What is Original Equipment Manufacturer (OEM)?
The term Original Equipment Manufacturer (OEM) refers to a company that produces parts and equipment that may be marketed by another manufacturer. Essentially, an OEM provides the components or sub-assemblies for the original equipment manufacturer’s end product. The term is often confused with value-added reseller (VAR), as VARs assemble parts from several manufacturers to build a finished product.
Understanding the Role of an OEM
An OEM traditionally is defined as a company whose goods are used as components in the products of another company, which then sells the finished item to users. The second firm is referred to as a value-added reseller (VAR) because it adds value to the original item. The VAR may be a construction company that turns component parts into a finished building. Or, it may be a computer retailer that combines components into a working personal computer.
Relationship between OEMs and VARs
The relationship between OEMs and VARs is symbiotic. OEMs rely on their ability to drive down the production costs and utilize economies of scale to produce large quantities of a single part. This allows them to sell these parts for less than if each part was custom-made for each finished product. VARs, on the other hand, are able to achieve greater levels of customization in their finished products by using components from various OEMs.
Examples of OEMs
Many companies, regardless of their product or service, have OEM relationships. For instance, if you’re a car owner, the parts in your car may have been created by an OEM. The car you drive might be a Honda, but many of the parts that make up the car were probably purchased from other manufacturers, like Bosch for the electronics or Johnson Controls for the seats.
Benefits of OEMs
There are several benefits to both the OEM and the seller when it comes to OEM manufacturing. For the OEM, they can focus on what they do best: manufacturing. They don’t have to worry about marketing or selling products to the end consumer, which can be a complex and costly process. For the seller, they can purchase products in bulk at a lower cost and then add their own markup.
In the end, the term Original Equipment Manufacturer (OEM) is a broad term that can be applicable to many scenarios, but it always refers to the company that originally manufactures a product or component, which is then used in the assembly of a final product sold by another company. This business model allows for a high degree of specialization and efficiency in the manufacturing process.