In a recent post about the Manufacturing Request For Quote Process, we briefly touched upon the difference between an OEM vs. ODM. To review, Contract Manufacturers (CMs) can work for you on an OEM (Original Equipment Manufacturer) or ODM (Original Design Manufacturer) basis.
An OEM manufactures your product based solely on the design data you provide. They do not design any of the product, and their responsibility is limited to just the manufacturing process.
The main advantages are:
What might be viewed as the chief disadvantage is that you are required to provide a complete and accurate set of documentation sufficient to manufacture the product. To produce this you need access to experienced engineering resources and expertise, and this may prove expensive depending on where you are located.
When working with an ODM manufacturer, the CM will design some or all of the product to your high level specifications. This has the advantage of (usually) saving money and (depending on your product and the CM) taking advantage of a CM with a great deal of relevant experience. That being said, there are several disadvantages:
There are exceptions to the rules of course and there are some products, even those that carry significant IP, which inevitably require at least partial-ODM CM. For example, a product which is 90% made up of a stock Android tablet cannot be economically designed and manufactured other than with an existing manufacturer of Android tablets. Designing a tablet from scratch is an ambitious undertaking and bringing it into production at an OEM CM that does not do tablets is likewise difficult and will result in an inferior product at a higher cost. For a product like this, partial- or full-ODM is the only practical choice.
If you do decide to move forward and seek an ODM relationship, the contract between you and the contract manufacturer must be very carefully negotiated. Experience with these kinds of contracts is vital - obtaining a fair and productive agreement will be difficult if this is the first time you have negotiated a contract of this nature.
In general, when it comes to factory selection, we recommend that our customers plan to use a CM on an OEM basis, especially because our customers are bringing new and unique products to market that contain significant IP. While the upfront cycles and costs may prove daunting, the long term benefits far outweigh the risks a company may encounter in an ODM set-up.