Are you having a hard time deciding between custom software development and off-the-shelf software for one of the critical functions in your organization?
Choosing between the two options is, in fact, a very difficult decision to make for any manager or a leader.
Both custom software development and off-the-shelf software require a considerable investment in terms of time and cost, and also affects your company for many years to come.
You would not like to go wrong on this important decision.
You need to understand the advantages of custom software over readily built solutions and vice-versa, and evaluate all pros and cons to make a wise decision.
Custom software can be a viable solution if you chose the right kind of people who provide you with highly customized flexible solutions that are easy to use and maintain.
On the other hand, a ready built solution saves a lot of your time and initial investment.
There are various factors that can help you decide on the right option for your organization.
This includes complexities of your work, the size of your organization, your future plans for growth and of course the most important, financial viability of the solution.
Before you make a final decision, it is important to understand the advantages and disadvantages of each option in detail and cases where custom software may be better suited over off-the-shelf software and vice-versa.
Let’s first have a look at what are the advantages of custom software.
Advantages of Custom SoftwareReadily available solutions are built on the basis of generic requirements in the category for which it is built which may not fit the way your operations work.
Sometimes, businesses need unique solutions to solve problems specific to their organizations.
Custom Software Development is a popular option for all such companies.
Let’s look into some of the key benefits of Custom Software.
Tailor-made SolutionWhen you purchase off the shelf solutions, they may or may not be built around your business goals.
Developing a software solution specifically for your company ensures that it is tailored to suit your needs.
In fact, during the process of building custom software, you may find several opportunities to optimize your processes, which leads to higher productivity for your organization.
There are several outsourcing partners who would be willing to analyse the complete set of processes followed within the organization to give you highly optimized solutions for automation.
This will increase your productivity, which in turn makes it financially more rewarding in the long run.
Check out our portfolio page to find out what custom tailored solutions we have created for our customers.
Return on InvestmentCustom software development may look like an expensive option at the beginning as a lot of investment is involved in software development but in the long run, they may get you higher returns.
On the other hand, readily built software packages also involve some cost.
At times you may need to purchase extra hardware, high-end servers (sometimes even with version updates) to run them effectively. The additional cost that you need to bear every year is annual license fees.
Custom software is high on investment at the beginning but the costs become almost negligible in the long run.
A detailed ROI needs to be done to find out paying huge sums for custom software development which will pay for itself in few years vis-à-vis license fees during the same period and other costs involved in buying off-the-shelf software.
Security ConcernsOne of the benefits of custom written software is that security, as required by your organization, can be inbuilt in the software.
Hackers love the popular commercial off-the-shelf software (COTS) and are more likely to find ways through vulnerable portions of such tools to enter your systems.
With custom software, chances on intrusion are considerably reduced as you use your own tool which is predominately used by your own team.
FlexibilityScalability can be built into custom software easily.
This will ensure that the software addresses any changing needs of your organization. On the other hand, features of an off-the-shelf application remain constant more or less and cannot be manipulated easily.
With off-the-shelf software, you will have to wait for some other company to enhance their features to make your life easier.
This is not the case with custom software, you have a team in hand who can take up all your requests at any time and enhance the features for you.
In case you are outsourcing development to another company, it is always better to ensure maintenance is built into your contracts and they are flexible enough to incorporate any changes that you may need at any point of time.
An agile and flexible team is what you need.
CompatibilityThere may be several other tools that your organization may be using.
You may want that all the tools talk to each other and may need to build interfaces which makes it easy to transfer data from one application to other.
These functionalities are very difficult to obtain in an off-the-shelf tool.
This compatibility can, however, be built in a custom software. Off-the-shelf software may have some options to integrate with other software but this may not be too seamless as you may want it to be.
Easy to OperateAnother advantage of custom software is that they are easy to operate as they are not bulky and have just enough features required for your operations.
Off-the-shelf software may have a lot of functionalities based on a generic set of requirements.
You may not be needing many of these functionalities and may be using just some features. The tools become bulky and difficult to operate due to this.
The ease of use increases productivity and reduces costs by automating repetitive tasks. This will increase your profits and lower the cost involved further.
Long-term RisksMany times, off- the- shelf companies release newer versions of their software and they stop all support for older versions.
Companies also go bankrupt and stop providing any support altogether.
You don’t run such risks if you go for custom software.
You can run your business without worrying about an off-the-shelf software that is being used to run your entire business or a critical function may be discontinued and no further updates or improvements can be received.
