry manufacturing are two examples. In this case, a specialist OEM company may be more appropriate since they can transform your ideas into physical things.
The ideal ODM is fairly uniform, but marketing, pricing, and design may all make a significant impact (think of the various brands of very basic food items as an example). In the case of white-label ODM, with a generic off-the-shelf product, you will not be obtaining a one-of-a-kind product, which implies that similar items may be available on the market.
It will be a race to the bottom in terms of profits if you don't differentiate your goods from rivals through branding, product packaging, and other means e.g. customer service, warranty levels etc.
Conclusion
Contractual arrangements with ODM manufacturing firms allow businesses several comparative advantages: Lower prices, resource savings, support from a third-party provider, fewer risks, and more time for brand identity and marketing initiatives are just a few of them.
The ODM industry is maturing with a key difference between OEM and ODM being the degree of design input from a factory working with a brand under an ODM arrangement. An ODM partner adds expertise and knowledge to the manufacturing process without requiring a contracting brand to devote any time or money to design.
This enables the big brand or retailer to expend time, energy and resources on what it knows best utilizing its expert knowledge of its market niche, the niche’s consumers, and the specifics to grow their business.
See our article about Manufacturing Risk Index
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