An ODM is a factory that has “plain vanilla” designs of say a laptop ready to be customized and labeled by an OEM: a brand like Dell.
In electronics manufacturing, OEM means the Brand, say HP or Siemens. It originally stands for Original Equipment Manufacturer, but these days very few electronic brands actually manufacture themselves.
The world’s most valuable electronics brand, Apple, has all of its iPhones and iPads manufactured and assembled by factories such as Foxconn and Pegatron.
Confusingly, many people also talk about OEM Factories. It’s best to interpret this as An OEM Factory manufactures according to the design the OEM (the Brand) provides.
ODM is the fastest way to get an electronic product to market, with the lowest NRE budget, and at the lowest unit cost.
This is why Original Design Manufacturer (ODM) is a gigantic market. The global ODM and EMS (Original Equipment Manufacturer) market is expected to cross $734 billion by 2026.
Most well-known brands such as HP, Sony, and Honeywell have a large portion of their products both designed and made by ODM manufacturers in Asia.
Getting your product designed and manufactured in Asia has several benefits such as deep domain expertise, low cost, fast time to market, economies of scale, and more.
But if you’re a mid-sized firm not yet familiar with the ODM process, there are a few landmines you do need to be aware of.
This comprehensive post will tell you what ODM manufacturing is, why you should consider ODM manufacturing for your company, how to make ODM work for you, and how to avoid the ODM pitfalls.
An Original Design Manufacturer (ODM) is a company which both designs and manufactures products that other firms can sell under their own brand.
The practice is also known as private labeling. It is a great way for firms to have their products designed and manufactured without owning a factory or spending years in the design process.
An ODM factory offers a value-added service for a brand that wishes to leverage the factory’s design knowledge and expertise.
ODM’s are often focused on a particular set of products such as notebooks or smart wristbands.
They have some ‘plain vanilla’ designs ready to use. You can buy these products as they are, with no brand, and start selling them in your home market, this is called white-labeling.
The next step is that you ask the factory to put your own logo on the product.
Many factories are willing to do this for a MOQ (Minimum Order Quantity) as low as 500 pieces, and for say $1000 set-up cost you can have your own shiny MyBrand smartwatch.
You can also customize the design as per your specific needs, this can range from changing the color of the plastic housing, adding extra memory and such, to paying for injection molds to have your own custom housing.
In simple words, you’ll buy a pre-designed product that your firm can brand and sell as your own.
The ODM factory can design a fully customized product for you or you can choose to go with minimum tweaks in the pre-designed product and move to the manufacturing right away.
Check out the following ODM biometric access control devices.
These are from three different brands with minor differences (color, structure, button size, screen, etc.)
The brands in this case didn’t prefer custom designs.
You can have your product from the ODM company fully customized, this is what makes ODM great for businesses as they can leverage the design skills and infrastructure of the ODM factory.
Today, almost all the leading electronics companies worldwide leverage ODMs.
Quanta Computer is a Taiwan-based ODM for computers and notebooks that sells to brands such as HP, Apple, Dell, Lenovo, Acer, and others. The products that you see from your favorite brands are mostly (if not always) ODMs.
ODM manufacturing isn’t just limited to electronics but it is the same for all industries.
The list goes on and on…
ODM is often used interchangeably with other related terms. In order to fully understand ODM, you must know how it is different (or similar) to other related design and manufacturing terms:
Many electronics factories in Taiwan and China refer to themselves as OEM factories, meaning they manufacture the design as provided by the OEM client, the brand.
Their Western counterparts such as Flex, Jabil, San Mina prefer to call themselves EMS (Electronic Manufacturing Services) Of course the more generic term CM (Contract Manufacturer) is also used.
An ODM specializes in a category of products, such as tablets, for which it offers its own designs, any are ready to manufacture it for any brand interested to put its name on.
EMS (Electronics Manufacturing Services) traditionally do not do the design but provides manufacturing, final assembly (also called Box Build), testing, distribution, and repair services.
