Electronics Production | April 06, 2011

The distinction between EMS and ODM still matters

Nowadays an OEM of electronic products has a seemingly endless array of options to choose from when selecting a manufacturing partner: CM, EMS, ODM, JDM, CDM, to name a few.
This assortment of acronyms adds unnecessary complexity to an already challenging activity – the outsourcing of manufacturing – and thereby does a disservice to the customers the providers are trying to engage.

The reality is there are essentially two types of manufacturing partners: EMS and ODM. They each provide similar sets of services, make about an equal amount of margin in doing so, and compete for the business of the same OEMs. All the other acronyms are variations on these themes:

EMS = company that provides value-added electronics assembly/manufacturing services on behalf of an OEM customer, in which the design and brand name belongs to the OEM.

ODM = company that manufactures an electronic product on behalf of an OEM, in which the ODM owns the product design and may build products according to that design for other OEMs.

So in its pure form, an EMS builds products based on a design owned by the OEM while an ODM builds products based on its own designs. It is best to consider the industry as a continuum with EMS and ODM being on opposite ends and many variations existing between them.

Does the distinction between EMS and ODM still matter? I think it does. It defines a company’s focus and informs OEMs of the service and type of engagement they can expect to receive.

For many years now there has been discussion that these two models are merging together and are best considered as one large industry. The argument is that the two models have become so similar, in terms of services provided and gross margins, that the distinction between them has become irrelevant. This may be true for the largest EMS, and the majority of ODMs, but not for medium to small sized EMS.

The distinction between EMS and ODM does matter for the rest of the EMS companies that continue to provide contract manufacturing (CM) services. This is where the vast majority of EMS companies live. The main service of the EMS is still printed circuit board assembly (PCBA), although they are certainly starting to grow their business in box build and after market services (AMS).

It is far simpler for an ODM to provide EMS services than it is for EMS to provide ODM services. The ODM simply has to remarket its manufacturing capabilities, whereas an EMS would have to develop strong reference design capabilities. Many ODMs also tend to have an OBM line of business (my favorite industry euphemism) which means that they are building and selling their own branded products. So they are also an OEM.

In the end, you need to select a partner regardless of which acronym they use, that has the capabilities, scope and experience to match your manufacturing needs. I am sure that more acronyms will be created in the future as companies seek to differentiate themselves in the marketplace. But what you really need is a BFF (Best Friend…For Now).

Author: Eric Miscoll, Charlie Barnhart & Associates
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