When you’re on the search for a factory, you’re going to encounter various options that on the surface may seem similar, like OEM and ODM factories. By understanding who you’re talking to and what to expect, you will not only be able to identify the type of factory you are engaging with, but also determine if they are the best option for what you’re trying to accomplish. There’s pros and cons to working with different types of factories, so you’ll want to be prepared so that you’re able to make sound judgements before investing in your overseas manufacturing partner. This blog will help you understand the key differences of these two factory types and why you would choose one over the other. In this blog, we'll discuss:
- the key differences between OEMs and ODMs
- the pros and cons of working with OEMs
- the pros and cons of working with ODMs
- common product development pitfalls
- research and development concerns
ODM vs. OEM Factories
When it comes to getting your product mass produced, there are many types of manufacturers that you might come across. The two that you might encounter the most, depending on the category of your product will be Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs).
OEMs specialize in producing products based on designs and specifications provided by the client. They do not sell directly to the public. Instead, they manufacture products, or the parts that go into other end-products, for other businesses such as retailers, wholesalers, and traders, without relying on middlemen to do so.
OEMs appeal to large companies due to their secure and established manufacturing infrastructure, ability to efficiently handle high-volume production, and their advantage of economies of scale i.e. being able to produce more of a product for a lower cost per unit price. Because larger companies typically have more resources, they can afford to have managers and employees on the payroll whose sole jobs are working with the OEM to help ensure quality control, and set and meet production deadlines.
Contrary to what some may think, OEMs can work with smaller companies and startups. However, because smaller companies often lack the resources, experience, and expertise required to manage such a relationship, they often choose to work with ODMs.
ODMs (Original Design Manufacturers) produce products as well as offer design and development services. Their ability to take a product idea from concept through to production can be appealing to product makers who are driven to see their product in the marketplace as soon as possible. Positioning themselves as a “one-stop shop” solution, ODMs cater to the hobbyist or first-time maker by offering an array of design options and even intellectual property assistance. However, if protecting your IP and owning the entirety of the product are among your primary concerns, working with an ODM is probably not for you.
The Pros of Working with an Original Equipment Manufacturer
Working with an Original Equipment Manufacturer (OEM) offers several advantages for makers. Let’s delve into the most significant ones:
Lower per-unit production costs. OEM manufacturing can offer more competitive prices than ODMs since they deal in higher volumes. Notwithstanding a few outliers, OEMs are nearly invariably the more inexpensive choice.
Technological expertise. Due to their extensive experience at designing products from scratch, OEMs have significant technical know-how and capabilities. This results in a more streamlined production process and higher-quality products.
Better supply chains. With decades of experience in manufacturing, OEMs tend to have strong relationships with suppliers. Because they purchase materials in large quantities, they also have the benefit of economies of scale. They have the infrastructure required to manage large supply chains and reliable partners for sourcing materials. All of these advantages generally lead to better prices, quality, and delivery times.
Greater control over your IP. Because you provide the OEM with your own CAD files they cannot claim ownership of your IP. Furthermore, because OEMs do not sell directly to the public there is little incentive for them to use your IP to create and sell knockoff or counterfeit products.
North American standards & quality. OEM factories are accustomed to producing for the American market and are equipped to provide the caliber of quality American product makers expect.
The Cons of Working with an Original Equipment Manufacturer
While there are benefits to partnering with an Original Equipment Manufacturer (OEM), it's important to be informed of the potential drawbacks you can encounter:
Communication challenges. Because OEMs tend to work with larger companies that have their own in-house product development managers they are less accustomed to interfacing with makers who are steering their own product ideas through the manufacturing process.
Limited access. If you don’t know how this industry works, it can take considerable time, diligence, and a lot of savvy networking to gain access to large, restricted, or unlisted overseas factories.
Cost overruns. While OEMs can deliver lower per unit costs, moving into the manufacturing phase with a product that has not been worked on by an experienced physical product designer, as well as fully developed and tested, can lead to an array of unintended consequences including halting production, breakage, inferior quality products, etcetera.
Limited research & development. OEMs do not perform market research, and they are not experts at product discovery or early prototype development. For that reason, it is entirely plausible that you could move into production with an OEM and manufacture a product that can’t perform as intended or meet quality standards.
