What we cover in this blog?
Original Design Manufacturing (ODM)
ODM or Original Design Manufacturer means that the factory makes products that the buyer designs, mostly based on products already on the market.
When the buyer works with the factory, the buyer buys things the factory is already making. Packaging and branding are the only things the buyer is expected to make or own.
Sometimes, the buyer won’t change the labelling or packaging. Instead, they’ll sell it as it comes from the factory.
In other cases, the buyer may ask for small changes like a different colour or logo.
Even when a product is customized, Intellectual Property (IP) rights and who owns the product’s design are the main concerns with ODM.
The factory mostly owns intellectual property (IP) because they did all or almost all of the design.
However, the buyer owns the copyrights to the branding. It can cause a setback if you don’t want a manufacturer to sell your product.
Therefore, the ODM agreement can stop contract manufacturer’s from using your customizations and brand.
Advantages Of Using An ODM Model
Typically, under an ODM model, suppliers can reap the following benefits:
- As the offered product exist in the market, a small design or technical input is required for its production.
- Can request minor adjustments to an existing design by personalizing a product’s branding, colour, and logo, adding a simple feature, and altering the design’s overall appearance.
- Allows for surface-level differentiation and market entry speed. Utilize economies of scale and an existing supply chain to decrease the cost to the buyer.
- The quickest time to market, as development lead time is extremely short.
- Typically lower minimum order quantities, as the dedicated supplier frequently produces the same product for multiple buyers.
- As the product belongs to the supplier, the buyer’s responsibilities are typically confined to marketing and operations. The factory should be capable of producing and shipping a functional product with minimal input from the customer.
Relevance Of ODM Agreement
Having a concise manufacturing agreement can minimize manufacturing legal concerns.
Before discussing the key ODM agreement terms, we’ll explain why you need one, even in countries with weak legal systems.
There are majorly three reasons cited for it;
A well-written contract in the manufacturer’s language will ensure they understand your needs. Including a clause in your contract about the serious outcome of not adhering to the timely deliverables, implies that you’re serious about manufacturing deadlines.
A well-written manufacturing contract with damages provisions will convince your contract manufacturer to comply. When facing a production crunch, your manufacturer will prioritize your products if your contract has explicit and strict written deadlines.
Even if the international litigators happen to sue or threaten arbitrated well-written manufacturing contracts drafted by other law firms, the benefit of having a quality contractor will keep your grounds firm even in countries notoriously bad at contract enforcement.
ODM Agreement Explained
After a successful original design manufacturer on-site visit and choosing to contract an ODM, managers must contemplate drafting the legal agreement (s).
Primarily, a single contractual arrangement (or several agreements) with an ODM consists of four primary segments:
- Planning and development
- Final version of the product
- Logistics and operations
Let us look into these different segments detail
Planning And Development
Since the Original Equipment Manufacturer’s (OEM) product like finished goods inventory will be based on the ODM’s design (and, most likely, each OEM will make his modifications), OEMs must pay special attention to the development/engineering change process within ODMs as well as the IP assignment of finished products to avoid potential legal issues in the future.
Manufacturing And The ODM Contractual Arrangement
Working with an ODM is equivalent to collaborating with an OEM provider. The following subject areas require additional consideration and clarification in ODM contract service agreements because components for the OEM product are frequently shared across a wide variety of customers served by the ODM, allowing the ODM to have flexibility in resource planning and cost reductions.
Final Version Of The Product
Any inventions, concepts, breakthroughs, improvements, refinements, upgrades, or derivative works conceived, made, created, developed, or reduced to practice by the manufacturer, solely or jointly, in whole or in part, during the term of this agreement that relates to the Products, Information or Product Tooling, or any services provided under this category of agreement.
Logistics And Operations
These include customized clauses regarding the timeline of the delivery of the product, such as;
- The assembled, inspected, packaged, and final product shall be shipped to the customer’s inventory warehouse site.
- The customer is responsible for shipping charges to the designated manufacturer representative. The customer will select the carrier.
- The manufacturer commits to keep a particular period worth of “essential components” selected by the customer in inventory or with the component supplier for the duration of the production run for these items. The customer agrees to reimburse the manufacturer for excess component inventory over the rolling forecast.
Given the efficiency of choosing an ODM Model, it is ideal to choose the right manufacturing service based on your core competencies and requirements.
With our engineering expertise with design skills, Violin Technologies is a reliable partner for our ODM customers.
We develop innovative goods that yield a greater investment return with fewer resources while keeping the highest standards.
Our optimized ODM approach significantly accelerates our client’s time-to-market.
Violin Technologies is an ISO 9001:2015 certified company with factories located in Chennai, India, and a warehouse in Wooddale, Illinois, USA. We provide end-to-end manufacturing/ supply chain partnerships. Click here to know more about us and contact us for further information.