What Is an Original Equipment Manufacturer (OEM)?
An Original Equipment Manufacturer (OEM) is a company that produces components used in the final products of another company, known as a Value-Added Reseller (VAR). The VAR collaborates closely with the OEM, often leading to customized designs tailored to the VAR’s specific requirements.
### Key Points:
– OEMs supply components for VAR’s finished products.
– OEMs primarily engage in business-to-business sales, while VARs target the general public.
– OEM parts often vie with generic or aftermarket alternatives.
– An OEM differs from an Original Design Manufacturer (ODM), which customizes products for resale.
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Understanding OEM
OEMs manufacture components for VARs, though they do not typically dictate the final product. For instance, an OEM may produce electronic parts for a company like Samsung, a VAR specializing in high-definition TVs. Alternatively, an OEM might provide customized fasteners to Ralph Lauren, featuring the branded monogram RL.
Traditionally, OEMs concentrate on business-to-business transactions, while VARs cater to end users. Items such as car components, including exhaust systems and brake cylinders, are crafted by OEMs. These parts are then sold to an auto manufacturer for incorporation into vehicles that are eventually retailed to consumers. Nevertheless, OEMs can also directly sell to individuals, who might purchase OEM parts for car repairs from the manufacturer or authorized retailers.
OEM vs. Aftermarket
The aftermarket sector involves replacement parts, accessories, and equipment for maintaining an original product, such as an automobile, post-purchase. While OEMs fabricate the original components, aftermarket products are crafted by other manufacturers and purchased by consumers as replacements.
Aftermarket replacements are often reverse-engineered to closely match OEM specifications.
In the example of a Ford car owner needing a replacement thermostat, they might choose an OEM part from ABC Thermostats or opt for an aftermarket alternative produced by a different company.
While consumers generally favor OEM parts for consistency, certain aftermarket products have proven to outperform OEM replacements. For instance, Hurst Performance gained acclaim for manufacturing superior gear shifters, preferred by car buyers over the original parts. Eventually, Hurst shifters became so esteemed that manufacturers decided to include them in their factory designs, effectively elevating Hurst to the status of an OEM.
Original Equipment Manufacturer (OEM) vs. Original Design Manufacturer (ODM)
An OEM differs from an Original Design Manufacturer (ODM), which pertains to the private branding of manufactured parts. ODMs create products to meet specific client requirements, with the client branding and marketing the products under their own label.
The ODM model provides less flexibility compared to OEMs since clients dictate the design customizations. However, the inherent cost savings on research and development in ODM results in lower prices for end consumers. Moreover, ODM products usually have lower minimum order quantities, making them appealing to smaller clients.
Technology and OEM
The term OEM can function as an adjective, as seen in “OEM parts,” or as a verb when a manufacturer plans to “OEM” a new product. This evolution stems from developments in the computer hardware industry.
Tech giants like Dell and Hewlett Packard started incorporating branded parts from external sources into their products. In the technology realm, OEM came to represent companies that rebranded or openly utilized third-party products for resale. This shift delineated manufacturing responsibilities and defined which company assumed warranties, customer support, and related services.
Dell’s integration of Intel processors in its computers, accompanied by the “Intel Inside!” campaign, connoted an equal partnership between Intel and Dell in processor and computer design, positioning Dell as the OEM in the eyes of stakeholders and the public.
What Does Original Equipment Manufacturer (OEM) Mean in Cars?
In the auto industry, OEM parts are those authorized by the car manufacturer, while aftermarket parts are crafted by third-party manufacturers but compatible with the same vehicles.
What Does Original Equipment Manufacturer (OEM) Mean in Software?
In the computer and electronics retail sector, OEM denotes the software or hardware pre-installed on a new device or computer.
Is It Worth Paying for OEM Parts?
OEM parts are typically pricier than alternatives from third-party manufacturers but adhere to precise specifications. While some third-party products match the reliability of OEM parts, others may offer substantial cost savings. When considering replacements, consumers should research different brands to identify the best combination of price and quality.
The Bottom Line
An OEM supplies components for a VAR’s final products; OEMs focus on business-to-business sales, whereas VARs target end users. OEM parts often directly compete with aftermarket replacements following consumer purchase.