What is an Original Equipment Manufacturer (OEM)?
An Original Equipment Manufacturer (OEM) is a company whose goods are used as components in the products of another company, known as a value-added reseller (VAR). The VAR collaborates closely with the OEM, often resulting in customized designs that meet the VAR’s specific needs and specifications.
Key Takeaways
- OEMs provide crucial components for the finished products of VARs.
- While OEMs focus primarily on business-to-business sales, VARs target the public or end users.
- OEM parts are often pitted against generic, aftermarket, replacement parts.
- An OEM differs from an Original Design Manufacturer (ODM), which customizes its products solely for resale.
Understanding OEM
OEMs produce parts to be sold to VARs. Although some OEMs make complete items for a VAR to market, they usually don’t influence the final product. For example, an OEM may manufacture electronic components for a company like Samsung, the VAR that creates high-definition TVs, or sell customized fasteners to Ralph Lauren featuring the RL monogram.
Traditionally, OEMs concentrate on business-to-business (B2B) sales while VARs target end users or the public. For instance, car parts, such as exhaust systems or brake cylinders, are manufactured by OEMs and then sold to automakers. The auto manufacturers assemble these parts into a vehicle, which is then marketed to dealerships. However, OEMs can also cater to general public needs, as individuals can procure OEM parts for specific car repairs directly or through retailers.
OEM vs. Aftermarket
The aftermarket is the industry for replacement parts, accessories, and equipment for products like automobiles, intended for consumer use post-purchase. While OEMs may manufacture the original parts, aftermarket alternatives are made by third-party companies. These replacements are often reverse-engineered to emulate the original OEM parts closely.
For instance, suppose a Ford car owner needs to replace a thermostat, an OEM part produced by ABC Thermostats. The customer can choose either the original ABC thermostat or opt for a generic aftermarket brand. While many prefer OEM parts for consistency, some aftermarket products can surpass the original in performance. A famous example is Hurst Performance gear shifters, whose superior quality turned Hurst into a trusted OEM over time.
OEM vs. Original Design Manufacturer (ODM)
An OEM differs from an Original Design Manufacturer (ODM), which offers private labeling for produced parts. ODMs create products tailored to the client’s specs, who then labels and sells the product under their brand.
While ODMs excel in reducing costs for research and development, leading to lower end-consumer prices, they have less design flexibility than OEMs. That often makes ODMs attractive to smaller clients due to the low minimum order quantity.
The Influence of Technology and OEM
The term OEM also applies outside manufacturing. In the tech sector, for example, prominent companies like Dell and Hewlett-Packard use branded parts from various sources. They often label their computers with phrases like “Intel Inside,” thus advertising their collaboration. Educational these dynamics have fine-tuned how OEM is perceived over time, especially concerning warranty and support obligations.
OEMs in Different Industries
Automotive Sector
In the auto industry, OEM parts are those utilized by car manufacturers. Aftermarket parts come from third-party producers but can have similar applications.
Software and Electronics
In computing and electronics, OEM refers to the software or hardware pre-installed on new devices, like computers or smartphones.
Should You Pay for OEM Parts?
OEM parts can be pricey compared to third-party equivalents but are designed to strict specifications. While some third-party parts offer comparable reliability at a lower cost, consumers must diligently research which part—OEM or generic—provides the best combination of price and quality for their needs.
The Bottom Line
OEMs supply components essential for the products that value-added resellers (VARs) deliver to consumers. While OEMs dominate in business-to-business sales, VARs focus on reaching the end user, thus creating a cycle where high-quality parts and components remain inherently crucial.
Related Terms: Value-Added Reseller (VAR), Aftermarket Parts, Original Design Manufacturer (ODM), Private Labeling, Business-to-Business (B2B), Generic Brands.
References
- HotCars. “A Detailed Look Back at Hurst”.
- Autobytel, via Internet Archive Wayback Machine. “Hurst Shifters and Original Equipment Manufacturers”.
- Alibaba. “OEM vs. ODM Manufacturing: What’s the Difference?”