Prior to working with an OEM, it is imperative to have your product prototyping completed and tested and to have your CAD files professionally designed and engineered to industry-standard specifications. Working with ready-for-production assets is how they operate. Bear in mind, taking shortcuts in development in an attempt to save money, save time, or both, is likely to cost you more in the long run. Intelligent design and engineering can reduce needless complexity, improve quality, and lower manufacturing costs overall. We’ll have more on that later on in this post.
The Pros of Working with an Original Design Manufacturer
Working with an Original Design Manufacturer (ODM) appeals to many newer product makers who see them as a one-stop shop solution. Here are the most notable advantages of working with this kind of factory:
Generally good communication. While OEMS may prefer working with in-house product development managers, ODMs primarily work with hobbyist or novice product inventors. For this reason, they prioritize having helpful customer-facing representatives with a higher level of English fluency.
Quick launch time. ODMs cater to first-time and less-experienced product makers. As such, they know how driven inventors are to get their product made and out on the market, and are good at getting products into manufacturing quickly.
In-house design. ODMs can totally design your product for you, but then it becomes their product, and you lose a lot of IP protection when you go this route. This can be attractive to folks who don’t have the budget to hire a design firm, but they’ll pay for it later when they see another company selling their product with different branding on it. That’s the name of the game for ODMs.
The Cons of Working with an Original Design Manufacturer
Despite the benefits, there are considerable challenges associated with working with an Original Design Manufacturer (ODM):
Your IP could be at risk. While ODMs will try to lure people in and offer “free” design services, what they don’t tell you is that your idea is now theirs and that they own the IP. What you think is your own unique product could end up for sale under another brand down the line. Any time there’s a single company with full control over your IP and product development, it could spell bad.
No checks and balances on the design process. When the ODM helps to design and develop your product, there’s little to no oversight and an increased chance of product errors going unnoticed prior to going into the first production run.
Cost overruns. When a product is not expertly vetted, developed, and tested, manufacturing can be fraught with challenges and inefficiencies including breakage and subpar quality. The design and customization options ODMs offer can require additional engineering, specialized tooling, or sourcing of unique materials which can result in exceeding costs.
Supply chain challenges. Because they usually work on a smaller scale compared to OEMs, ODMs do not have the same buying power which can result in higher costs and greater difficulties sourcing materials. Managing a high volume of materials and optimizing the supply chain for greater cost-efficiency can also be challenging for these generally smaller-scale factories.
Deficient market research and product development. ODMs claim they do market research and product development but what they offer is actually very limited. They do not specialize in market research and have little interest in how well your product performs in the marketplace. They cannot be relied upon to give you unbiased information on the best materials or manufacturing processes to use for making your product. Their interest lies in keeping your businesses. For that reason, they are likely to recommend the manufacturing process they specialize in and the kinds of materials they work with, and will fail to inform you of other options.
Don't leave choosing the right factory to chance. If you're already experiencing woes with your factory, or if you're trying to ensure that you find the right one without having to experience all of the headaches and pitfalls, download our RIGHT FIT FACTORY™ SCORECARD.
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Avoid These Common OEM & ODM Product Development Pitfalls
As they say, hindsight is 20/20. Many product makers have learned what not to do through expensive trial and error. When you’re aware of the common product development pitfalls beforehand, proactive measures can be taken to avoid them.
Poor communication. Regardless of whether it's an OEM or ODM you’re working with, communication breakdowns can occur. Lack of clear and effective communication about specifications, requirements, and design changes can result in misunderstandings, errors, and delays in developing your product. Needless to say, the costs incurred due to poor communication can be highly detrimental. Clear communication is absolutely essential. When you vet factories, solid communication should be a primary concern. There’s more on assessing communication in our article Find the Right Factory for Your New Custom Product.
Inadequate market research. Without understanding customer needs, preferences, and market trends, there is a risk of developing a product that does not meet market demand or that fails to stand out from competitors. Even massive markets, like the 1.27 billion dollar running shoe market, may look great to break into, when in reality only a fraction of those sales are available to a new product trying to break in.
Assuming they know what users want in a product is one of the most common mistakes in product development. Bias confirmation is real too, so do not follow hunches or think your product’s success is a sure thing. See what the research tells you!
