LEXICON: OEMs & ODMs

Original Equipment Manufacturer (OEM)

The term OEM can mean two different things.

First, it means the original manufacturer of a hardware component or sub-component, unlike a value-added reseller, which changes and repackages the hardware. It is the maker of equipment marketed by another vendor, usually under the name of the reseller.

The OEM may make only certain components or complete devices, which can then be configured with software and/or hardware by the reseller.

On the other hand, OEMs are also manufacturers of equipment (such as engines, vehicles, etc.) that provide the original product design and materials for its assembly and manufacture.

An OEM may embed or bundle technology in specialised turnkey systems that include the OEM's own hardware IP, resulting in substantially different functional characteristics. It can be an organisation that markets a product composed of components and subsystems manufactured by other companies under its own name and brand.

Thus, Intel is an OEM for chips which are embedded in computers. But Dell is also an OEM as it uses components like Intel chips for computers which are designed by Dell.

Ceat is an OEM that supplies tyres to Tata Motor for its cars. But Tata Motor is also an OEM that owns the design for and assembles the Indica.

The point is, when we use the term OEM, it should be clear from the copy in which sense we are using it. Hitachi is an OEM for components that go into cars and Nissan is an OEM that manufactures/assembles cars to its own design.

But Hitachi is also an OEM in the latter sense when it comes to assembling and designing an entire product like earth movers and heavy machinery.

Original Design Manufacturer (ODM)

Thankfully, there is no double meaning for ODMs. An ODM is a contract manufacturer that uses its own designs and intellectual property (IP).

An ODM is a company which manufactures a product which ultimately will be branded by another firm for sale.

Such companies allow the brand firm to produce (either as a supplement or solely) without having to engage in the organisation or running of a factory.

Many ODMs now handle production for multiple clients, often providing a large portion of overall production. The ODM owns and/or designs in-house the products that are branded by the buying firm. This is in contrast to a contract manufacturer or CM which does not own the design.

Bangalore-based Ittiam is now a recognised ODM that makes complete reference designs for IP video phones and portable media players which are used by Korean manufacturers of these products which sell them under their own brand names while paying royalty to Ittiam.