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Designing and manufacturing electronics hardware products has evolved into two camps. One camp is the OEM. The other is comprised of contract electronics solutions providers, who often subcontract (and compete) with each other for the same OEM customer or program. Details below on differences between these different types of business firms and structures and why its important you should know the difference, especially if you are looking to reduce or manage your contract electronics sourcing spend.

OEM – original equipment manufacturer

The original equipment manufacturer (OEM) is the brand owner, the company whose logo displays on the final product. Think: Cisco, Dell, Samsung, Lenovo, LG, Microsoft, Apple …

For example. Apple’s iPhone has the Apple logo clearly visible to users. Apple is the OEM.

Apple designs its products, but Apple outsources the majority of iPhone manufacturing production to contract electronics solutions providers. Both EMS and ODM. Apple does this to leverage cost to scale.

Its cheaper for OEMs to pay another company (solutions provider) to purchase and carry land and factory overhead costs, purchase and deploy expensive production and test equipment, and pay a solutions provider to hire, staff and train provider employees inside factories external to Apple’s organization, and pay the solutions provider to manage vendors and suppliers in the supply chain, than for Apple to take on all of this responsibility 100% internally. (READ: How to drive cost out of your manufacturing product portfolio)

Apple still employs a very large number of employees to manage its outsourcing partners and programs. But, as a result of outsourcing iPhone production, Apple carries little manufacturing infrastructure overhead on its books. For OEM vs ODM, keep reading.

Contract electronics solutions providers

The companies (providers of solutions) in this camp contract their electronics services solutions to OEM customers (and other solutions providers)* to bring OEM customer products to market.

Contract electronics solutions providers can be further subdivided into CM, CEM, ECM, EMS, ODM, JDM, and electronics design house.

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Some contract electronics solutions providers only offer electronics product design services. Others offer only product manufacturing services with designs the OEM providers and the provider then builds-to-spec.

Other contract electronics solutions providers offer both product design and manufacturing services. Still, other contract electronics solutions providers are full service and offer additional front-end supply chain services such as procurement of materials and commodities.

JUMP TO: Contract Electronics Industry Explained | Design | New Product Introduction (NPI) | Manufacturing | Supply Chain | Logistics | After Market

Even design of these materials and commodities as well as back-end supply chain services (after products are built) such as shipping finished goods inventory (FGI) final products to OEM customers and to OEM end-user customers in the field plus, even offering repairing of products for OEMs that failed in the field. The latter is called reverse logistics, also a back-end service. (Important reading: Top 10 impacts to EMS/ODM quote pricing OEM programs)

Various types of contract electronics solutions across the supply chain, from front-end services, manufacturing, and back-end services can be seen below.

Columns to the left of Manufacturing Services are front-end services.

Columns to the right of Manufacturing Services are back-end services.

Front-end services, before actual manufacturing, and, back-end services (after manufacturing) will carry higher profit margins for the solutions provider compared to margins derived from manufacturing, only.

Some contract electronics solutions providers only offer their services to OEMs who have product in certain end markets, like medical and healthcare, industrial electronics, consumer wearables, automotive …

Contract electronics solutions providers: CM, CEM, ECM, EMS, ODM, JDM, design house definitions and classification.

CMs and electronics design houses

Electronics solutions providers are called, although less often, CMs, or contract manufacturers. They’re work in electronics is assumed but omitted.

Contract electronics solutions providers focusing on R&D services, like embedded systems design, are called design houses. Electronics design is highly profitable and a highly competitive service offering because paces at which new product introductions (NPI) come to market become faster as companies try to increase value to maintain relevance and competitiveness.

Its common for any of the other types of contract electronics solutions business models (EMS, CEM, ECM, ODM, CM…) to include electronics design in their service offering, although doing so does require additional insurance, liability and certification requirements are met.

CM – contract manufacturer

Contract manufacturers (CM) will offer manufacturing services, and often some limited services related to manufacturing, to OEM customers. They’re called CM or contract manufacturer. These are both common terms in any manufacturing sector where production manufacturing is outsource and is used in the electronics industry, but also in other industries such as pharmaceuticals, construction, food and other consumer packaged goods, and so on.

CEM – contract electronics manufacturer

Unlike CM, contract electronics manufacturers (CEM) distinguish themselves from contract manufacturers that produce foods, paperback books, etc… due to the fact they serve the electronics industry.

CEM is always interchangeable with CM, but CM is not always interchangeable with CEM.

Make more informed decisions and save time and money.

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Get a list of EMS/CM providers matching your program needs (Its free)

Venture Outsource has the largest, global database of contract electronics capabilities. This free service is for electronic OEM professionals wanting to find contract electronic service providers matching your program requirements. Speak with a Provider Advisor. Advisors will give you detailed information on providers, plus intelligence on these companies, emerging trends and best practices.

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