What is difference between OEM, CM, CEM, ECM, EMS, ...

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Designing and manufacturing electronics hardware products has evolved into two camps. One camp is the OEM. The other is comprised of contract electronics solutions providers, who often subcontract (and compete) with each other for the same OEM customer or program. Details below on differences between these different types of business firms and structures and why its important you should know the difference, especially if you are looking to reduce or manage your contract electronics sourcing spend.

OEM &#; original equipment manufacturer

The original equipment manufacturer (OEM) is the brand owner, the company whose logo displays on the final product. Think: Cisco, Dell, Samsung, Lenovo, LG, Microsoft, Apple &#;

For example. Apple&#;s iPhone has the Apple logo clearly visible to users. Apple is the OEM.

Apple designs its products, but Apple outsources the majority of iPhone manufacturing production to contract electronics solutions providers. Both EMS and ODM. Apple does this to leverage cost to scale.

 

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Its cheaper for OEMs to pay another company (solutions provider) to purchase and carry land and factory overhead costs, purchase and deploy expensive production and test equipment, and pay a solutions provider to hire, staff and train provider employees inside factories external to Apple&#;s organization, and pay the solutions provider to manage vendors and suppliers in the supply chain, than for Apple to take on all of this responsibility 100% internally. (READ: How to drive cost out of your manufacturing product portfolio)

Apple still employs a very large number of employees to manage its outsourcing partners and programs. But, as a result of outsourcing iPhone production, Apple carries little manufacturing infrastructure overhead on its books. For OEM vs ODM, keep reading.

Contract electronics solutions providers

The companies (providers of solutions) in this camp contract their electronics services solutions to OEM customers (and other solutions providers)* to bring OEM customer products to market.

Contract electronics solutions providers can be further subdivided into CM, CEM, ECM, EMS, ODM, JDM, and electronics design house.

 

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Some contract electronics solutions providers only offer electronics product design services. Others offer only product manufacturing services with designs the OEM providers and the provider then builds-to-spec.

 

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Other contract electronics solutions providers offer both product design and manufacturing services. Still, other contract electronics solutions providers are full service and offer additional front-end supply chain services such as procurement of materials and commodities.

Even design of these materials and commodities as well as back-end supply chain services (after products are built) such as shipping finished goods inventory (FGI) final products to OEM customers and to OEM end-user customers in the field plus, even offering repairing of products for OEMs that failed in the field. The latter is called reverse logistics, also a back-end service. (Important reading: Top 10 impacts to EMS/ODM quote pricing OEM programs)

Various types of contract electronics solutions across the supply chain, from front-end services, manufacturing, and back-end services can be seen below.

Columns to the left of Manufacturing Services are front-end services.

Columns to the right of Manufacturing Services are back-end services.

Front-end services, before actual manufacturing, and, back-end services (after manufacturing) will carry higher profit margins for the solutions provider compared to margins derived from manufacturing, only.

Some contract electronics solutions providers only offer their services to OEMs who have product in certain end markets, like medical and healthcare, industrial electronics, consumer wearables, automotive &#;

Contract electronics solutions providers: CM, CEM, ECM, EMS, ODM, JDM, design house definitions and classification.

CMs and electronics design houses

Electronics solutions providers are called, although less often, CMs, or contract manufacturers. They&#;re work in electronics is assumed but omitted.

Contract electronics solutions providers focusing on R&D services, like embedded systems design, are called design houses. Electronics design is highly profitable and a highly competitive service offering because paces at which new product introductions (NPI) come to market become faster as companies try to increase value to maintain relevance and competitiveness.

 

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Its common for any of the other types of contract electronics solutions business models (EMS, CEM, ECM, ODM, CM&#;) to include electronics design in their service offering, although doing so does require additional insurance, liability and certification requirements are met.

CM &#; contract manufacturer

Contract manufacturers (CM) will offer manufacturing services, and often some limited services related to manufacturing, to OEM customers. They&#;re called CM or contract manufacturer. These are both common terms in any manufacturing sector where production manufacturing is outsource and is used in the electronics industry, but also in other industries such as pharmaceuticals, construction, food and other consumer packaged goods, and so on.

CEM &#; contract electronics manufacturer

Unlike CM, contract electronics manufacturers (CEM) distinguish themselves from contract manufacturers that produce foods, paperback books, etc&#; due to the fact they serve the electronics industry.

CEM is always interchangeable with CM, but CM is not always interchangeable with CEM.

ECM &#; electronics contract manufacturer

Electronics contract manufacturer (ECM) is just another acronym for CEM. ECM is always interchangeable with CM, but CM is not always interchangeable with ECM. Again, whether or not the contract manufacturer offers electronics solutions is the differentiator.

EMS &#; electronics manufacturing services

Electronics manufacturing services providers are also revered to an EMS providers, EMS manufacturing, EMS companies&#;.

The EMS provider business model has evolved over the years beyond offering just core manufacturing services.

Readers can purchase an itemized, audit checklist for evaluating technical and management capabilities of electronics CM, CEM, ECM, EMS providers here.

