What's the meaning of OEM, ODM, & After Market? ...

Demystifying the ecosystem of OEM, ODM, Aftermarket

The words &#;manufacturing&#; and &#;profitability&#; get you excited? Then it&#;s time to deep dive into the manufacturing ecosystem to know more about OEMs, ODMs, Aftermarkets and the key differences. As a manufacturing enthusiast or a potential manufacturer, it pays to discover, demystify and differentiate all the key components comprising the broader manufacturing spectrum.

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OEM Full Form: Original Equipment Manufacturer

An OEM (Original Equipment Manufacturer) is a typical manufacturer with the capability of manufacturing or producing products as per a customer&#;s specific requirements. The finished product often meets the exact specifications or gets as close as possible to the desired output factoring in machinery or raw material constraints. OEMs are an indispensable &#;go to&#; manufacturing solution for a number of companies whose capabilities are limited to ideation and market research; these organizations often do not have in-house manufacturing wherewithal at scale. In a nutshell, OEMs afford the enterprise sector the capability of deploying products on market shelves without the overheads pertaining to plant building, staffing and maintenance. In an archetypal OEM environment, the client manages the product design, market research, marketing and product testing while the OEM simply manufactures the product as per specifications.

OEM Example:

The world-renowned Apple brand is a perfect case in point. The MNC backed by humungous design, ideation and R&D capabilities doesn&#;t have in-house manufacturing facilities. Hence it outsources most of its manufacturing requirements to a Chinese OEM Foxconn.

 

ODM Full Form: Original Design Manufacturer

ODMs are an entirely different breed from OEMs. They ideate, conceptualize, design and manufacture products in-house which are subsequently purchased by diverse clientele. Businesses tend to leverage ODMs to translate an idea into a marketable product without much of R&D costs. Some enterprises with a keen sense of marketing may also spot a viable opportunity in an ODM&#;s existing line of products and approach the ODM to lease the same. Within the ODM ambit, there are White labels and Private labels. White label ODMs design and produce generic products which are sold to clients who simply rebrand them and market the same. But the IP is with the ODM and different businesses may purchase the same product; customization is limited in such a scenario. Private label ODMs operate with exclusivity as the key result area. Under such an arrangement ODMs enter into a manufacturing contract with a specific set of clients where products are manufactured and sold exclusively to them for rebranding/re-selling. The bottom-line in this model is all about the ODM doing the R&D, Testing and Manufacturing; the client just rebrands and markets the same.

ODM Example:

Big brands like Hewlett-Packard, Dell Computer, Sony Ericsson, Philips, Nokia and Motorola often approach ODMs for products that translate their ideas into marketable units. Celestica, Compal Electronics, Flex, Jabil, Pegatron and Quanta are some of the more prominent ODM players.

 

OEM vs ODM

Well, both are critical components of the manufacturing domain with each segment having global players. Both the strata have their own pros and cons. Being an OEM entails lower costs pertaining to research, design, testing etc. And facility upgrading costs are often passed on to clients for who they make customized products. However, on the downside, the market has an abundance of OEMs due to the low risk; this in turn has metamorphosed it into a cluttered marketplace defined by stifling competition. Coming to the ODM segment, the biggest advantage is the ability to produce a highly cost-effective facility. This is due to the luxury of choosing own products. It includes commissioning infrastructure and systems which drive manufacturing efficiency. The other side of the coin is manifested in the form high costs pertaining to plant, machinery, R&D, testing, manufacturing etc., often without a captive market.

 

What is Aftermarket?

The Aftermarket is made up of manufacturers who produce parts, components and sub components which are built to be compatible with as many products and/or models as possible. It&#;s more like &#;one size fits all&#; from a consumer perspective. Due to the randomness of the design methodology, Aftermarket parts often don&#;t provide superior fitment. These players mostly manufacture parts and accessories used in product repair or enhancement. It&#;s more of a secondary market available after sales in the original market are concluded. Low making and maintenance costs are the biggest pros in this sector. Immense competition and regulations from OEMs are the toughest challenges encountered.

Aftermarket Example &#; The whole Automobile industry is an example of how the Aftermarket thrives across the globe. Every Automobile OEM faces stiff competition predominantly from Chinese and Indian (Delhi) markets teeming with players from the unorganized sector. They supply every other part/component manufactured by an OEM at a cheaper cost albeit with lesser quality.

 

Also Read:

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 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. The OEM is responsible for the production, and quality control of the product, while the other company is responsible for marketing, sales, and distribution. Most of the time Brand uses own design strategy and OEM needs to follow that to order to meet the specs.

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 internal specifications and designs. In other words, the ODM is responsible for the manufacturing process, and design but branding are done by the company that commissioned the product. The ODM has the design, manufacturing expertise and infrastructure to manufacture the product efficiently and cost-effectively.

For example, Apple is known for designing its products, but it also uses ODMs to Design them.

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

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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.

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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