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Original Design Manufacturing (ODM) Adds Value to Contract Electronics Manufacturing, Business and Industry Trends Analysis

One of the hottest growth areas in manufacturing over the past twenty years has been contract electronics manufacturing, that is, the manufacture by third-party firms of electronic goods ranging from smartphones to computer components to complete PCs and laptop computers.  Some of the world’s largest manufacturers are in this category, such as China’s Hon Hai Precision Industry Co., Ltd.  This industry is sometimes referred to as “Electronic Contract Manufacturing (ECM)” or “Electronics Manufacturing Services (EMS)”.  The popularity of consumer electronics and wireless devices worldwide fueled this growth.
This growth in contract manufacturing has been part of a steady, long-term evolution from traditional, in-house manufacturing.  For many years, the world of manufacturing has been acquainted with the concept of original equipment manufacturers (OEMs).  An OEM is a company that manufactures a component (or sometimes a completed product) for sale to a company that will integrate that component into a final product or assembly.  For example, a personal computer made under a brand name by a given company may contain various components, such as hard drives, graphics cards, chips or speakers, manufactured by several different OEM “vendors,” but the firm doing the final assembly/manufacturing process is the final manufacturer and the owner of the brand name.
Today, however, engineering and R&D also enter the picture, as many OEMs are evolving into “original design manufacturers” (ODMs):  contract manufacturers that offer complete, end-to-end design, engineering and manufacturing services.  ODMs, in close collaboration with their clients, design and build components or products, such as consumer electronics, that client companies can then brand and sell as their own.  ODMs are the ultimate result of the convergence of several trends at once, including offshoring, globalization, value-added services, contract manufacturing, outsourcing and design collaboration via the internet.
Savvy managers began to see that they could differentiate themselves by becoming more than mere manufacturers.  After all, manufacturing services alone can be commoditized—that is, they can become common services offered by a large number of firms at increasingly competitive prices.  However, when manufacturers combine the ability to offer complete engineering, design and manufacturing in one turnkey deal, it’s a new story.  This collaboration with the client on the design and engineering of products also gives the contract manufacturer a chance to build a deeper relationship with the client.  Thus, ODM was born.
ODM services can be particularly effective in nations that are noted for having an experienced technical talent pool.  An example is Taiwan’s expertise in personal computers, where such firms as Quanta Computer, Inc., Compal Electronics, Inc. and Inventec Corporation are known to be world-leading laptop designers and manufacturers for clients that sell under name brands.  Other examples include India’s expertise in chips and Israel’s expertise in optical communications equipment.
ODM has also been highly effective in the automobile and passenger aircraft manufacturing industries.  To a rapidly growing extent, carmakers are relying on their suppliers to perform the design, engineering and manufacturing of everything from transmissions to dashboard assemblies.  The same holds true in the aircraft business.  To a large degree, Boeing and Airbus are conducting final assembly of components manufactured (and in many cases designed and engineered) by their suppliers.  The fact that components used in transportation equipment can be heavy and bulky doesn’t mean that ODMs in these sectors have to be close to home.  In fact, components for Boeing’s new 787 are being made as far away as Japan, and automobile components are often manufactured in China for use in U.S. automotive plants.
(It is worth noting here that the phrase OEM has evolved to have a second meaning in addition to its traditional definition.  A firm that buys a component and then incorporates it into a final product, or buys a completed product and then resells it under the firm’s own brand name, is sometimes called an OEM.  This confusing usage is most often found in the computer industry, where OEM is sometimes used as a verb.  For example, a company executive describing his firm’s strategy for the manufacture of a new tablet computer might say “we’re going to OEM it.”)

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