A custom software is always available and can be updated as many times as you may want.
Improved Software SupportYou get better support from teams working on custom software than off-the-shelf software.
Most of the time, continuous support is built into your contracts with outsourcing partners which means there will be a dedicated team that they will provide you to maintain the software.
This provides better problem solving and defect fixing than the support provided by off-the-shelf software.
The response and resolution time are faster with custom software development and this can be ensured by building Service level agreements (SLAs) in your contracts.
The control of support that you will receive is in your hands and not the other way around.
Competitive AdvantageA custom software is made exclusively to suit the needs of your business.
You can get all kinds of unique features built into the system which your competition may not have.
You have a unique solution in hand which can become your USP (unique selling proposition) and gives a competitive advantage to you over your competitors. An off-the-shelf software is rigid and you need to align your processes against it.
With custom software, you have what you need and you can focus on your target audience better.
This can ensure higher customer satisfaction and more business for you in the long run.
Disadvantages of Using Custom SoftwareNow that numerous advantages of customized software are listed, let’s look at the flip-side of using custom software.
High InvestmentAs we discussed above, a huge investment is required to develop a custom-built software.
While it may pay in the long run, the initial investment may be a little overwhelming for some organizations.
A good ROI should be done before deciding on the custom software.
Time InvolvedApart from investment in terms of money, a huge time investment is required to complete the software development process.
While off-the-shelf solutions will give benefits quickly, it may take months or years to actually get the custom software delivered.
The organization need to invest a lot of their time in providing requirements to the outsourcing company or to your in-house software development team.
An off-the-shelf software has been tested for all defects, has gone through elaborate usability tests and is ready to use when it reaches your desk.
This may not be the case with custom software.
The custom software requires investment in terms of time to test the software from a user’s perspective and the process may go through several iterations before you get the desired results.
This whole time spent in various software development phases may be draining for you or the teams working with the outsourcing partner.
Deciding Between Custom Software and Off-the-shelf SoftwareNow that advantages and disadvantages are listed, let’s go back to our initial question on choosing between the two options.
Here’s is a small checklist for you which will help you decide.
Choose custom software when:
Choose commercial off-the-shelf software when:
Custom software often cost much more than off-the-shelf software.
This makes custom software a very expensive option for a smaller business. These higher costs may be easily borne by larger or medium-sized businesses.
They may also benefit hugely from small efficiency increases in the process which may lead to large cost savings as labour requirement is reduced.
A small company which is planning to expand its footprints may also benefit from custom development as needs for highly efficient processes and a quick turnaround would lead to higher cost savings.
They can also benefit from scalability and flexibility offered by the custom software.
To cut the long story short, the best option depends on the circumstances your organization is in.
Advantages of custom software are numerous and they also provide you better control on how you want to run your business and changes that you may need later on, but the decision has to be taken after carefully evaluating the benefits that you will derive both in short-term and long-term.
Making wrong decisions may be very costly, choose the most effective solution through which you will be able to serve your customers better without compromising on the profits that you are getting.
We would like to hear your thoughts on this.
What is an advantage of custom software that really got you thinking more about custom software vs. off the shelf software?
Comment below or contact us if you have any other questions.
ODM manufacturing allows you to make use of a supplier that can already produce the good you are interested in. Despite that only small changes to these existing products can be made, using existing product lines is cheaper and faster to set up than starting from scratch. Professional ODM manufacturers let you take part in their expertise and returns to scale.
The abbreviation ODM stands for “original design manufacturer.” It refers to companies that design products as well as manufacture them, which are then sold on to other companies who will rebrand the products as their own.
These are often produced as so-called “white label” goods and are made in bulk amounts, allowing smaller companies to benefit both from the economies of scale and the expertise of the ODM manufacturing firm. It can be one kind of possible solution in the procurement or sourcing process, respectively.
ODM Manufacturing is commonly categorized into white label and private label. For suppliers offering white label services, they distribute their generic finished products to different retailers, who thereafter sell them under their own brand name.
In contrast, private labeling services providers sell finished products that are produced and sold exclusively to a particular retailer. The difference between white label and private label is usually product specific and manufacturers offer both. Despite of this difference, the two terms are often and wrongly used as synonyms.
Both white label and private label allow you to benefit from much lower costs in bringing a product to market, letting you focus on other core parts of your business. ODM is similar to the term “OEM” or original equipment manufacturer but is not to be confused.
