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Original Equipment Manufacturer (OEM): Know in Detail

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

May 30, 2024

10 min read

Do you know what happens when innovation and creativity meet necessity? Picture a world where every appliance or machine you use is a symphony of components, each crafted by different maestros. This is the world of Original Equipment Manufacturers (OEMs). These OEMs are the unsung heroes of the automotive industries and technology. OEMs are the curators of important parts that make your products complete.

Irrespective of a well-functioning spark plug in your vehicle or intricate processor in your laptop, the OEMS are the quiet background partners in progress that seamlessly integrate their knowledge and expertise into the products you use every day. 

This article details all there is to know about the original equipment manufacturer, its features, and its importance. It also speaks of the benefits of the OEMs, their technological integrations, and more.

Original Equipment Manufacturer (OEM)

A Closer Look at Original Equipment Manufacturer

The term Original Equipment Manufacturer (OEM) majorly comes into play in the IT and automotive industries. It refers to any business that produces products for parts that are specially designed to be added to an end product from a different business. 

An original equipment manufacturer is a company whose products are used as smaller components in products of another company. This is known as a value-added reseller (VAR). The VAR team works closely with the OEM and curates designs specifically based on the needs and wants of the VAR. Conventionally, an OEM concentrates on business-to-business sales. Contrarily, the VARs target the end buyer or the public. However, OEMs can also sell their products to the general public. 

The Features of an Original Equipment Manufacturer

The features of an OEM include the following:

  • OEMs sell licenses: Product licenses are sold by OEMs to use their parts to the VARs they market to.
  • OEMs for hardware: Hardware parts can easily be purchased off the internet. They can easily be bought through the OEM irrespective of where a retail product manufacturer is. The OEM hardware is generally shipped individually and incompletely. 
  • OEM for software: OEM software is very similar to OEM hardware. It does not come with many accessories. All it has is the basic software and its license key.

The Importance of OEM

Businesses, end users, and manufacturers strongly require OEMs. All of these entities benefit from the OEM technology. Companies generally do not possess the ability to manufacture every single component of their final product, and hence they outsource the production to a factory-based OEM. This prevents them from the need to establish their own manufacturing unit and storage spaces, thus, reducing the time and the cost of production. 

Through OEMs, the VARs can make sure their parts and thus by extension, their final products are of better quality. When aftermarket parts and OEMs are combined, the OEMs provide better quality alternatives as they specialise in the parts they produce for the VARs. This will not just enhance the product quality but also increase the lifespan; thereby, enabling the VARs to provide longer warranties to the consumers. Outsourcing the manufacturing process results in a quicker rate of manufacturing. 

The monetary factor is a positive factor. If a business were to make all the parts by themselves, building new factories, and employing more staff members would drive up the prices of the final product. Generally, the aftermarket parts are the cheapest solution. However, OEMs also provide competitive prices. This is especially true when the VARs purchase these products in bulk. Moreover, the OEMs provide great support when warranties are in the picture.

Businesses of all sizes need a balance of efficiency and effectiveness to maximise success. OEMs can help companies reach their targets by taking care of the production and registration processes while also meeting all the standards of the industry. This saves time and money while also giving customers the best experience. 

The Advantages of Purchasing OEM Products

The benefits of buying OEM products include the following:

  • Enhanced quality: An OEM part or product is manufactured by the original manufacturer itself. Despite the availability of cheaper alternatives, the price of the OEM part shows off its quality. 
  • Enhanced durability: Apart from providing great quality, these products are also more durable. 
  • Lifespan: Most OEM parts have greater lifespans than alternative aftermarket parts.

Understanding the Differences: OEM, ODM, Value Added Seller and Aftermarket

Let’s dive into how the OEMs are different from the VARs and the aftermarket.

1. OEM vs. Value Added Reseller 

Essentially the VARs purchase the products from the OEMs and sell them to the end customer. However, the VARs incorporate added features for selling the OEM products. These two entities share a mutually beneficial relationship. The VARs help the OEMs sell their finished goods and the OEMs entrust their products to the VARs. This enables them to sell more features to enhance the working of their products. 

2. OEM vs. Aftermarket

The aftermarket is simply a market for the replacement of parts, accessories, and equipment for the care of the original product sold. Contrarily, the OEM manufactured the original parts, but the aftermarket equipment was made by another company. A customer purchases products from here as a replacement. A part made by the OEM is often chosen by a customer over a generic part. This is due to the durability and quality provided by the OEMs.