Do not assume that the user knows what they want in a product either. Sometimes they don’t. Novel products that solve a problem of which few people are consciously aware or that upend the way a certain task or procedure is done, can be solutions users would value and gladly pay for, once they’re aware of the value the product provides (such as saving a lot of time or money, or making a routine task easier to perform.
New features frenzy. Making something new can be a lot of fun. A new idea about how a problem with a key product feature can be worked out is great. Falling into the habit of thinking, “Wouldn’t it be cool if…” can lead to needless iterations and unnecessary costs.
Removing a key feature. Without solid market research into what target customers want and value in your product, developing out what was actually a key feature of your product is a possibility.
A lack of serious testing. The only way to see whether or not your product can do what it’s supposed to do, and do it well, is through unbiased testing. Having your product fail during the prototyping phase is far better than having it fail in the marketplace.
Insufficient manufacturing operations management: A huge factor in the success of your pilot production run rests in the strength of operations management. Recent changes in a factory’s personnel, internal changes in interdepartmental structure, or simply having the wrong person in a supervisory position can lead to inefficiencies that result in cost overruns, breakage or subpar products, and production delays.
Insufficient regulatory requirement oversight: Regulations cannot be adhered to in retrospect, and products that fail to comply with regulatory standards cannot be sold in the American market. Effectively navigating regulations requires thorough research, engaging with regulatory experts, and staying informed on regulatory changes. OEM and ODM factories need to abide by comprehensive regulatory requirements and have proper oversight to ensure compliance.
Inadequate quality control: Although it does not get talked or written about much, quality control is a very big deal. Retroactive fixes to a problem at the post-production phase generally cost far more, when and if they’re possible. By implementing quality control checks and inspections throughout the production process, problems can be caught early on, thereby reducing the risk of product failures, recalls, customer dissatisfaction, and damage to the brand’s image, as well as legal and regulatory consequences.
Unrealistic timelines: Both OEMs and ODMs can face challenges related to unrealistic timelines. Setting overly ambitious or tight deadlines without considering potential setbacks or complexities in the manufacturing process can lead to rushed production, compromised quality, and delays.
Going over budget: Exceeding the budget can happen with OEMs and ODMs alike. Adequate research and development reduces the chances of making costly mistakes during production. If the prototype for your product has not been fully developed and tested, and potential problems have not been addressed, unexpected design changes are likely to be needed—and expensive tools may need to be remade. Other common reasons for going over budget include inefficient production processes, unrealistic timelines, price fluctuations (usually for raw materials), and scope creep.
Supply chain disruptions: Despite the more established supply chains found at OEMs, both OEMs and ODMs can face supply chain disruptions. Factors like material shortages, supplier issues, or unforeseen external events can impact the availability of components and cause production delays.
Poor design or poor material selection. Creating a poorly-designed product that has too many pieces, lacks product feature refinement, breaks easily, or that does not meet your vision or goals is a possibility when adequate research and development was not performed. There is no substitute for iterative prototyping that incorporates genuine user feedback to ensure your final product delivers a solution that meets or exceeds consumer expectations.
No “Go To Market” (GTM) Strategy. Without an exacting GTM strategy that’s informed by real data, it is entirely possible to blow your marketing budget just trying to get the word out about your product. Should you sell online or in stores? What’s the best way to get your product in front of your target consumers? And, should you try to convert the Total Addressable Market or just a segment of them? Without answers to these questions (and many more), producing a product that’s basically DOA is entirely possible.
Being aware of the many common pitfalls that can happen during product development can help you take certain proactive measures, ask the right questions, and mitigate some of the risks. However, simply being aware of what can go wrong is not enough. Successful product creation requires adequate research and development, including market research and iterative prototyping, to help ensure your best product for profitability and sustainable business growth is the one that moves into production. Reach out and learn how we can help you with all of it, and teach you along the way.
The Argument for Solid Research & Development Prior to Working With a Factory
Why rush through production only to find the product you made is sitting in a warehouse collecting dust because you failed to safeguard your investment by doing things well? Before signing on with any factory, do the work of setting your product up for success.
