Original Design Manufacturer (ODM)

Definition - What does Original Design Manufacturer (ODM) mean?

An original design manufacturer (ODM) is a company that designs and produces products that are marketed and sold under the name of the original equipment manufacturer (OEM). In other words, an ODM provides "ready-to-go" products for the OEM. The latter purchases products from the former who determines what design and products to be built. The right to the intellectual property that goes into the products is mostly owned by the ODM.

Techopedia explains Original Design Manufacturer (ODM)

In recent years, the number of ODMs has increased and many are capable of producing products for multiple clients and in large volume. An ODM can be considered as a contract manufacturer that is capable of designing and manufacturing products. It is responsible for doing the research and development with respect to the products. OEMs benefit from employing such firms because of the low labor inputs, proximity to markets and reduced transport cost. They also use such firms in areas where direct ownership by foreign organizations is prohibited or is not easy to obtain. This setup allows an OEM to focus more on sales and on the marketing of its products since the ODM is responsible for the design and manufacturing.

In the manufacturing world, there are some potential benefits in hiring the services of ODMs. They can significantly reduce the development time for the products and can also make the needed market shifts and technology upgrades if necessary. They can also easily integrate different factors into the manufacturing process to upgrade and advance the products. This may be helpful to the OEM since, by the time it understands or recognizes the potential of a product or concept, the ODM may have already made the product available. In other words, this setup allows an OEM to focus more on its core business strength. This can result in higher profit margins for both parties.

One disadvantage with using ODMs is that there is little or no control on product designs or specifications for the buying party. In most cases, ODMs are responsible for the inventory.

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