Outsourcing's Alphabet Soup
As outsourcing continues to evolve, it’s becoming more complicated. Indeed, depending on what acronym you use, outsourcing can mean different things to different people. The contract manufacturing landscape now comprises three distinct types of competitors.
Original design manufacturers (ODM) and joint design manufacturers (JDM) are beginning to blur the lines of distinction between themselves and traditional electronics manufacturing services (EMS) providers.
The EMS industry provides contract manufacturing and product support services on behalf of original equipment manufacturers (OEMs). Traditional services include PCB assembly, box-build and testing. Today, EMS providers are also providing numerous services such as product design, supply chain management, global distribution, logistics, customer support and product repair. These companies perform these services based on a specific order from an OEM customer for an existing product.
When working with an EMS provider, all intellectual property belongs to the OEM. The flip side of that strategy is the ODM sector, which is becoming an increasingly popular form of outsourcing.
"Outsourcing strategies are becoming so pervasive that OEMs are looking for more options concerning design ownership and the degree of systems integration done by another party," says Eric Miscoll, chief operating officer of Technology Forecasters Inc. (Alameda, CA).
According to Miscoll, an ODM is a company that manufactures products of its own designs, which are then sold under an OEM’s brand name. An ODM performs all the functions traditionally associated with EMS firms, in addition to actually designing products based on their own intellectual property. And, unlike most EMS providers, ODMs tend to specialize in one specific product area rather than dabbling in several.
Typically, "the ODM determines what products to build and the OEM simply purchases the items ready-made," says Miscoll. "More and more OEMs are considering the ODM model because it offers them a more complete turnkey solution, with less design and supply-chain interactions with the supplier."
Most ODMs specialize in consumer electronics, such as laptop and desktop computers. Typically, an OEM will use an ODM when it wants to boost its product line while minimizing development and manufacturing costs.
A JDM helps design products for OEM customers. "Distinction on who owns the IP (intellectual property) is murky at best in the JDM space and can surface as licensing problems for either," says Mark Zetter, president of Venture Outsource Group (San Jose, CA). "In many instances, any substance (intellectual property) is developed in a shared, contributing environment."
Zetter claims that the ODM market is growing faster than the EMS market. As ODMs improve and expand their manufacturing capability, OEMs are expected to shift business away from EMS providers.
"A common mix for some OEMs is to do a portion of the work in-house combined with some activity supplied by an ODM or JDM," explains Zetter. More and more OEMs are considering the ODM model because it offers them a more complete turnkey solution, with less design and supply-chain interactions with the supplier.
Some large EMS players, such as Flextronics International Ltd. (Singapore) and Pemstar Inc. (Rochester, MN), recently began offering ODM services.