ODM Meaning in China Manufacturing – Pros and Cons

ODM is a term that appears commonly when you are searching for import options in China. It is used to refer to the outsourcing of products which you cannot obtain locally. ODM products are usually developed by an external manufacturer because clients do not have the technical know-how or tools required to build these products.

Many people tend to confuse ODM meaning with OEM, which stands for Original Equipment Manufacturing and is different in purpose and features from ODM. In this article, we will explain ODM meaning and how it is used in industries. We shall explore how you can benefit professionally from using ODM products.

ODM Meaning

The acronym ODM typically stands for Original Design Manufacturing. It is a type of contractual manufacturing system which offers broad services to clients. ODM structures product development opportunities which result on the basis of designs made by a manufacturer. Sometimes an ODM can provide services for the entire lifecycle of a product. These products could be developed by a supplier or it can be the replica, both legal and illegal, of someone else’s brand or product.

How ODM can benefit you

The exact service and scope of an ODM varies on the basis of its capabilities. In plain terms, an ODM can provide a solid outline on how to transform an idea into a tangible good. For instance, you have an idea about a laptop that you want to create. Upon performing research on your local market, you come up with a plan to sell affordable and high-quality laptops to your audience.

To make your desired laptop, you will want to include several features and accessories in it. However, you may have limited understanding in regards to the extent of the technical scope needed to create the laptop. In such a case, you might visit an ODM firm for assistance. They can create new designs based on technical specifications that you may not be aware of. You need to provide them with your idea, and chances are that the ODM firm has an existing line of products which you could customize depending on your needs.

ODM makes the product building process smooth by overseeing the manufacturing of your product. These products can be branded with your name to make them appear as if you were the manufacturer. This is why ODM products are also known as ‘private label products’. Several e-commerce companies have become involved in doing business with ODM products in recent years.

Use of ODM in manufacturing

Despite knowing ODM's meaning and its purpose, customers tend to mistakenly assume that suppliers have constant access to ODM products. While there is a chance to find products of a similar type, most ODM products need to be ordered in advance because factories typically do not have ODM products readily available.

Also, ODM products are typically of three types:

• Products invented and developed by the supplier: In some cases, a supplier may choose to invest in research and development for a product. Depending on the case, the supplier may have opted to do it for all products available in their firm. Suppliers will tend to retain more control over the product since they own the intellectual property rights to it.
• Products developed by customers: These products have designs that are owned by customers. Some of them may have tools that are owned by the customer as well. The product might be similar in appearance to another model made by the supplier but the supplier could have no design specifications for it. 
• Products used for demonstration purposes: When a supplier showcases images of a product that they may not have manufactured, a customer is required to pay for the tools of the product. In such cases, it is not certain whether the product may be considered as an ODM product. It may be accepted if it is a virtual design developed by a supplier who wants to showcase their abilities.

Pros of ODM products: Conservation of resources

ODM products offer several advantages over other types of products such as OEM (Original Equipment Manufacturing) products. The former products help to save resources such as time and money that you would otherwise invest in developing a product. With this advantage, you can invest more effort into your essential operational activities.

Assistance from a supplier

You would also gain from the expertise of an external original design manufacturer. This may prove to be helpful especially if you are more knowledgeable about managing your business and may not be as familiar with the technical or manufacturing aspects. When you enter into an agreement with an ODM manufacturing organization, you get access to their skills and knowledge which can benefit you in your future product development efforts as well.

Lower costs

Typically, the cost to manufacture an ODM product through a supplier can be less expensive than developing it yourself or with assistance from an OEM. Since you do not have to spend resources developing technical designs and making the product, you benefit from reduced costs. You also benefit from economies of scale from the ODM manufacturing organization. If there are special design requirements, the supplier will be paying for them.

It is possible the supplier may be generating products in bulk amounts, yet are then sold in smaller quantities. By contracting with your supplier, you can save expenses by purchasing small quantities of products from the bulk production. In some instances, you could be sharing your supplier with another brand of considerable repute that uses the supplier for a certain category of products.

More time for managing your business

Another benefit of ODM products is that you can benefit from a faster business setup period. If you are in the position of having no external assistance with product research and design, it can be time-consuming to prepare the design by yourself and arrange a production line. By contracting with someone else, the responsibility of creating the product rests with them. This gives you the time to brand and publicize your product.

Since the ODM manufacturing unit takes care of your technical requirements, you can use your time to move forward with market testing, building the brand, and ensuring a proper launch for your product. This is especially useful if you own a large firm where several departments are involved in the process of product testing.

Cons of ODM products

In addition to these advantages, ODM products have certain disadvantages as well. The product that you receive will not be unique or differentiated. As mentioned earlier, your supplier may be involved in business with other brands and designing products that might compete with yours in the same market. To avoid this, your product needs something to distinguish it from the rest. You can include a different packaging format or offer additional free items while putting your product on sale.

Also, private labels are selectively beneficial for some types of products. It might not be beneficial for you if you want to sell a unique product having a specific design type. In such cases, you would benefit more from using an OEM product.

Industries where ODM products are more popular

There are several industries that take advantage of ODM products worldwide. These include electronics, computers, machinery, and food industries. Plenty of supermarkets have their own shares of basic items but in many instances they tend to share their supplier with a popular brand. The products are rebranded in their own name.

Developed industries which require tools that are more costly to manufacture typically make use of ODM products. Industries that sell kitchen appliances are an example. Medium and large sized firms operating within this industry contract with an ODM manufacturing organization to manufacture a specific appliance. These products are then branded to match the other products belonging to the same company. Such companies do not need to invest in appliance components by themselves as the ODM firm takes care of it on their behalf.

Medicine and fashion industries also rely on ODM products which are first received from a supplier and then marketed as the product of a specific company. ODM products are not as popular in industries that are more focused on design rather than function of a product. Examples include cosmetics and jewelry industries.

ODM meaning in the Chinese manufacturing industry

While searching for ODM meaning, it is likely that you will not discover ODM specific suppliers. In every industry, manufacturers typically begin as OEMs and develop products on the basis of requirements provided by buyers. However, some suppliers have started developing ODM products exclusively and you can find them in China.

The ODM manufacturing industry is growing fast in China. Chinese suppliers have product design skills which they use to provide both white label and private label products to consumers. Research indicates that the ODM sector experienced a 2% growth in volume in 2016.

Over the last ten years, Chinese manufacturers have been making a concerted transition from OEM to ODM. With assistance from automated technology and other operational procedures, the ODM sector is focusing largely on creative designs and brand development. Having expertise puts manufacturers at an advantage when it comes to conceptualizing design and tool requirements for a particular product.

Conclusion

As explained above, ODM meaning and its purpose is different from that of OEM. Companies are able to obtain business products through contractual agreements with ODM manufacturing firms. ODM offers many advantages in comparison to OEM. These include but are not limited to lower price, resource savings, assistance from a third-party supplier, fewer risks, and extra time for building brand identity and marketing efforts. Such advantages put ODM products and the manufacturing sector at a greater advantage for the coming years.

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Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.

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