 

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For detailed information about how to request for a proposal (RFP) and how to request information (RFI) for further evaluating a CM, CEM, ECM, EMS provider, readers can purchase this detailed paper here.

If you have already obtained a quote from a CM, CEM, ECM, EMS provider, this form can be purchased to help you manage NRE cost and PPV, here.

 

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When transferring programs from one CM, CEM, ECM, EMS provider to another this form can be purchased to help readers to become aware how to avoid creating bubbles in your supply chain and to hold provider partners accountable. Read more and purchase here.

This document is also used for holding costly indirect labor (hidden in S,G&) accountable for driving workflow accuracy, timeliness, and productivity execution. Readers can purchase this audit form here.

 

SEE ALSO
OEM RFQ strategy for EMS manufacturing programs
RFQ Resources links page

 

For EMS vs ODM and ODM vs JDM, read on.

ODM &#; original design manufacturer

Original design manufacturer (ODM). Until about , this terms used to apply to companies in Taiwan, only. Now ODM providers and services can be found nearly everywhere EMS providers are located.

ODM white label v ODM private label: ODM manufacturing can be broken down into white label and private label.

 

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ODM white label is where the ODM designs, manufactures, distributes non-label, generic FGI products to various outlets or retailers. These retailers then sell the ODM product under their own logo or brand name.

Contact us to discuss your requirements of odm automotive. Our experienced sales team can help you identify the options that best suit your needs.

ODM private labeling is where the ODM sells FGI products produced exclusively for a particular retailer.

JDM &#; joint design manufacturer

In a narrowing scope of the contract service level agreement between OEM and provider partners, where product design contribution is shared between OEM engineering and provider, the two parties jointly design the product.

Typically, both parties will share in ownership of design IP. But, the JDM provider can also claim payment in the form of &#;earn outs&#; where payment to the JDM is based on a combination of percentage of the design, design feature/functionality contributed, and product volumes created and sent to FGI, and/or volume of product shipped to market.

JDMs, being similar to ODMs, also offer manufacturing

Readers can purchase an audit reporting paper for evaluating technical and management capabilities of ODM and JDM providers here.

Design house

As the name implies, the main focus for services offered from a design house is electronics design. Similar to electronics design services offered by other types of providers, some design houses can offer a full range of electronics design services including both hardware design as it related to electrical and electronics, and firmware design, across a wide variety of product end markets.

Readers can purchase an audit checklist for evaluating design for manufacturing (DfM) capabilities of providers here.

 

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Irrespective of where you&#;re sourcing from, there are always two types of manufacturers, namely an OEM and an ODM. And alongside them are other more premium variants, such as an OBM and an OSM.

What is an OEM?

OEM, which stands for &#;Original Equipment Manufacturer,&#; refers to companies that produce components, parts, or products for use by another company in that company&#;s own products

To put it simply, an OEM company manufactures items or parts that are later purchased and integrated into the final products of another company.

OEMs typically serve well-established brands that have their own product designs but rely on OEMs for manufacturing. Examples of such brands include Apple, Samsung, Nike, Adidas, and others.

While many companies prefer to handle production entirely in-house, some industries, like the automotive industry, choose to diversify their partnerships. In the automotive sector, brands often engage multiple OEMs simultaneously to manufacture specific components for their vehicles.

This approach is driven by the specialization of OEMs, as they excel in particular areas of production rather than being generalists.

Why go for an OEM?

As a customer, you can expect to receive the following perks when using services from an OEM.

Creative control

An OEM might offer their advice on what part of the production process should be done or how you should optimize it, but they won&#;t interfere with anything that involves your designs or patents. 

This makes it much easier to maintain creative control as opposed to working with an ODM where you might not have much say in the matter as they own the IP.

Competitive service rates

OEMs have their own network of suppliers that they can buy materials from in large bulks at a lower price, especially if the OEM is in low-cost regions like China. This translates into you getting more competitive prices and increased profit margins.

Cost-efficient

If you allocate production entirely to an OEM and do a one-time payment, then you effectively cut costs on equipment expenditure and maintenance. Not to mention, it safeguards you from potential price increases in material acquisition. 

You can actually negotiate a set price per unit for a set amount of time with manufacturers in China which saves you from nasty price spikes. 

However, there&#;s also a possibility that this agreement might not hold in unforeseen circumstances (e.g., sudden chip shortages, wide worker strikes, etc.). Then again, this rarely &#; if not at all &#; happens.

What are the downsides?

Resource and time intensive

Referring to the fact that OEMs are essentially manufacturers for hire, they only manufacture the product with the exact specifications that you give them. In addition, the minimum order quantity requirements will be higher than with ODMs.

Before this, however, there are huge overhead costs associated with product research and development that you have to bear. And it&#;s not always a guarantee that you&#;d get a return on investment out of this, ideas tend to sound great on paper until you&#;ve put them to the test. 

Lack of quality check

Typically, on top of employing an OEM for the creation of your product, a quality inspector should also be put in place. This is because OEMs mostly or if at all check for product defects during production since they act solely upon the design data you&#;ve given them.