A generic EMS can manufacture virtually any electronic product, all the design and prototyping is done by the Brand which gives them a Build To Print package of manufacturing files to follow to the letter.
Over the years many of the larger EMS’s have started to offer more value-added services.
First, they started to help with DFM, giving recommendations on better value for money electronic components, or suggestions on how to optimize the design for faster, more cost-effective assembly.
After that, the tier 1 EMS’s, such as Flex and Jabil, started to offer IP cores and even full design services, such that the distinction between ODM and EMS has become very blurred.
Not all EMS providers offer all the services.
For example, a lot of the smaller EMS don’t offer any design or even DFM services, others don’t offer distribution services, etc.
In general the smaller the EMS, the fewer services they offer.
This poses a problem for smaller clients, to get good service they should work with a right-sized, i.e. small factory, but in most cases, these smaller factories do not have the technical capabilities to do a successful NPI.
This is where Titoma comes in!
After the evolution from OEM manufacturer to ODM, the next step for some factories in Taiwan & China was OBM (Own Brand Manufacturer) Acer is one of the most well-known OBM success stories.
Similarly, Asus grew from an OEM manufacturer of PCB’s to making its own brand motherboards and then its own brand notebooks.
The difference between ODM and OBM is clear. ODM provides design & manufacturing services to other brands while OBM’s sell their products under their own brand name.
Western clients were often leery of having their design and manufacturing done by a company that also competed with them in the marketplace.
That’s why Acer spun off its ODM business as a separate company Wistron, and Asus started Pegatron.
The Joint Design Manufacturing (JDM) is an extension of ODM.
The company outsourcing a product works in close cooperation across all aspects of the design and manufacturing with the JDM factory.
Teams from both sides work together on the design and testing implementation to workflows on a factory floor and more.
This model is potentially available as a set of functions uniting two companies to collaborate on a particular project.
JDM companies are attuned to the particular requirements of this mode of cooperation, and therefore specialize in it.
Apple for example relies very heavily on the Design For Manufacturing expertise provided by Foxconn, Pegatron, and Inventec.
In pre-Covid times Apple constantly had large teams of designers and engineers camping out in the factories in China to work side-by-side to resolve issues.
ODM tends to be much more hands-off, where the client gives the specification and sometimes the Industrial Design, and the ODM then does most of the heavy lifting alone.
However, the lack of clarity over Intellectual Property (IP) ownership can make for complex contract negotiations.
So what makes ODM manufacturing so attractive that most of the leading tech companies are using this model?
Here is an overview of the leading benefits your firm can enjoy with ODM manufacturing:
When done from scratch, the complete design, prototyping, and manufacturing of a complex product such as a smartphone will take years.
Especially if you have never done a similar product, you will waste a lot of time on designing, prototyping, and testing versions that turn out to be less than perfect.
Faster, better, cheaper IC’s cameras and displays come out all the time.
This means that for many products, especially in consumer products, the market window in which you can profitably sell a model may be as short as 6 months.
If you take 2 years to get it all working reliably, nobody will buy your outdated product. The faster you can start selling, the faster you start making money, instead of spending it on R&D.
The ODM factory has the design done already, and their prime interest is to manufacture as many units as possible, so they tend to charge very low NRE fees.
Because they have been designing say notebooks for 20 years and do 10 models per year, an ODM will be very cost-effective at design.
And by selling similar designs to 15 different customers they can very easily amortize their design fees.
The salaries for good electronic engineers in Shenzhen are rising steadily, but they are still lower than in Silicon Valley. The cost of injection molds in China is easily 50 to 70% lower than in the US.
Because the ODM makes many models for many customers, they have a large combined purchasing power on the components.
They have tried and tested every possible alternative component, so they know exactly what offers the best value for money.
They have large production facilities which across many clients they try to run as close to full capacity as possible.
Because of all their experience with their chosen product, they tend to achieve very high yield rates, i.e. very little money is wasted on non-complying products.
Even when your order quantity is low, you will still get a very reasonable unit cost, because they buy all components in bulk.
