Original Equipment Manufacturer (OEM): The Daily Definition

 In The Daily Definition

What is an OEM?

OEM

An original equipment manufacturer (OEM) is a company that produces components for use in production of a finished item, assembled by another company. The company that builds the final product then sells the finished item to end-users. OEMs usually focus on selling business-to-business.

An example:

OEM parts are everywhere, but one of the most common encounters with them is in automotive world.

Most vehicle manufacturers don’t produce many parts themselves. Instead, they rely on OEMs to create the components needed to assemble the vehicle into its salable form.

Let’s say that you’re a manufacturer and distributor of ball bearings for vehicle wheels. In this case, you’re the OEM for the bearings, and you sell them to Ford Motor Co. for use in the production of several of their vehicles. Ford also purchases OEM goods from a manufacturer of headlights, taillights, and mirrors.

In this example, both manufacturers are considered OEMs, while Ford would be considered a value-added reseller, or VAR.

Our two cents:

When OEMs and VARs work closely together, both sides recognize significant benefits. The manufacturer is able to drive down the cost of production by leveraging an economy of scale. The VAR sees cost savings by not needing to own and operate a factory. In best-case scenarios, OEMs can reach an agreement with a VAR as an exclusive supplier.

Another pro of working with an OEM is that partners can expect to get a manufacturer’s warranty. Should any problems or defects arise, the warranty protects the investment of the partnering company.

An OEM carries the expertise needed to build the product and can mass-produce it on a regular basis. OEM parts are tested for quality and to ensure they match the partnering company’s exact specifications. If you work with an OEM, you’re getting a production partner with years of experience in building specialty products and components.

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