The terms, OEM, EMS provider, CEM and ODM are applied to different kinds of companies in the electronics manufacturing value chain. Yet they are frequently confused and misused. This blog post defines them all and outlines the critical differences between them and the roles they play within the sector.
OEMs, EMS providers, CEMs and ODMs - what's the difference?
These abbreviations refer to different kinds of companies who operate in the electronics manufacturing value chain. They all have different roles in the industry, but sometimes their functions and capabilities can overlap. Let's take them one by one:
What is an OEM?
OEM stands for Original Equipment Manufacturer. An OEM may choose to design and market complete "‘turnkey" products for their customers, or just certain sub-systems or components. In the latter example, an OEM offers components or sub-systems that are then re-sold by another company as part of their end product. But the 'M' in OEM, is often a misnomer these days as many OEMs don't manufacture their products at all. While they design most of their products themselves and own the 'rights' to them (i.e. the intellectual property) they increasingly outsource all or part of their manufacturing to third parties such as EMS providers. In doing so many OEMs choose to focus, solely on product innovation and development.
What is an EMS provider?
An EMS (Electronic Manufacturing Services) provider is the generally accepted term for a contract manufacturer in the electronics field that not only makes products for OEMs but also offers a wide array of value-added services. These services include support with initial ideation and design, DfX (Design for Excellence), supply chain management, configure-to-order, outbound logistics and repair elements.
EMS companies can be huge - in fact, in the so-called "Tier 1" environment they are multi-billion dollar businesses in their own right. So it’s no surprise that they manufacture some of the world’s best-known products. For example, Microsoft's Xbox, Apple’s iPhone, HP printers, and many other famous branded products are all believed to be built by Tier 1 EMS companies.
While these suppliers will often make "Top 10" lists, they specialise in manufacturing high volume, low complexity products and, as a result, demand multimillion-pound spend levels - which is why much of the world's consumer electronics end up shipping from their factories.
However, for OEMs that design and sell low to medium-volume, often complex products, in sectors away from consumer electronics, Tier 1 suppliers may not be the most appropriate fit. Instead, OEMs are encouraged to take an alternative view of the EMS horizon, to find the most appropriate supplier for their business model and product range.
What is a CEM?
CEMs (Contract Electronics Manufacturers) are companies that make products under contract for other companies. They typically take on, wholly or partially, the manufacturing responsibility for OEMs in sectors like industrial, defence, oil and gas, test and measurement, computing, instrumentation, communications and transportation.
Thousands of different products are manufactured each week by contract manufacturers, which are then usually branded with the OEM's name and then sold out by the OEM to its customer base.
What is an ODM?
ODM stands for Original Design Manufacturer. An ODM is similar to a contract electronics manufacturer, but they typically own IP for the product itself, while regular contract electronics manufacturers use their customers' designs and IP. In addition, CEMs often produce a vast array of different products, across multiple markets, whereas ODMs typically specialise in a small number of specific product types.
Why do OEMs outsource manufacturing?
So, why do some of the world’s most successful companies choose to outsource their manufacturing? It’s obviously not because they don’t have the finances available to set up a plant.
Take Apple, for example. Still one of the world’s most valuable companies, their product design capabilities and end-to-end industry knowledge are about as good as it gets. Yet they still choose to outsource.
If we take a long look at their latest model of iPhone - the iPhone 14, with its new emphasis on sustainable technology and repairability - we can see they are grappling with some of the most complex, long term manufacturing challenges facing big tech. Yet they are still pushing the design envelope in new and exciting ways.
Apple have realised there are others around them that can answer specific manufacturing challenges more quickly and cost-effectively than they can. By outsourcing, their manufacturing partners can assist them with DfM (Design for Manufacture) and other logistical challenges while their own teams can focus on innovating and enhancing the latest models.
While this is a classic "high profile, high volume" example, in the very different low-medium volume, medium-high complexity sector the same principle applies - it’s all about core focus.
OEMs vs EMS providers - what's the difference?
The result of this difference in core focus is underlined when you compare EMS providers and OEMs who are still manufacturing their own products:
- Choice of assembly equipment - OEMs often have surface mount equipment that takes longer to set up but is faster to run. They may also have dedicated build cells and production lines for each product in their range. EMS companies, on the other hand, must offer more agility. They will choose to invest in equipment that supports much faster changeovers and programming that gives them added flexibility but may run at reduced rates.
- The New Product Introduction (NPI) process - An OEM will design their own products and, therefore, have an established portfolio of products to sell. As a result, the frequency of new products entering the marketplace from them is typically low. If they are currently building the products in-house then there is no real need to share build documentation with a third party supplier. Compare this with a CEM that is working with a wide range of OEMs across multiple markets. They will frequently be asked to deliver "new" products to their customers. As a result, the NPI process for CEMs has to be much more refined and robust as the volume of data they manage, and completeness of this will vary greatly between each different customer and product they manufacture.
- Supply chain expertise - EMS companies typically manufacture for multiple customers producing multiple products, with the resulting need for a much broader and more global supply chain.
- Test design expertise - Similarly, the variety of PCB assemblies and "box build" products for which EMS companies have to design test solutions means that they often have a far greater breadth of experience than OEMs' engineers.
OEMs and EMS companies, therefore, have differences in their priorities, core skills and the levels of utilisation of their manufacturing resources. The length of time required for an OEM to recoup these investments is, therefore, usually much longer.
OEMs considering outsourcing their manufacturing should take reassurance from the fact that there are EMS companies that can do everything the OEM can do but can often do it better, more consistently and more efficiently because of the extended range of products and markets they have to service and the expertise and experience that this creates. This breadth of experience can add value right across the OEM’s business.