Designing and manufacturing electronics hardware products has evolved into two camps. One camp is the OEM. The other is comprised of contract electronics solutions providers, who often subcontract (and compete) with each other for the same OEM customer or program. Details below on differences between these different types of business firms and structures and why its important you should know the difference, especially if you are looking to reduce or manage your contract electronics sourcing spend.
OEM – original equipment manufacturer
The original equipment manufacturer (OEM) is the brand owner, the company whose logo displays on the final product. Think: Cisco, Dell, Samsung, Lenovo, LG, Microsoft, Apple …
For example. Apple’s iPhone has the Apple logo clearly visible to users. Apple is the OEM.
Apple designs its products, but Apple outsources the majority of iPhone manufacturing production to contract electronics solutions providers. Both EMS and ODM. Apple does this to leverage cost to scale.
In your search results, you will be able to further target provider options by choosing End Markets, then selecting Go.
Its cheaper for OEMs to pay another company (solutions provider) to purchase and carry land and factory overhead costs, purchase and deploy expensive production and test equipment, and pay a solutions provider to hire, staff and train provider employees inside factories external to Apple’s organization, and pay the solutions provider to manage vendors and suppliers in the supply chain, than for Apple to take on all of this responsibility 100% internally. (READ: How to drive cost out of your manufacturing product portfolio)
Apple still employs a very large number of employees to manage its outsourcing partners and programs. But, as a result of outsourcing iPhone production, Apple carries little manufacturing infrastructure overhead on its books. For OEM vs ODM, keep reading.
Contract electronics solutions providers
The companies (providers of solutions) in this camp contract their electronics services solutions to OEM customers (and other solutions providers)* to bring OEM customer products to market.
Contract electronics solutions providers can be further subdivided into CM, CEM, ECM, EMS, ODM, JDM, and electronics design house.
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Some contract electronics solutions providers only offer electronics product design services. Others offer only product manufacturing services with designs the OEM providers and the provider then builds-to-spec.
In your search results, you will be able to further target provider options by choosing End Markets and/or other Services.
Other contract electronics solutions providers offer both product design and manufacturing services. Still, other contract electronics solutions providers are full service and offer additional front-end supply chain services such as procurement of materials and commodities.
Even design of these materials and commodities as well as back-end supply chain services (after products are built) such as shipping finished goods inventory (FGI) final products to OEM customers and to OEM end-user customers in the field plus, even offering repairing of products for OEMs that failed in the field. The latter is called reverse logistics, also a back-end service. (Important reading: Top 10 impacts to EMS/ODM quote pricing OEM programs)
Various types of contract electronics solutions across the supply chain, from front-end services, manufacturing, and back-end services can be seen below.
Columns to the left of Manufacturing Services are front-end services.
Columns to the right of Manufacturing Services are back-end services.
Front-end services, before actual manufacturing, and, back-end services (after manufacturing) will carry higher profit margins for the solutions provider compared to margins derived from manufacturing, only.
Some contract electronics solutions providers only offer their services to OEMs who have product in certain end markets, like medical and healthcare, industrial electronics, consumer wearables, automotive …
Contract electronics solutions providers: CM, CEM, ECM, EMS, ODM, JDM, design house definitions and classification.
CMs and electronics design houses
Electronics solutions providers are called, although less often, CMs, or contract manufacturers. They’re work in electronics is assumed but omitted.
Contract electronics solutions providers focusing on R&D services, like embedded systems design, are called design houses. Electronics design is highly profitable and a highly competitive service offering because paces at which new product introductions (NPI) come to market become faster as companies try to increase value to maintain relevance and competitiveness.
In your search results you can further target other Industries and/or Services plus, you can add more geographies to your search.
Its common for any of the other types of contract electronics solutions business models (EMS, CEM, ECM, ODM, CM…) to include electronics design in their service offering, although doing so does require additional insurance, liability and certification requirements are met.
CM – contract manufacturer
Contract manufacturers (CM) will offer manufacturing services, and often some limited services related to manufacturing, to OEM customers. They’re called CM or contract manufacturer. These are both common terms in any manufacturing sector where production manufacturing is outsource and is used in the electronics industry, but also in other industries such as pharmaceuticals, construction, food and other consumer packaged goods, and so on.
CEM – contract electronics manufacturer
Unlike CM, contract electronics manufacturers (CEM) distinguish themselves from contract manufacturers that produce foods, paperback books, etc… due to the fact they serve the electronics industry.
CEM is always interchangeable with CM, but CM is not always interchangeable with CEM.
ECM – electronics contract manufacturer
Electronics contract manufacturer (ECM) is just another acronym for CEM. ECM is always interchangeable with CM, but CM is not always interchangeable with ECM. Again, whether or not the contract manufacturer offers electronics solutions is the differentiator.
EMS – electronics manufacturing services
Electronics manufacturing services providers are also revered to an EMS providers, EMS manufacturing, EMS companies….
The EMS provider business model has evolved over the years beyond offering just core manufacturing services.
Readers can purchase an itemized, audit checklist for evaluating technical and management capabilities of electronics CM, CEM, ECM, EMS providers here.
In your search results, you can add more Industry End Markets, more Services plus, you can add more Geographies.
For detailed information about how to request for a proposal (RFP) and how to request information (RFI) for further evaluating a CM, CEM, ECM, EMS provider, readers can purchase this detailed paper here.
If you have already obtained a quote from a CM, CEM, ECM, EMS provider, this form can be purchased to help you manage NRE cost and PPV, here.
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When transferring programs from one CM, CEM, ECM, EMS provider to another this form can be purchased to help readers to become aware how to avoid creating bubbles in your supply chain and to hold provider partners accountable. Read more and purchase here.
This document is also used for holding costly indirect labor (hidden in S,G&) accountable for driving workflow accuracy, timeliness, and productivity execution. Readers can purchase this audit form here.
SEE ALSO
OEM RFQ strategy for EMS manufacturing programs
RFQ Resources links page
For EMS vs ODM and ODM vs JDM, read on.
ODM – original design manufacturer
Original design manufacturer (ODM). Until about 2005, this terms used to apply to companies in Taiwan, only. Now ODM providers and services can be found nearly everywhere EMS providers are located.
ODM white label v ODM private label: ODM manufacturing can be broken down into white label and private label.
In your search results, you will be able to further target provider options by choosing End Markets, then selecting Go.
ODM white label is where the ODM designs, manufactures, distributes non-label, generic FGI products to various outlets or retailers. These retailers then sell the ODM product under their own logo or brand name.
ODM private labeling is where the ODM sells FGI products produced exclusively for a particular retailer.
JDM – joint design manufacturer
In a narrowing scope of the contract service level agreement between OEM and provider partners, where product design contribution is shared between OEM engineering and provider, the two parties jointly design the product.
Typically, both parties will share in ownership of design IP. But, the JDM provider can also claim payment in the form of ‘earn outs’ where payment to the JDM is based on a combination of percentage of the design, design feature/functionality contributed, and product volumes created and sent to FGI, and/or volume of product shipped to market.
JDMs, being similar to ODMs, also offer manufacturing
Readers can purchase an audit reporting paper for evaluating technical and management capabilities of ODM and JDM providers here.
Design house
As the name implies, the main focus for services offered from a design house is electronics design. Similar to electronics design services offered by other types of providers, some design houses can offer a full range of electronics design services including both hardware design as it related to electrical and electronics, and firmware design, across a wide variety of product end markets.
Readers can purchase an audit checklist for evaluating design for manufacturing (DfM) capabilities of providers here.
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