Procurement Glossary
OEM/ODM model: manufacturing strategies and procurement models at a glance
November 19, 2025
The OEM/ODM model describes two central manufacturing strategies in modern procurement. While original equipment manufacturers (OEM) manufacture products according to customer specifications, original design manufacturers (ODM) develop their own designs for various brands. These models allow companies flexible production strategies and optimized cost structures. Find out below what characterizes the OEM/ODM model, which methods are used and how current trends affect procurement.
Key Facts
- OEM manufactures products according to customer specifications, ODM develops its own designs
- Both models enable cost reduction through specialized manufacturing partners
- ODM offers faster time to market through prefabricated designs
- OEM ensures greater control over product specifications and quality
- Hybrid approaches combine the advantages of both models depending on the product category
Contents
Definition: OEM/ODM model - meaning and differentiation
The OEM/ODM model comprises two different manufacturing approaches that play central roles in global procurement.
Basics and core features
Original equipment manufacturers (OEMs) produce components or end products to the exact specifications of their customers. The customer retains control over the design, specifications and trademark rights.
- Production according to customer requirements and specifications
- Customer retains ownership rights to design and brand
- High quality control and customization options
- Longer development cycles due to individual requirements
OEM vs. ODM - Key differences
Original Design Manufacturers (ODM) develop their own product designs and offer them to various brands. This enables faster time-to-market with lower development costs.
- ODM owns design and development rights
- Standardized solutions for multiple customers
- Shorter time-to-market thanks to prefabricated designs
- Fewer customization options for specific requirements
Importance in strategic Procurement
The choice between OEM and ODM significantly influences make-or-buy decisions and supplier strategies. Both models enable outsourcing of production capacities with different degrees of control over product development and quality.
Methods and procedure for the OEM/ODM model
The successful implementation of OEM/ODM strategies requires structured procedures and proven methods for supplier selection and management.
Supplier evaluation and selection
Suitable OEM/ODM partners are selected using systematic evaluation processes. The focus here is on production capacities, quality standards and technical expertise.
- Technical audits and certification tests
- Evaluation of production capacities and scalability
- Analysis of the cost structure and pricing
- Checking references and market reputation
Contract design and quality assurance
Successful OEM/ODM partnerships are based on precise contract structures. Contracts for work and services clearly define the scope of services, quality standards and delivery conditions.
- Definition of quality standards and test procedures
- Determination of delivery dates and quantity flexibility
- Regulation of property rights and confidentiality
- Implementation of escalation processes
Production control and monitoring
The ongoing management of OEM/ODM partnerships requires continuous monitoring and proactive ramp-up management. Regular reviews ensure quality and adherence to deadlines.
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Key figures for controlling
Effective management of OEM/ODM partnerships requires meaningful key figures to evaluate performance, quality and profitability.
Quality and delivery performance
Key performance indicators measure the reliability and quality of OEM/ODM partners. These key figures form the basis for continuous improvements and supplier evaluations.
- On-time delivery rate in percent
- Quality rate (first pass yield) and complaint rate
- Lead times from order to delivery
- Flexibility with quantity and deadline changes
Cost efficiency and cost-effectiveness
Financial key figures evaluate the profitability of the OEM/ODM strategy. Total Cost of Ownership (TCO) takes into account all direct and indirect costs of the partnership.
- Unit costs and cost development over time
- Procurement costs as a percentage of total sales
- Savings through economies of scale and standardization
- Return on investment (ROI) of the OEM/ODM strategy
Strategic partnership quality
Qualitative indicators measure the sustainability and strategic orientation of OEM/ODM relationships. These indicators support long-term partnerships and the ability to innovate.
Risks, dependencies and countermeasures
OEM/ODM models entail specific risks that can be minimized through suitable strategies and control mechanisms.
Quality and compliance risks
External production can lead to quality fluctuations and compliance violations. Insufficient control over production processes jeopardizes brand reputation and legal compliance.
- Implementation of regular quality audits
- Definition of clear quality standards and test criteria
- Establishment of escalation processes in the event of deviations
- Continuous training of the supplier teams
Dependency risks and supply chain disruptions
High dependence on individual OEM/ODM partners can lead to critical supply bottlenecks. Geopolitical tensions and natural disasters further exacerbate these risks.
- Diversification of the supplier base through multi-sourcing
- Building up strategic stocks of critical components
- Development of alternative procurement sources
- Regular risk assessment of the supply chain
Intellectual property and confidentiality
The protection of intellectual property poses a particular challenge in OEM/ODM partnerships. Outsourcing transition requires careful planning of knowledge transfer and data protection.
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Practical example
A German automotive supplier uses a hybrid OEM/ODM strategy for electronic components. Standardized control units are sourced from an ODM partner in Asia, while customer-specific sensor solutions are manufactured by a European OEM. This combination reduces development costs by 30% while at the same time shortening the time-to-market by six months.
- Cost reduction through optimal model selection per product category
- Risk minimization through geographical diversification
- Flexibility for different customer requirements
Trends & developments around OEM/ODM models
Current market developments and technological innovations are fundamentally changing the landscape of OEM/ODM models and opening up new strategic opportunities.
Digitalization and AI integration
Artificial intelligence is revolutionizing OEM/ODM processes through automated quality control and predictive analytics. Smart manufacturing enables real-time monitoring of production quality and predictive maintenance.
- AI-supported quality inspection and error detection
- Automated production planning and control
- Predictive maintenance for higher system availability
- Digital twins for process optimization
Sustainability and circular economy
Environmental awareness and regulatory requirements are driving sustainable OEM/ODM strategies. Circular economy approaches are becoming increasingly important for long-term partnerships.
- Integration of sustainability criteria in supplier evaluation
- Development of recyclable product designs
- Reduction of transportation routes through regional partners
- Implementation of carbon footprint tracking
Flexible production models
Hybrid OEM/ODM approaches enable an optimal balance between standardization and individualization. Modular sourcing supports flexible product configurations with efficient production.
Conclusion
The OEM/ODM model offers companies flexible strategies for optimizing their procurement and product development. The choice between the two approaches depends on specific requirements, cost targets and strategic priorities. Hybrid models enable the optimal combination of both advantages depending on the product category. Successful implementation requires careful supplier selection, clear contract design and continuous performance monitoring.
FAQ
What is the main difference between OEM and ODM?
OEMs manufacture products according to customer specifications, while ODMs develop their own designs and offer them to different brands. OEM offers greater control over product features, ODM enables faster time to market with lower development costs.
When should a company choose OEM instead of ODM?
OEM is suitable for companies with specific product requirements, high quality standards or unique design features. ODM is advantageous for standard products, limited development resources or the need for a fast market launch.
What are the risks of OEM/ODM partnerships?
The main risks include quality fluctuations, supply chain disruptions, dependencies on individual partners and the protection of intellectual property. These can be minimized through multi-sourcing, regular audits and clear contract design.
How do you evaluate the profitability of OEM/ODM models?
The evaluation is based on total cost of ownership, quality indicators, on-time delivery and strategic factors such as innovation capability. It is important to take a holistic view of all direct and indirect costs as well as qualitative benefits.
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