Challenges

In the OMM model, the supplier takes responsibility for the development, production and life-cycle management of the product. The supplier also bears all the risks involved. A risk for the OEM is the high dependency on the supplier. This can translate into discontinuation of a product without the OEM having an alternative. The supplier can also translate the dependency into high profit margins, putting pressure on the Total Cost of Ownership. As a solution, long-term price agreements can be established by contract, for example.

In this model, the supplier will have all intellectual property. If this risk is considered too great by the OEM, an agreement can be made about the transfer of that intellectual property in the event of the supplier’s bankruptcy. Also, the OEM may decide to purchase the module from multiple suppliers, again creating a bargaining position for the OEM.

The partner selection tool and the Total Cost of Ownership tool can be applied when selecting and further developing an OMM partnership.

When using this model it is good to always have a ‘back up’ plan at hand. A back up plan contains good agreements with the OMM supplier and keeping an alternative supplier on hand. These two tools are explained in module 9 “Getting started”.