The abbreviation ODM stands for “original design manufacturer.” It refers to companies that design products as well as manufacture them, which are then sold on to other companies who will rebrand the products as their own. These are often produced as so-called “white label” goods and are made in bulk amounts, allowing smaller companies to benefit both from the economies of scale and the expertise of the ODM manufacturing firm. It can be one kind of possible solution in the procurement or sourcing process, respectively.
It allows you to benefit from much lower costs in bringing a product to market, letting you focus on other core parts of your business. It is similar to the term “OEM” or original equipment manufacturer but is not to be confused. With relying on an OEM, the manufacturer is often producing just a component based on your own company’s design and specification. Whereas with ODM manufacturing, you are usually buying a pre-designed and pre-produced product that you will go on to brand and sell as your own. OEM products are therefore typically less complete solutions than ODM products.
The biggest advantage of going down the route of ODM manufacturing is that you do not have to spend time designing the product. This allows you to spend more time on your core operations as well as benefiting from the skills and experience of the original design manufacturer. While you may have a strong knowledge of how to grow your business, the manufacturing side itself may be unfamiliar territory. By forming a partnership with an ODM manufacturing firm, you can benefit from the skills and experience of an established developer and manufacturer.
You also will generally benefit from a lower price. This lower price is compared to both producing it yourself as well as alternatively seeking out an OEM. Since you do not have to spend time and resources designing the product you minimize costs, but you can also take advantage of the economies of scale from the ODM manufacturing firm. It is highly likely that they are producing significant quantities to sell in smaller lots, so you can save money from the bulk production even if you are purchasing a low amount.
Furthermore you will be able to spend more time on the branding and marketing of the product. The technical aspects are taken care of by the ODM manufacturing firm, so that focusing and spending more effort on branding and ensuring your product launches successfully become more rewarding.
However, despite the many advantages, there are also several disadvantages. You will not be receiving a unique product, which means there may be competing products on the market exactly the same. You will have to differentiate your product from competitors through the brand; otherwise, it will be a race to the bottom in terms of margins. Third party consulting companies can help you finding more unique ODM companies.
Additionally, it is only useful for certain types of products. If you want to sell unique goods which require a specialized design, or don’t want an off the shelf product then you will not be able to benefit from ODM firms. An OEM firm may be more suitable in a situation like this, as they can turn your ideas into tangible goods.
While ODM firms may be willing to alter a product to meet your specification, it may not be to the level you want. The real flexibility should be tested by ordering samples.
Many different industries are able to take advantage of the ODM products. It is heavily seen within the food industry. Most supermarkets often have their own range of basic items, but in almost all cases they are sharing the same supplier and simply rebranding it in their own name.
Elsewhere it can be seen in the electronic cigarette industry most recently for instance. Many small to medium sized companies operating in this niche seek out an ODM manufacturing firm to provide electronic cigarettes as well as e-liquid and simply brand the goods to match their own company. They do not need to invest in heavy machinery or research and development as it is all be taken care of by the ODM manufacturing firm, they simply get to benefit from the products.
Other general industries include electronics, clothing and medicine, with many products coming from a central source before being branded to a certain company. There are plenty of generic medicine products imitating aspirin, but not each brand is producing their own version of aspirin. It all generally comes from a select few manufacturers.