Setting up your own supply chain and production line for a 3K order would make the units many times more expensive.
Ordering a new product to be designed, whether by a product design firm or in-house, always has a high risk of delays and cost overruns, with no guarantees on the performance of the resulting device.
With ODM you can try the plain vanilla version before you buy, and especially if the degree of customization is low, your risk will be very low as well. ODM NRE’s tend to be on a fixed budget.
Because ODM’s have had to deal with RMA’s (returns) for 20 years, they know exactly what all the potential failure modes are, and how to avoid them, so product quality will be much higher than that of a first-generation designed by your own team.
Unlike a design firm that gets paid by the hour, an ODM is highly motivated to get your design customized as per your specifications ASAP, so they can start making money.
Their whole business is based on customization, so they are very adept at this.
70 to 80% of all electronic components come from China or Taiwan. with their R&D in Taipei or Shenzhen ODMs also have the big advantage that every possible component maker is within 1-hour drive or less, so coordination and sample making is very fast.
Getting the custom spring maker to work effectively with the mold maker of your housing can be very hard if you’re 13 hours and half a world away.
Designing a new product, and then getting the design to be manufactured reliably, is an enormous time sink.
ODM saves a whole lot of time as they have the experience, the resources and supplier network, and expertise.
An unspoken principle of the greatest stock market investors is along the lines of:
“Look at the downside before the upside. If the downside is acceptable, then consider the upside.”
When selecting your ODM partner, take your eyes off the prize and deeply consider the downside before you return to look at the upside.
Getting started with ODM manufacturing starts by finding and selecting the right ODM factory for your firm. If you’re new to ODM and looking to choose a partner, here is a checklist you need to consider:
Not all ODM factories are reputable. If you are outsourcing design in another country (e.g. Taiwan) and your business is registered in the USA, it gets hard to evaluate the reputation and quality of the ODM business.
You need to undertake a detailed evaluation of the different ODM factories you are considering. This includes:
It is essential that the ODM businesses you are considering have experience in the type of product you are interested in and use the right platform.
For example, if you need a laptop, you’ll go to laptop ODM and not tablet ODM. You can find the best ODM manufacturers based on several categories from this list.
Be able to conduct a detailed review of the factory’s track record, its past transactions with its previous clients, and financial records.
You’ll need this information from the factory. If they’re reluctant at this stage, you can get this information later down the funnel.
Getting most of these details from your hometown over the internet might get tricky.
Therefore, get as many details as possible about the ODM company you are interested in.
After you have finalized a few reputable ODM factories, the next big step is evaluating cost. How much you’ll pay the ODM factory is the most critical factor.
The rule is simple: It must be cost-effective.
Your firm must be clear in terms of how much it can afford to pay the ODM factory. Do basic work and get clear on numbers.
The cost of the finished product is important.
But, take note, you’ll show yourself to be a rookie and thus potentially at a negotiating disadvantage if the first question you ask is “How much is the (final) product?”
There are several factors that influence the cost an ODM company will charge you (e.g. country, infrastructure, experience, workforce availability, etc.).
If you can’t get margin in the end, it will be down to your business model and budget.
Time to market is essential and might be a reason why you are looking for an ODM factory.
The faster you can get your product into the market, the better. But it all depends on your ODM partner—can you rely on their estimates?
It’s not easy to get the exact time to market estimates and relying on the estimates provided by the factory might put you in deep water.
You can verify the time to market by contacting past customers of the factory.
Ask the ODM business to share details of their existing customers.
Get in touch with 2-3 of their customers and get information from them. This will give you a good idea of:
This information can be retrieved from an existing customer so try getting in touch with the factory’s past customers.
After you are satisfied with the time to market, inspecting and testing product samples is the next task.
This is how you confirm that they can create your product and get some idea of the quality of their workmanship. But be aware that they may well send you a carefully curated set of examples.
You need to verify samples.
By contacting relevant customers.
Ask the ODM manufacturing company to supply you with customer contact details too with the samples. Get in touch with the customers and see how satisfied they’re. Check if the customer is selling or using the same design.
