Both ODM and OEM offer distinct advantages in specific situations—and both manufacturing models come with their drawbacks, too. To help you wrap your head around these two supplier types, we’ll define each option then examine their pros and cons.
Whether you’re a budding e-commerce entrepreneur or a seasoned internet marketeer, the key to making a profit in the retail game is finding the right manufacturer. And one of the first crucial decisions you’ll make when sifting through suppliers is whether to go ODM or OEM.
Like most things in the trading world, there’s no clear cut, one-size-fits-all solution. Both ODM and OEM offer distinct advantages in specific situations—and both manufacturing models come with their drawbacks, too.
To help you wrap your head around these two supplier types, we’ll define each option then examine their pros and cons. We’ll then round off the post with actionable advice on which solution is most suitable for specific circumstances.
Let’s get the ball rolling, shall we?
An Original Equipment Manufacturer (OEM) builds a product from scratch following the client’s specifications.
That means you, as the client, must have the product idea, design, manufacturing process, and branding ready to go. You’ll have already done the requisite research and development plus conducted a feasibility study to assess economic viability. Also, as OEM requires a substantial investment, it’s wise to undertake in-depth market research beforehand to gauge demand.
An OEM manufacturer then takes your design specs and works out the most cost-effective way to build your product. Although they may have manufactured similar products before, yours will be totally unique.
An Original Design Manufacturer (ODM) reproduces an existing product and slaps your company branding on top. You might be able to request minor changes—think colour variations and packaging—but for the most part, the end product won’t differ significantly from the competition.
If you’ve ever sifted through multiple, near-identical listings on an online marketplace (eBay, Amazon, etc.), you’re already familiar with ODM products. In the industry, we refer to these as “white label” or “private label” products.
Because an ODM supplier already has the product design, materials, and production know-how, the manufacturing process is fast and cost-effective.
On the whole, OEM suppliers give you greater control and flexibility regarding the design but require a higher financial investment (risk).
OEM gives you complete creative control. Rather than reproducing an existing product, the manufacturer creates something truly unique. You get to determine the precise design specifications and obtain an exclusive product with a distinct point of difference—it’s a bespoke process that lets you stand out from the competition.
It’ll be hard for competitors to replicate your idea, too, especially if you apply for a patent.
Sourcing from an OEM is a comparatively complex, expensive, and long-winded process.
You’ll need to undertake research and development yourself, which entails significant economic investment. It could take months or years to turn your bright idea into a physical, retail-ready sample—and by then, market trends may have changed.
In most situations, an OEM supplier will insist on a high Minimum Order Quantity. Because they’re going to the effort of building a product from the ground up, the manufacturer needs a bulk order to ensure financial feasibility. Expect to spend big on your first batch.
Despite having a high MOQ, the OEM supplier may not be able to produce your product at scale. Because the manufacturer doesn’t have prior experience with your unique creation, large-scale production isn’t typically feasible (at least not at first).
White label products from ODM suppliers let you bring your business idea to market quickly at a rock bottom rate. The drawback? Don’t expect it to differ from the competition.
As the ODM supplier reproduces an existing design, there’s no need to tackle the research and development process yourself. That saves entrepreneurs a substantial amount of time and money, which you can funnel into your online marketing efforts instead.
ODM also offers the cost-saving benefits that come with economies of scale. Because the manufacturer is already producing large quantities of the same product, they can offer a lower rate per unit. Large-scale production also lets the ODM supplier reduce their MOQ—you can order a small batch to test the market first.
While cheap and easy to obtain, white label products are difficult to differentiate. As you’ll have multiple competitors selling essentially the same thing, you’ll need to slash your prices to compete. Razor-sharp margins mean making large orders to remain profitable, which entail higher storage and administrative expenses.
One sure-fire way to differentiate a white label product is to nail your marketing game. However, as we all know, advertising is expensive, and the winning formula can be elusive.
So what’s the best option for you, the passionate entrepreneur with a brilliant business idea?
The ideal manufacturing type boils down to the product in question and your financial resources.
If you’ve got a genuinely unique product idea that hasn’t been done before, OEM is your only choice—good luck finding a white-label supplier for a product that doesn’t exist yet.
OEM is equally attractive for well-established enterprises with extra dosh in the company coffers. If you’ve got sufficient financial resources for research and development plus a generous time-to-market plan, then OEM is a viable route.
Finally, OEM can be feasible for smaller players brimming with confidence about their brilliant business idea. If you’re positive your product will sell and you’re willing to take a financial risk, then, by all means, consider OEM.
ODM is ideal for budding e-commerce entrepreneurs with minimal capital and seasoned experts investing in short-term trends or dropshipping. Many online retailers will test the market with a low-cost ODM offering, then switch to OEM to enhance product differentiation if it proves successful.
Low production costs, minuscule MOQs, and lightning fast turnaround times let you bring your product to market with minimal investment and at breakneck speed.
If you’re prepared to slash your profit margins and you’ve got confidence in your marketing team, then ODM is the preferable path for you.
But above all else, ODM is the best option when selling a generic product. If your business idea doesn’t differ much from the competition, there’s no point reinventing the wheel. With ODM, you can sidestep the expensive research and development phase and start manufacturing straight away.
At Epic Sourcing, we’re passionate proponents for both these marvellous manufacturing models. ODM and OEM suppliers can each provide viable production solutions for specific circumstances—it’s just a matter of picking the right one.
If you’re unsure about which process is best for your unique business needs, then get in touch with TK for a FREE consultation today. Not only can we help you crack the OEM vs ODM conundrum, but we can also hook you up with the top Asian manufacturers of both production types.
And if you need a seasoned sourcing partner—think contract negotiations, logistics management, supplier verification, and more—we offer a wide range of comprehensive sourcing solutions. Think of Epic as your eyes and ears on the ground in Asia. We take the guesswork out of sourcing from abroad so you can focus on growing your business at home.