Don’t Look to OEMs or ODMs for Market Research
OEMs typically do not perform market research or product development. Their focus is on optimizing the manufacturing process and efficiently producing the product in accordance with the client’s requirements.
ODMs, on the other hand, often claim they do market research but lack the expertise and neutrality such work requires. In reality, ODMs have little vested interest in ensuring that the product they manufacture can compete within the existing market landscape, or that it delivers what the consumer wants or needs.
Because most factories specialize in just one or two manufacturing capabilities, ODMs are likely disinterested in providing a potential client with a neutral evaluation of the materials or processes widely available to them for making their manufactured product. It may also be against the ODM’s best interest to propose cost-effective manufacturing solutions and other cost controls.
Intellectual Property Concerns
Protecting your product ideas and prevention of unauthorized use by competitors should always be a primary concern. Throughout the R&D phase, it is imperative to maintain proper documentation of all design iterations, testing results, and any IP protection measures you take, such as filing a patent or trademark. Documenting your R&D process not only helps protect your IP, it serves as valuable evidence in the event of there being disputes or IP claims in the future.
Because OEMs do not sell directly to the public they are not equipped to do much with your IP. ODMs, however, can easily make off with your IP. When they’ve helped you with the product development portion of the work, they may even be able to claim some ownership of the design. Even when a contract is intended to prevent an ODM from manufacturing a product you developed, it may be insufficient in prohibiting them from using it to create knockoffs and selling it under a different brand name.
Third-Party R&D is Vital
The importance of solid research and development is one that cannot be overstated.
It can save you from making huge mistakes like manufacturing a product that lacks sufficient market demand, costs more than the market will bear, or lacks the key features consumers will gladly pay for. Running out of capital due to cost overruns, incorrectly estimating the reachable market, or manufacturing a product that does not meet safety, quality, and environmental regulations are just a few potential consequences that can be prevented by adequate R&D.
Solid R&D can help you achieve an informed understanding of the viability and potential success of your product. through evaluating key factors including target market demand, manufacturing feasibility, costs of production, and the amount of competition. When your product idea is assessed from an objective technical, financial, and market perspective, you can mitigate significant risk and develop a product that meets user needs and positions your business for growth and profitability.
Informed Iterative Prototyping Spawns Insights and Innovation
When you’re informed with data-backed insights on the needs and wants of your target market, you can develop prototypes that aim to be the answer they’ve been looking for. Good prototyping is objective. It incorporates user feedback and controls for confirmation bias. Refining features, identifying design flaws, and gathering and incorporating user feedback into subsequent prototypes can lead to eye-opening insights, innovations, and the development of valuable IP. While iterative prototyping and design can be long, arduous, and even frustrating at times, committing to the process can lead to remarkable discoveries that otherwise would have been missed.
Proper R&D has nearly everything to do with ensuring you will be able to go from point A to point Z. It helps you stay on track and equipped with a realistic plan, timeline, and budget in place for prototyping expenses, materials, testing, and those unforeseen challenges that (always) arise. When you commit to good R&D and use it to make informed decisions, you can lay the foundation for successful product development and market entry.
We Work with OEMs. Here’s Why.
At Product EVO, we send our clients to OEMs—not ODMs, trading companies, contract manufacturers, or any other possible manufacturers. Their experience, infrastructure, standards, and resources make them the ideal kind of factory to manufacture unique products for the North American market. We do not recommend working with just any OEM. Factories must be carefully selected and vetted. Here’s our guide: Find The Right Factory for Your New Custom Product.
Rather than simply helping you get a product into manufacturing, at Product EVO we help you discover data-backed insights on unmet customer needs so that you can develop the right product with the right key features for profitable business growth. Our dedicated product design support ensures your product meets your strategic vision and specific product goals to help ensure it connects with target consumers’ wants and needs.
From there, we conduct iterative factory quoting to maximize value and keep your costs low. Once a trusted, high-quality OEM is selected, one of our dedicated U.S.-based project managers works in tandem with our on-site overseas team to manage the manufacturing process from start to finish. From your pilot production run to your last run, we optimize efficiency, prioritize quality requirements, and provide ongoing feedback. We source your materials, components, packaging, and handle shipping logistics too, so that you can be sure your manufactured product gets into your buyers’ hands in one piece.