With relying on an OEM, the manufacturer is often producing just a component based on your own company’s design and specification. Whereas with ODM manufacturing, you are usually buying a pre-designed and pre-produced product that you will go on to brand and sell as your own. OEM products are therefore typically less complete solutions than ODM products.
Market Share of Private Label Brands Worldwide in 2013
(Source: Statista)
The biggest advantage of going down the route of ODM manufacturing–for both white label and private label–is that you do not have to spend time and money designing the product. This allows you to spend more effort on your core operations as well as benefiting from the skills and experience of the original design manufacturer.
While you may have a strong knowledge of how to grow your business, the manufacturing side itself may be unfamiliar territory. By forming a partnership with an ODM manufacturing firm, you can benefit from the skills and experience of an established developer and manufacturer.
You also will generally benefit from a lower price. This lower price is compared to both producing it yourself as well as alternatively seeking out an OEM. Since you do not have to spend time and resources designing the product you minimize costs, but you can also take advantage of the economies of scale from the ODM manufacturing firm.
It is highly likely that they are producing significant quantities to sell in smaller lots, so you can save money from the bulk production even if you are purchasing a low amount. Often you might even share the same supplier with very reputable other brands, which make use of the same supplier for a given product category.
Furthermore, you will save a lot of time by much quicker setup period. Both designing your own product as wells as arranging a custom production line can take a lot of time. By getting a basically ready product, you are not only able to spend more time on the branding and marketing of your product, but also able to move much quicker with respect of marketing and market testing.
The technical aspects are taken care of by the ODM manufacturing firm, so that focusing and spending more effort on brand development, testing customer responses to different products and ensuring your product launches successfully become more rewarding.
However, despite the many advantages, there are also several disadvantages. You will not be receiving a unique product, which means there may be competing products on the market that are quite exactly the same.
You will have to differentiate your product from competitors through the brand with product packaging and similar; otherwise, it will be a race to the bottom in terms of margins. Third party consulting companies can help you finding more unique ODM companies.
Additionally, white label and private label is only useful for certain types of products. If you want to sell unique goods which require a specialized design, or don’t want an off the shelf product, then you will not be able to benefit from ODM firms.
An OEM firm may be more suitable in a situation like this, as they can turn your ideas into tangible goods. The ideal ODM or white label product is one which is quite homogeneous but marketing, price and design can make a big difference (think of the various brands of very basic food items as an example).
While ODM firms may be willing to alter a product to meet your specification (colors, sizes and similar), it may not be to the level you want or they may require higher minimum orders. The real flexibility should be tested by ordering samples.
Focus on building your brand by outsourcing the struggle
of realizing a product design to others.
Many different industries are able to take advantage of the ODM products. It is heavily seen within the cosmetics and food industry. Most supermarkets often have their own range of basic items, but in almost all cases they are sharing the same supplier with well-known brands and are simply rebranding it in their own name.
Elsewhere it can be seen in the electronic cigarette industry most recently for instance. Many small to medium sized companies operating in this niche seek out an ODM manufacturing firm to provide electronic cigarettes as well as e-liquid and simply brand the goods to match their own company. They do not need to invest in heavy machinery or research and development as it is all be taken care of by the ODM manufacturing firm, they simply get to benefit from the products. Good marketing is the key here.
Other general industries include other consumer electronics (all the power banks, phone cases etc.), clothing and medicine, with many products coming from a central source before being branded to a certain company. There are plenty of generic medicine products imitating aspirin, but not each brand is producing their own version of aspirin. It all generally comes from a select few manufacturers.
The perception on white label products is generally very positive in Western countries. Although the most important driver of their purchase for private label is lower price, they also believe that private label offers a good combination of quality and value. There are some differences with respect to countries that you should consider for your marketing efforts.
Percent of Respondents Who Somewhat or Strongly Agree
(Source: Nelson Global Survey of Private Label, 2014)
Most ODM goods come form China for a variety of product categories. The ODM manufacturing industry is rapidly growing, the exact number of suppliers is difficult to estimate, though. While China’s manufacturing industry is acclaimed worldwide for its OEM solutions for several decades, the ODM sector is catching up more and more.
Offering white label and private label products requires Chinese suppliers to create their own products, which makes developing their own product design skills necessary. According to market research firm IHS Technology, the ODM sector was among the main drivers of the overall electronics manufacturing industry in China, which enjoyed a 2% year-on-year volume growth in 2016.
