20 January, 2021
OEM stands for an original equipment manufacturer and sometimes gets confused for ODM.
As they are like identical twins, very much related, but still separate entities with their own ways of doing things.
OEM is a company that manufactures a product based on a product design already made by another company, their customer.
A good example is Apple, they do full research and development of their product and then outsource the manufacturing to an OEM like Foxconn.
Doing the design of their products – even though they don’t manufacture them, means that at the very core, the product will have qualities unique to the company.
They – the company doing the design, retains IP, not the OEM manufacturing company.
A really out there example of something that follows a similar route but is not at all related to technological manufacturing would be third party reproduction.
If a couple gives the makeup of their baby to another person, to carry it for them. The baby born would not be related to the person that birthed it even though she was the one who carried it.
In regards to OEM manufacturers, there aren’t many terrible companies out there because the word would get out pretty rapidly.
Imagine if one OEM was given the recipe to AirPods by Apple, and ended up making standard earbuds; they’d never work for a big brand again.
An OEM operation carries higher risks than buying from an ODM, especially in the first run of the products when the design is manufactured for the first time.
By its own nature, OEMs deal with products that use up millions of dollars for development, they can not screw up as that would mean huge losses of money for their customers and risk never being in business again.
So everyone involved in the process needs to be very experienced and equipped to make sure nothing goes amiss.
This sort of interaction is incredibly common among many well-known companies that you have probably heard of, for example, Foxconn, a Taiwanese OEM, makes products that are designed by Apple, Huawei, Google, Dell, and Nintendo.
The OEM business model is very common and is also all around you.
The benefit of using an OEM as a manufacturer is that the designing company doesn’t have to worry about the whole manufacturing operations.
Instead, they can focus on other aspects of the business such as sales and marketing.
Is there a negative side to working with an OEM?
Well, if you’re going to work with an OEM that means that you will first invest a lot of money doing all the product research and development.
That means that, apart from spending a lot of money, you’ll spend a lot of time until you have a prototype that can then be taken to mass manufacturing.
You’ll also have to do testing to make sure the product meets any required certification -this can take months.
But you already planned for all of that, so what else could go wrong?
Well, if your product becomes a hit in the market, chances are that someone will want to copy your product, after sending so much money on R&D that’s the least you want.
So, make sure your OEM is trustworthy and has a very good contract so to protect yourself against IP theft.
In a way, many companies that use OEM must feel like Coca-Cola.
Carefully guarding their secret formula and ensuring no competitor gets their hands on it.
One tactic we use at Titoma to ensure an original product won’t be copied is to split the manufacturing process into 2 or 3 plants, that way no one knows the full recipe.
You can also make sure to thoroughly research OEM companies to see if the previous companies that have used them are happy with them or have experienced any negative ripping off.
Some recommend using a fake design when trying to find your OEM manufacturing company so that not too many know the real design before they get started.