What is an ODM?

ODM stands for &#;Original Design Manufacturer&#; and refers to companies that not only manufacture products but also design them.

ODMs follow a practice known as white-label manufacturing. This involves ODMs providing pre-made prototypes of their own products to other companies, which can then modify or rebrand these prototypes.

This practice allows business clients to expedite their product development process and start selling products more quickly, as they don&#;t need to invest as much time and resources in research and development.

Another variation of ODM manufacturing is private labeling, where the ODM designs and produces a finished product exclusively for a specific retailer.

Why go for an ODM?

Low product development costs

ODMs can save you a lot of money spent on hiring designers, producing prototypes, and conducting market research which on average amounts to hundreds of thousands. 

Coming to an ODM means you get access not only to their finished products but also to the expertise and engineering prowess involved in making them. Plus, the minimum order quantity will be less compared with OEMs.

Trustworthy products

Another tangential benefit to an ODM&#;s one-stop business model is that you don&#;t have to worry about acquiring licenses or subjecting your products through extensive vettings. All have been done by the ODM a long time ago before they set the products up for sale. 

This is especially useful if you plan to sell electronics as there are all kinds of certifications you have to go through before the products can make it to the market.  

Tried-and-true method

Most ODMs on the market right now have already been contacted by industry giants like Alibaba and Amazon. This means there&#;s a high chance you get to work with the same ODMs that have had extensive experience dealing with a wide variety of products.

What are the downsides?

Low customization options

Don&#;t expect to go to an ODM and get a unique product right off the bat, what you see is what you get. Not to say there aren&#;t any ODM out there that can offer more customization but they&#;re generally harder to find without a sourcing agent.  

Although private labeling can be used to counteract this, this would also mean that the client has to conduct their own research which entails additional investments. As such, there&#;s only a handful of products that this might work with, namely cosmetics, conventional household items, etc.

High probability of competition

This might come as a shocking revelation to some people but ODMs are also businesses, and businesses compete with each other. Once you&#;ve given them the idea of how to improve on a certain product, there&#;s really no guarantee that they won&#;t just produce it without you. 

Furthermore, you can&#;t really opt for any legal protection in such a case because chances are your ideas aren&#;t substantially unique enough to qualify as a patent. Even if you try to go for a non-competitive agreement, it rarely carries much weight in foreign judiciaries.

But there&#;s a silver lining in how much you choose to disclose with your manufacturers. 

For example, if you&#;d like to produce a mask with certain alterations to make it stand out, you can just use a product similar to what you&#;re describing. This way the secrets are kept and you also get to know if the manufacturer agrees to make it for you.

What are OBMs?

OBM stands for &#;Original Brand Manufacturer&#; This term refers to a type of manufacturing company that not only produces products but also develops and owns the brand associated with those products. Unlike other two manufacturers, OBMs are responsible for the entire product lifecycle, including design, production, branding, and marketing.

OBMs often take the lead in creating their own product concepts, designs, and intellectual property. They are responsible for building and promoting their brand identity and typically sell their products under their own brand name. This level of control over both the product and its branding allows OBMs to establish a direct connection with consumers.

Just to name a few, Giant and Merida is a popular company that bikes under their own brand names. What many people may not know is that this company started as OEMs, manufacturing products for other brands.

Over time, they honed their skills and design capabilities through collaboration with industry professionals. Fast forward several decades, and they have become industry powerhouses, producing bike frames for renowned brands like Trek, Cannondale, Cervélo, and Scott.

Where can you find them?

The most convenient way to find either of these manufacturers is through sourcing agents as they&#;re the ones that have the connections and the experience. Instead of toiling to find just a few manufacturers, you can leave that to the professionals and focus on growing your business instead. 

Alternatively, you can also look on B2B sites that list these manufacturers in clear detail and performance track records. 

Amazon is a good example of this, they have a dedicated &#;Solution Provider&#; section that houses some of the most popular OEMs and ODMs. A good amount of them has personally been involved in the production of some of Amazon&#;s iconic Alexa products.

But if direct contact is what you&#;re looking for and you happen to be in the same area as your ODMs and OEMS, it&#;s better to just visit trade fairs or wholesale markets. These are where industries&#; finest often gather to prospect or showcase their products/technologies.

Meeting the manufacturers directly will not only mean better communication but also reduce the odds of being scammed by a middleman. You might even turn an eventful meeting into a long-term business relationship! 

Conclusion

In conclusion, deciding between an OEM and an ODM should come after you&#;ve established what you want out of it. 

Are you looking to play it safe selling evergreen products? In this case, it might be better to go with an ODM. You get veteran hands on the job without paying premium prices, the product you sell has already been field-tested and deemed commercially viable, and you save months of doing research. All of this is at the cost of not owning the IP and having little say in how they make your product.

OEMs are more straightforward to work with but you have to do some legwork before approaching them. They also take longer to make your products and you might have to put extra effort into quality control. But switching to a new OEM is also easier since you own the IP.

Put into perspective these variables against your own vision for the business before deciding. 

Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp&#;s customer services for advice on your specific cases.

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