As the world’s largest manufacturing powerhouse, China’s manufacturing prowess is expanding further. This time with a focused approach to innovative design and brand identity. For the past 10 years, traditional Chinese OEM manufacturers are transitioning to ODM, who through automated technology and operational sophistication are better equipped to undertake design conceptualization besides of the typical product assembly and production seen in OEM.
The value added is usually seen as higher for ODM, because design and research and development (R&D) are taken over by the suppliers themselves. This is related to China’s general economic advancement.
With enhanced operational capabilities, China’s ODM manufacturers are able to create industrial outputs from scratch based on their own design and sell them to companies which would brand them off as their own prior to the retail sale. The majority of ODM contracts in China pertain to white labeling as there are usually more smaller orders, since it is more cost-effective, and they can sell to more customers since it’s not exclusive.
This means you can make use of ready-made generic designed products at reduced costs, which are nevertheless available for further customization based on your specifications and branded with your own company logo. Some of the common product categories for ODM white label solutions in China are electronics, jewelry and accessories, and furniture and home products. Apparel and textiles are particularly easy to adapt and hence there are many white label clothing manufacturers.
According to market research firm IHS Technology, China is experiencing marked improvement in its ODM production capabilities, with the proliferation of tier-two original design manufacturing (ODM) firms. Tier-two ODM firms (smaller firms) offer production capacities suitable for low volume orders, which their larger counterparts can no longer accommodate, with their hands full on large-scale project requirements.
Thus, the ODM industry in China is currently a saturated market dominated by both large-scale ODM manufacturers and smaller ODM firms–such as BYD, Hui Ye, Huanquin, Hongyu, Yulong, Pegatron, and Inventec, to name a few big ones. This competitive market gives you plenty of white label production company to choose from, scalable depending on your volume requirements.
In theory very simple: Print your logo on existing products –
the basic principle of ODM production.
The scope of work for ODM, both white label and private label, normally includes:
Cost estimation entails comparing prices offered by various suppliers for the final product. It helps you save costs for white label products including non-price aspects such as expected shipping fees, production turnaround time, supplier quality, product packaging and potential customization.
Best possible prices for different price/quality levels based on prevailing market rates are likewise assessed for reference so that you can foresee the projected expenditures and adjust your costing and marketing strategy accordingly.
In manufacturing, delivering fast is a clear advantage over the competition. Thus, lead time assessment is critical to ensure that ODM products, regardless of volume requirements, are delivered strictly within schedule. However, it can often not be relied on the estimates from suppliers.
Through lead time management, the time required to complete the entire supply chain process, from order placement to receipt of your shipment, can be significantly reduced so that your product can be made available to targeted consumer markets within the shortest time possible.
An ODM manufacturer’s quality of workmanship is best adjudged by scrutinizing actual product samples. Sample procurement thus allows you to verify the actual ability of a manufacturer to produce your desired product. This ensures that you work only with the best quality suppliers and avoid the risk of being defrauded by unscrupulous suppliers who make bold claims which may later be found ill-equipped to do so, as they often under-deliver or overpromise.
Supplier assessment gives you the opportunity to assess which among potential suppliers possess the requisite technical skills and experience in manufacturing your product, deliver orders in the desired quantity and meet timeframes, without quality loss. Thus, getting an overview about all relevant suppliers is important.
A supplier evaluation procedure–including an on-site assessment and inspection of their licenses, local registration, testing agency certifications and product specific certifications and labor force–is imperative as it adds extra security because you learn about the detailed information on how their product is made.
Due diligence entails the conduct of an extensive background check on suppliers to ensure that they are strictly compliant with required certifications, industry standards, and regulations. It also includes a thorough review of the supplier’s track record, its past transactions with its previous clients and financial records to eliminate future surprises and give you the best indication possible if a partnership with a particular supplier is worth pursuing.
White label services offered by a third party manufacturing company ensure that your back-end requirements are met (design, quality, and production set up) so you can focus on the front-end (branding, marketing, sales, customer service, etc.) and grow your business. The scope of white label packages may vary and may either pertain solely to design, production or be inclusive of both.
Either way, you can talk to the white label production company, and then it takes over discovering white label production companies and the coordination with packaging companies to create a packaging that best suits your business needs.
Ideally they also take over extensive pre-shipment quality control and logistics/customs clearance needs, so that nothing can go wrong making use of the several advantages of ODM production.