Shorter product lifecycles creating more losses for OEMs. Engineering change orders can define IP ownership. ODM vendor selection transparency is vital. IT integration can offer significant savings for OEMs.
Following a successful original design manufacturer on-site visit and the decision to engage an ODM, the next step executives must think about is drafting the legal agreement(s). Typically, when working with an electronics manufacturing services (EMS) provider, OEMs only need to put in place a manufacturing service level agreement. (See, also: “Choosing providers: EMS or ODM” and “Manufacturing service level agreement“)
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The process of drafting and reviewing contracts with an ODM is no different than the process with an EMS provider. However, extra time should be allotted to cover negotiations for ODM design and customization plus, other related matters. (See, also: 59 Questions for OEMs to ask ODMs)
For OEM executives choosing to take an ODM-designed product (to, essentially, customize it under the OEM’s own brand) ODM contract service agreements need to include some key points of interest and terminology that cover OEM product design changes; IP ownership, manufacturing rights…
For large ODM programs, it would be wise to also allocate additional time for decisions requiring executives from both ODM and OEM companies to personally meet and finalize arrangements agreed upon.
It is vital to have these executive relationships in place for when OEM programs deviate from standard practice (e.g., requesting overtime during Chinese New Year whereas many ODMs factories are located in China and observe a week-long holiday) having access to / relationships with the most senior ODM executives can make a big difference.
“Whether working with an EMS provider or ODM organization, the convergence for these two types of service providers over the last couple of years – with both expanding their core disciplines and capabilities, reveal several similar characteristics to aid OEMs to achieve total landed cost objectives”, says Larry Schiro, vice president of supply base management with McAfee (www.mcafee.com), a Silicon Valley-based provider of antivirus software and intrusion prevention system solutions.
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However, it is still imperative OEMs have the proper indemnification when working with an ODM since the final product will take on a substantial amount of original design by the ODM. Furthermore, IP laws differ from country to country and OEMs need to be aware of the laws in specific countries where its products will be sold to ensure the ODM has the proper IP protection in place for such countries. (See, also: “Liability and indemnity – contractual language” and “Foreign IP strategy for manufacturing executives“)
There are primarily four main segments included in either a single contractual agreement (or separate agreements) with an ODM:
- Design and development
- Manufacturing
- Final product
- Logistics and services
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ODM contractual terms in primary contract service agreements should be detailed but not product specific so that once agreement(s) are signed no further review will be required when product changes do occur over time. (Include product-specific details as attachments which can be reviewed separately.)
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