Once you are satisfied with the samples, and the factory seems a good fit, you can proceed. Negotiation is an important part of the deal for several reasons:
Negotiation isn’t all about the cost, you need to use it for finalizing terms, avoiding conflicts, and a way to build a relationship.
Finally, you can close the deal after successfully negotiating the terms with the ODM factory of your choice. This involves a legal agreement between the two parties.
It is recommended to get everything on paper and ensure you are following all the legal aspects of both countries (if the ODM company is in another country).
An experienced ODM business will guide you with the legal documents you need to produce.
Here is what you need to ensure at this stage:
You might be inclined to think of China or India as the pre-eminent centers of ODM excellence. The reality comes down to a choice between China or Taiwan.
China has been the world’s OEM center for almost three decades. In the last ten years, however, manufacturing costs have steadily risen, key amongst them the cost of labor.
Faced with eroding margins, China has pursued ODM as a value-adding strategy. Formerly OEM factories have pivoted to include significant ODM capabilities. A leader in this area is the electronics sector.
Chinese OEM firms have employed their formidable design and manufacturing expertise to provide off-the-shelf product solutions to brands wishing to mitigate their risks in snagging market share in competitive markets whilst also preserving margins.
Nevertheless, China is still essential for US and European companies. Eighty-nine percent of European companies and 83% of American companies reported that they have no plan to relocate or move outside of China in 2019-20.
China is a gigantic market and is key for leading global companies.
Recently, the China-US trade war is forcing companies to shift manufacturing to other Asian countries. More than 50 companies announced that they are planning to move manufacturing out of China – but not from Asia.
Not all large corporations will move manufacturing out of China but it will eventually have an impact on global trade.
Even if these companies quit China, they will move to other Asian countries like Taiwan. This is the best approach to avoid import penalties from China and still have their products designed and manufactured in Asia.
Taiwan is the country dominating electronics design and manufacturing, to name but one sector.
Taiwan’s ODM sector has a long history. In fact, the China miracle was largely started by Taiwan ODMs looking to take advantage of lower labor costs as the post-Mao era unfolded.
The best of both worlds is China’s unparalleled electronic components supply chain coupled with the high-end design and manufacturing capabilities of Taiwan’s ODMs.
Whether you go with China or Taiwan, there are several issues that you might have to face when dealing with an ODM company.
Here are the common pitfalls that you must avoid when partnering with an ODM business:
1. Get clear on what you want from the ODM factory.
Your specifications and requirements must be crystal clear.
This is the best way to get a realistic quote from ODM factories. Reaching out to factories with unclear specifications will lead you nowhere.
2. ODM factories don’t like making tweaks.
If you’ll introduce changes and optimization requests every now and then, your project might stall.
You should know what you want with the exact specifications. Yes, you can request changes but being picky means, you’ll end up delaying your project.
3. The changes in the design are the intellectual property of the ODM factory.
This is how most ODM companies work. At the end of the day, you won’t own the design due to iterations.
You need to choose your ODM partner carefully. Get clarification on the intellectual property. Get it in written form so you don’t lose your design if you decide to change the ODM factory at any point.
4. ODM companies are very possessive about the firmware because that’s hard to develop.
If you haven’t decided it upfront, the probability of seeing firmware ever is very slim.
Your best bet is to get it in writing that the firmware will be shared with you.
5. Having your idea leaked is something quite common.
The ODM companies serve several clients in the same niche. There are fair chances that the company you are working with is also serving your competitors.
The changes you make are more likely to pass on to other clients of the same ODM factory. Work with an ODM business that won’t leak your idea.
6. The ODM companies want their manufacturing line to stay active.
They need clients that place big orders. If you aren’t placing big orders, your project will be delayed as soon as the factory gets a big client.
You need to keep the ODM company busy by placing big orders, building a relationship with the factory, and communicating constantly to make sure your project isn’t delayed when the factory gets a bigger client.
