Five modes of manufacturing: OEM 、ODM、OBM 、JDM、CMT

OEM (Original Equipment Manufacturer) – Manufacturing Without Design

Commonly referred to as “contract manufacturing” or “outsourced production,” OEM refers to a business model where a company designs a product but does not have its own factory, so it outsources production to another manufacturer.

Characteristics of OEM:

• Technology, capital, and market are external; only production is internal.
• Company A designs, Company B manufactures, Company A brands and sells, with the manufacturer as the main entity.

This cooperation model, where one company outsources production to another, is known as OEM, and the company undertaking the manufacturing task is called an OEM manufacturer (contract manufacturer). The products manufactured under this model are referred to as OEM products.

Through OEM partnerships, small businesses can leverage the brand influence of larger enterprises, increase production volume, expand sales, and achieve higher economic benefits. Additionally, they can improve their production management by adopting well-known brands’ technological and design processes.

Disadvantages of OEM:

• The growth of an OEM factory largely depends on the development of the brand it serves. If demand is high, the factory receives more orders; if demand declines, orders decrease significantly.
• Relying solely on contract manufacturing results in very low profit margins.
• In the past, lower labor costs in China made OEM profits relatively decent, but as labor costs rise, many OEM factories are seeking transformation strategies.

ODM (Original Design Manufacturer) – Both Design and Production

ODM refers to a model where a manufacturer designs a product, and another company finds the design appealing and requests production under its own brand. Alternatively, the manufacturer may modify the design slightly before selling it under another brand. The original designer is thus considered the ODM for the branding company.

Characteristics of ODM:

• This model involves outsourcing both design and production.
• The manufacturer undertaking the design and production is called an ODM manufacturer (design + manufacturing), and the products produced are ODM products.
• Company B designs and manufactures, Company A brands and sells. The products are essentially shared factory models under different brands, with production remaining the primary focus.

ODM factories typically enjoy higher profit margins than OEM manufacturers but slightly lower than OBM (Original Brand Manufacturer) factories. The risks are lower, and they maintain greater autonomy.

ODM Design Supply Models:

1. Exclusive Buyout: A brand owner buys out the complete design of a specific product from an ODM manufacturer. The brand owner may also commission the ODM factory to develop a custom design exclusively for them.
2. Non-Buyout Model: The brand owner does not buy out the design, meaning the ODM factory can sell the same product design to other brands. When multiple brands share a design, the key differences between their products typically lie in external appearance.

OBM (Original Brand Manufacturer) – Own Brand, Design, Production, and Sales

OBM refers to a business model where a manufacturer creates its own brand, designs, produces, and sells products under its own brand name.

Characteristics of OBM:

• The company is responsible for branding, sales, design, and production, making it a brand-focused manufacturer.
• OBM is the next step beyond ODM; when an ODM factory seeks to develop its own international brand instead of merely manufacturing for others, it transitions into an OBM.

OBM manufacturers must handle product design, technological R&D, production, and marketing. While they can capture value from all segments of the supply chain, they must also invest heavily in marketing, sales channels, and branding efforts to compete in the market.

Challenges of OBM:

• The company must invest in branding and market expansion.
• It faces higher risks and requires significant operational efforts.

As the saying goes, “A man without long-term considerations will surely face immediate troubles.” For OEM factories, developing their own products and brands is the key to long-term sustainability. Otherwise, they will remain dependent on others.

Currently, most OEM factories face low-profit margins and rising costs, prompting them to transition into OBM businesses. Once an OBM factory grows large enough, it can outsource production to OEM factories, positioning itself upstream in the supply chain.

JDM (Joint Design Manufacturer) – Collaborative Design and Manufacturing

JDM refers to a joint development model, which is a special subset of ODM. In this approach, a product is designed collaboratively by both the client and the ODM manufacturer.

For example, in the development of a smartphone, the client might handle software design, while the hardware design remains the responsibility of the ODM manufacturer.

CMT (Cutting, Making, Trimming) – Material Processing

CMT refers to a material processing model, where:

• The importer provides raw materials, semi-finished products, components, and sometimes even equipment and technology.
• The exporter (factory) processes and assembles the products according to the importer’s specifications.
• The finished products are handed over to the importer for sale, and the exporter earns a processing fee.

This trade model is commonly used in industries such as textiles, electronics, and apparel.