Definition of OEM & ODM

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Manufacturers, like the government, shorten long phrases into acronyms.
Manufacturers, like the government, shorten long phrases into acronyms. (Image: zhuzhu/iStock/Getty Images)

From time to time you might come across acronyms that represent specific phrases. An acronym creates a new word -- written in capital letters -- taken from the first letter of a keywords in a specific phrase, such as NASA, which stands for National Aeronautics and Space Administration. In the manufacturing industry, for example, you might discover the acronyms OEM and ODM, which have different meanings.

Original Equipment Manufacturers

OEM represents an original equipment manufacturer. This type of manufacturer makes products or product components that other companies purchase and sell under their brand name. The purchasing company designs the products, while the OEM simply makes them to the purchasing company's specifications, design and requirements. For example, if you are repairing a part on your car, look for parts labeled OEM to ensure it meets the car manufacturer's original specifications.

Original Design Manufacturer

When you find ODM, it refers to the a company that is the original design manufacturer. These companies design and manufacture a product that is eventually sold by another company with that company’s brand. In this case, the ODM does everything from designing the product to manufacturing it. This type of company is often used in international trade. Local ODMs provide benefits to foreign companies by offering lower costs for local goods.

OEM and ODM Differences

Hybrid car manufacturers, for example, turn to ODM companies to create the rechargeable battery packs for their vehicles The car manufacturer does not have the resources to design and create the battery pack itself and relies on ODMs experienced with this type of work. OEM companies, on the other hand, do not generate new designs, they follow the design schematics given them to create the products needed that go into the product the manufacturer generates.

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