7. If you have a B2B product, make sure the ODM company has a B2B platform and not a consumer platform.
Most ODM businesses have consumer platforms with short life cycles.
Make sure you are dealing with the right ODM factory and that the platform is suitable.
Titoma’s expertise is in the original design manufacturing of electronic products, but with a unique twist.
I’ll illustrate the process with reference to our experience with dozens of clients who we’ve helped manufacture a wide range of products under this model.
An enlightened ODM provider would ideally offer a complete process enabling a brand to:
Flexibility in the design along with the bonus of no proprietary claim over IP whatsoever adds up to a powerful package.
Titoma’s ODM process is a one-stop-shop. We take our clients through the design phase to the manufacture of the final product.
We do not have a standard development process, however. Since each project we take on is unique: The process emerges from the particular needs of each project.
We ensure zero Intellectual Property (IP) leakage. And, in contrast to most ODMs, IP belongs totally and solely to our clients.
Some projects we begin from rudimentary sketches on table napkins.
For others, we engage with where a client already has a fully working prototype.
We typically start out with a system engineering that involves:
Continuous real-time discussion with clients and suppliers is key to the whole process.
2. Reducing the Unknowns
A technical challenges assessment involving a combination of research, tests, a proof of concept (POC), basically whatever is necessary to reduce the unknowns to a minimum.
3.Modeling Main Components
We model the main components, exploring ways to orient them, seeing what sort of physical architectures ID could work.
Our approach is not to break up a PCB if we can avoid it. Our priority is EE integrity, ease of assembly, and testing.
ODM reliability is paramount. As we are accountable for production, the way we ensure our reliability is going with the most reliable design option.
In relation to ID, we work through options serially. Rather than hit a client with five concepts all at once, we work through each in detail. The rounds of feedback ensure a clearer understanding of the goal for both ourselves and our clients.
We get that you, as a potential client, may find it hard to articulate your needs and expectations in the absence of a concrete design or 3D print to evaluate.
4. Product Viability Confirmation
Once the ID direction is clear, ID works closely with ME to ascertain we can make the product.
We work out the quickest way for the FW engineers to start. Often, we can afford to go for PCBs right away. Sometimes we need to work on the Dev Kit first.
ME, HW, and FW work closely together throughout the project.
Whenever an issue arises, we consult with our tooling, components, and manufacturing suppliers to discuss specific design challenges or validate the feasibility of critical design approaches.
The Project Manager is a highly experienced EE, keeping in constant contact by email or Skype, getting decisions on key issues, evaluating the advantages and disadvantages of the options.
5. Opening the Molds
The cycle of testing and feedback leads to CNC prototypes, and then to opening molds.
We normally go straight for P20 steel molds, which can be used to build around 20 working prototypes whilst allowing minor modifications.
Then we’ll design and build testing jigs and software. We design the assembly Standard Operating Procedure then optimize it with input from our partners.
Once all the components are available, we build some 20 units with injected plastics; clients conduct testing with these.
With shortening lifecycles and relentless erosion of prices, electronic hardware has increasingly become a commodity.
If you’re not firmly embedded in the Asian electronics supply chain it has become nearly impossible to be cost-competitive.
That’s why most all leading tech companies have decided it is no longer worth the enormous investment of time and effort to develop and manufacture their products in-house.
Instead, they spend their energy on building a sustainable competitive advantage on branding, sales, online user experience, and services.
ODM often is by far the fastest and most cost-effective way to get an electronic product to market, especially for more complex products.
But ODM requires intensive cooperation and knowledge sharing, which brings its risks.
So be aware of the drawbacks: you do not own the IP and if you don’t pick your ODM partner carefully, you may end up in a hostage-like situation, or end up educating a competitor.
Finding a partner you can trust is by far the most important factor in the ODM selection process. The absolute lowest price is not worth it.
While some 70% of all electronics in the world is manufactured in China, 8 out of the world’s top 10 ODM’s are Taiwanese. For some reason, all the big players prefer Taiwanese ODMs as their partner.