Original Equipment Manufacturer (OEM) – Definition

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Original Equipment Manufacturer (OEM) Definition

Traditionally, an original equipment manufacturer (OEM) is referred to as the company producing components to be used in the final products manufactured and sold by another company. Another company is called the value-added reseller (VAR), since by acquiring the goods or components or services from OEM, it adds value to its original item. The VAR and OEM works collaboratively, where OEM can also customize the goods/components designs as per the requirements of VAR company.

A Little More on What is Original Equipment Manufacturer – OEM

Take an example of a relationship between a maker of auto parts and an auto manufacturer. Many OEs products parts like brake cylinders and exhaust systems. The auto manufacturers buy these OEM parts and assemble these into their cars. They market the car to the auto dealers who eventually sell it to end consumers.

However, in computer industry, we have seen some newer definitions of OEM. In computer industry, OEM refers to any company buying products and incorporating or rebranding these into new finished products under its own trade name.

For instance, Microsoft provides its Windows software to Dell, which integrates it into its personal computers and sells these directly to the public. As per traditional definition, Microsoft is OEM and Dell is VAR. However, in the product guide, you will see Dell referred as the OEM.

Hence, OEM can refer to a business selling a component to the VAR. However, in certain cases, it implies the VAR purchasing a product from the OEM.

The rather new conflicting evolution in the definition OEM is generally attributed to the computer hardware industry.

Some VARs like IBM, HP and Dell began acquiring branded parts from the external sources to be be used into their products.So, with time, OEM started to refer to the businesses that openly use or rebrand other manufacturers’ products for reselling.

This all is helpful to decide which companies will be responsible for customer support, warranties and other services. For instance, in one case, Dell stopped utilizing chops from anonymous makers and went for intel for its computer processor. As Intel is a recognized name, it brings more value to Dell. Not just Dell promoted this using slogan “intel inside”, but its advertising materials also mention that Dell and Intel are equal partners in computer design and processor. This makes Dell an OEM, both for the companies providing the assembled parts and in the public’s mind.

How OEMs Work

Irrespective of the evolution in OEM definition, the fact that OEMs and VARs work together, remains the same. OEMs provide sub-assembly components for VARs. Though some OEMs manufacture all items for VAR, they generally don’t play a prominent role in finding the finished product. Consider a common example of the relationship between the OEM manufacturing electronic components and a business like Samsung or Sony that assembles these parts to make its HDTVs.

Traditionally, OEMs emphasized on business-to-business sales, and VARs marketed to their end users or public. However, more and more OEMs are selling their services and parts directly to end users. For instance, people manufacture their computers can purchase graphics cards or processors directly from Intel, Nvidia, and retailers stocking these products. In a similar way, if a person wishes to have his own car repairs, he may purchase OEM parts straight away from the manufacturer or the retailer stocking these parts.

OEM vs. Aftermarket

OEM means something made particularly for the original product, while aftermarket means the equipment manufactured by another company that a customer might use as a substitute.

For example, let’s say a person wishes to change his car thermostat that was made exclusively for his Ford Taurus by ABC Thermostats. He can purchase the OEM part, a duplicate that was fitted in the original model of the vehicle. Orlese, he may purchase an aftermarket component, alternative developed by another company. In simpler words, if the replacement comes from the ABC Company, it is also OEM; or else it is aftermarket.  Consumers usually go for aftermarket product due to low pricing and easy access. However, sometimes OEMs perform good in making a specific component that becomes popular among customers.

References for Original Equipment Manufacturer

Academic Research on Original Equipment Manufacturer

Guidelines for an original equipment manufacturer starting a remanufacturing operation, Lund, R. T., & Skeels, F. D. (1983). Massachusetts Inst. of Tech., Cambridge (USA). Center for Policy Alternatives.

Applying Value Stream Mapping to eliminate waste: a case study of an original equipment manufacturer for the automotive industry, Lacerda, A. P., Xambre, A. R., & Alvelos, H. M. (2016). International Journal of Production Research, 54(6), 1708-1720.

How to achieve leagility: A case study of a personal computer original equipment manufacturer in Taiwan, Huang, Y. Y., & Li, S. J. (2010). Journal of Manufacturing Systems, 29(2-3), 63-70.

Multidyadic industrial channels: Understanding component supplier profits and original equipment manufacturer behavior, Dahlquist, S. H., & Griffith, D. A. (2014). Journal of Marketing, 78(4), 59-79.

The introduction of QFD in a UK original equipment manufacturer, Parkin, N., Linsley, M. J., Chan, J. F. L., & Stewardson, D. J. (2002). Managerial Auditing Journal, 17(1/2), 43-54.

After sales strategies for the original equipment manufacturer of electric mobiles, Dombrowski, U., & Engel, C. (2013). In Re-engineering Manufacturing for Sustainability (pp. 347-352). Springer, Singapore.

… Power Plant Technology on Two Continents From the Perspective of Engineering, Procurement, and Construction Contractor and Original Equipment Manufacturer, Stein-Brzozowska, G., Bergins, C., Kukoski, A., Wu, S., Agraniotis, M., & Kakaras, E. (2016). Journal of Energy Resources Technology, 138(4), 044501.

Environmental quality in the supply chain of an original equipment manufacturer: what does it mean?, Nagel, M. (2006). In Greening the supply chain (pp. 325-340). Springer, London.

A customised lean model for a Chinese Aerospace OEM (Original equipment manufacturer), Li, C. (2011).

A new look at OEM (original equipment manufacturer) service agreements., Gregory, S., & David, G. (1995). Radiology management, 17(3), 54-58.

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