As if this industry doesn't have enough acronyms already. I've returned from top-ten EMS provider Elcoteq's Media Day in Monterrey, Mexico, and have acquired another acronym that needs explaining to our readerships: CDM. That's contract design manufacturer, in case you're wondering.
Bill Coker, director of sales and marketing for Elcoteq Americas, defined CDM in his presentation on where design fits into electronics manufacturing services (EMS) these days. He started with a definition of that much-ballyhooed term, original design manufacturer (ODM). As outlined by Coker, the ODM model typically encompasses the following assumptions:
* The model is based on the commodization of hardware and high-volume consumption.
* ODMs retain all product intellectual property (IP).
* The model is driven by predeveloped products ready for original equipment manufacturer (OEM) branding.
* The ODM advantage is time to market (typically three to four months).
On the other hand, the CDM--of which Coker's employer Elcoteq considers itself to be--won't have product immediately available for its OEM customers. Instead, the CDM leverages certain hardware products and readily available software to produce a customized product typically in six to eight months.
In Elcoteq's case, the company is positioning its mobile phone product arsenal as a platform design. All the OEM customer has to do is decide what features and functions it wants to add; Elcoteq can get the customized phone quickly to production but not quite as fast as the ODM.
As outlined by Coker, other characteristics of CDMs include:
* Like the ODM, the model is based on customization of hardware and high-volume consumption.
* The model is driven by either the customization of standard, predeveloped building blocks or collaborative development between the CDM and ODM.
* IP is typically shared.
The bottom line is that the ODM model seems to make sense at the low end, but the CDM model is ideal when an OEM customer needs a highly customized product. The key difference between the two is that ODMs own the product design and bear all the risk of product development--and possibly compete with their customers.
With global mobile phone sales predicted to top 500 million in 2005, according to Coker, and emerging markets like China, Africa and Russia (Coker was incredulous at how many folks in Russia were carrying cell phones on the streets when he visited a short while back), today's telecommunications OEM will be forced to make a decision on how to ramp up to serve this potential upswing. And, unfortunately, the concerns of today will still be with them when the market comes back--intense cost competition and shrinking product lifecycles. The choices available to the OEM are to add manufacturing capabilities in-house--a move most probably won't make--or to hire an ODM or CDM partner.
I have to admit that Coker's suggestion of using a CDM for mobile phone products makes sense--the OEM either retains or shares the IP with a partner that is non-competitive and has a global manufacturing footprint (something most ODMs currently don't have). And, according to Coker, OEMs have related to him that their typical costs to produce a phone internally are $3 to $4 million, whereas a CDM could help its OEM enter a market with 20% of that cost.
So, who will win the ODM vs. CDM battle? Here's Coker's prediction: Commodity, low-mix, high-volume applications will remain the domain of the ODM, while customized, high-mix, low-volume products will be produced by the EMS and/or CDM provider. Regardless of who emerges the winner in what market, though, both parties are still at the mercy of product demand. Let's hope it comes back sooner than later.
