Business Models in the EMS Industry: Where Ryder Stands
By Thomas Studd, Vice Chairman
At first glance, the EMS (Electronics Manufacturing Services) industry is quite straightforward. The EMS company manufactures goods for the B2C or B2B facing brand, generally called the OEM (Original Equipment Manufacturer) in the manufacturing world. However, look closer and there is a lot of nuance and different business models, all with confusing acronyms – CM, ODM, CDM, JDM and EMS. Understanding these distinctions is critical for any technology company seeking a manufacturing partnership. What do they all mean and where does Ryder fit into this?
Types of EMS Business Model
CM: Contract Manufacturing. The simplest and original OEM-supplier relationship. The OEM supplies the industrial design and the BOM (Bill of Materials) which the CM prices, often as part of an RFQ process. Engineering support is limited to production-related elements.
JDM: Joint Design and Manufacturing. This is where the EMS company is also involved in the design and engineering of the product, in conjunction with the OEM. Perhaps the OEM is strong in firmware, software and circuit board design but needs help in designing the mechanical part of the product. Perhaps the OEM just comes up with the concept and a key algorithm and outsources everything else to the EMS partner. Regardless, the EMS company is far more involved in the creation of the product and is acting more as a strategic partner and value-add problem-solver for the OEM.
CDM: Contract Design and Manufacturing. The OEM presents the EMS company with the Industrial Design (how it looks), the functional specification (how the user uses it) and a cost target. Based on this, the EMS designs the whole thing (“full turnkey”) with limited OEM interaction and then manufactures the product.
EMS: Electronic and Engineering Manufacturing Services. A catch-all term for EMS players that are providing greater R&D (e.g. JDM, CDM), NPI (New Product Introduction) and DFX (Design For Cost/Testing/Manufacturing etc) services to customers. Generally a term not used in Asia but much more in the West.
ODM: Original Design Manufacturing. This is a fundamentally different business model, sometimes referred to as “white labelling”. The ODM will design and tool multiple products in its target market, filling a range of different feature and price points. Typically, the OEM customer will specify colour, packaging and branding (perhaps also the user manual and certainly the guarantee), but no further customisation.
Take for example a telematics tracker – there will be a number of EMS companies that are experts in this space and have a product that a telematics business can buy, re-brand or perhaps make small technical changes to (e.g. battery specifications). The same is true in audio for consumer-grade headphones or keyboards where small changes in design and the addition of a logo are all that is needed to turn the ODM product into something that fits in the OEM’s brand family.
The ODM business model is very powerful. It is attractive to many OEMs as it means that they don’t need to invest in research and development for a particular product. Instead the OEM buys the ODM product almost off-the-shelf, allowing them to quickly expand their product range. The EMS/ODM company can gain scale quickly by selling very similar products to several end OEM customers.
Of course, it has downsides for the OEM. They are buying something undifferentiated that under the hood may be exactly the same as a competitor’s product. To continue with the audio industry example, that may not be a problem for a retailer that wants a white label product to make more margin, nor for a B2C brand that wants a low-end line extension to increase sales. But the OEM will jealously guard its high-end IP from the ODM partner, fearing that the ODM will be competing with him in a couple of years. When I meet with customers this conundrum of whether the ODM partner is working for us or themselves is something I’ve heard time and again.
Ryder’s Positioning in this Market: Our Desire to build Win-Win Relationships
Thanks to our history as a branded products company (Saitek, sold in 2007), out of which Ryder developed, Ryder possesses an intrinsic understanding of the OEM perspective. We recognise that intellectual property is the lifeblood of a technology brand. We have therefore taken the decision at Ryder to be fully aligned with our customers and pursue a strategy focused on CM and JDM/CDM models, with a firm no-ODM policy. This commitment resolves the core conflict inherent in the ODM relationship. Our customers engage with us with absolute confidence that their IP is protected, and that we will never be a competitor. Indeed, the Mission in our VMV statement is very simple: “To help our customers’ success and deliver great products, and to be a good corporate citizen.”
Every strategic step and investment is taken to support our customers. In 2018 we took the decision to invest in our engineering capabilities and today we have 50 R&D and 90 NPI engineers. We have also constantly in-sourced parts of the production process so that we act as an electromechanical “one-stop shop” focusing on high-mix / low- to mid-volume with SMT, through-hole, plastic injection, plastic moulding, sewing and wooden box build all in-house. We are looking to partner with great OEMs to help them with design, engineering, supply chain and manufacturing, building a clear win-win relationship where each party can focus on its strengths.