3.  OEM (Original Equipment Manufacturer) vs. ODM (Original Design Manufacturer)

Original Design Manufacturing (ODM) and the OEMs are very different. An ODM is a type of private labeling for manufactured parts. It makes the parts based on the demands of the client. The client then labels it and sells the product under a specific brand name. The OEM has more flexibility than an ODM. But the design manufacturing has lower prices for research and development leading to lower charges for the buyer. A lower minimum order quantity makes ODM products more attractive to smaller clients. 

Technology Integration by OEMs 

OEMs are often used as adjectives in OEM parts. This is mainly attributed to the IT and computer hardware industries. VAR companies and businesses like Dell, HP, Asus, etc., accept branded parts from other sources and match them into their products over time. OEM has now become synonymous with companies and brands that openly use other manufacturers’ products that are resold. This has given rise to a shift in the manufacturing dynamics and has defined which companies are responsible for warranties, support services, and more. 

Deciphering OEM in Automotive Manufacturing

The industry that outsources its parts the most is the automotive industry. The design and manufacturing of car parts includes several parts and outsourcing enables them to minimise costs while also maintaining high quality standards. It also enables innovation in the design. 

OEMs are extremely crucial for this industry as the changing laws, trends, and conditions cause them to constantly upgrade different parts and outsourcing enables them to minimise this burden. The shift towards autonomous cars and electric cars has now led to the need for OEMs more than ever. The OEMs create products with specific qualities and design features to strongly meet the buyer’s needs.

OEM in Software Development

In software development, hardware production manufacturers depend on software OEMs. The production of computer parts like CPUs, hard drives, fans, and graphic cards, or software can be outsourced to relevant OEMs to save time, money, and quality. Since the OEM is generally very well-specialised in the field, bigger computer companies can trust the quality of the parts they get. 

Assessing the Value: OEM Parts Worth the Investment?

OEM parts are extremely expensive when compared to third-party manufacturers. However, they are made to the exact specifications of the product they are part of. Third-party makers are considered to be reliable just like the OEMs; however, they are substantially cheaper. When you look for replacements, customers will research different brands and their offerings to understand which manufacturer provides the best combination of price and quality.

Understanding the Customer Base of OEM

Understanding your customer base is essential for any OEM aiming to excel in today’s competitive market. As an OEM, your customers span various industries, each with unique needs and expectations. Tailoring your products and services to meet these diverse requirements ensures satisfaction and fosters loyalty.

You should start by identifying the different segments within your customer base. Typically, OEM customers can be categorised into three main groups:

  • Small and Medium Enterprises (SMEs): These businesses look for cost-effective solutions that offer flexibility and scalability. They prioritise quick turnaround times and value-added services such as technical support and customisation options.
  • Large Corporations: Larger companies demand high-volume orders with stringent quality and compliance standards. They value reliability, extensive product testing, and strong after-sales support.
  • Specialized Niche Markets: This group includes businesses with specific industry needs, such as medical devices or aerospace components. They require highly specialised products that meet exacting standards and regulations.

Defining OEM Software

Companies can procure different types of software for free at low prices. The most popular method of doing so is using the OEM software. An OEM software is computer-made software made by one entity and sold to another. It can also be called the ‘white box’ software. When such a product is bought, the buyer usually does not get a DVD or CD ROM having such a program. They get a license instead. It has instructions on using the program and can support information like phone numbers. 

OEM software can also be pre-packaged software that comes with new computers or other products. It can be used to refer to the act of getting software in bulk and then reselling it with other items. This software is built to be used within hardware. It will not have its brand identity and it will be sold to the manufacturer instead of the end customer. 

Harnessing the Benefits of OEM Software

Every buyer of OEM software benefits from it. The VAR that supplies the hardware can add value to its hardware through the addition of suitable software. OEMs pose a very cost-effective solution for smaller companies that work on a budget. They even suit large computers to rely on OEM software instead of making their own. The OEM obtains a new line of revenue through the VAR. 

Understand OEM Hardware

An OEM hardware is hardware that is produced by an OEM business. It is then sold by a VAR to the end customer. It can include a single component that is used to make a specific end product. It can also be the entire product by itself. A brilliant example of OEM hardware comes from the IT industry. If a company buys a PC or a tablet from HP or Dell, they are purchasing OEM hardware. 

Examples for Original Equipment Manufacturer:

Let’s look at some examples of OEM:

  • OEMs in the electronics and IT Industry: All items made in massive quantities like CPUs, graphic cards, hard drives, etc., are OEM products. These are products that are outsourced to other companies and then added to a product. These products are then sold to the end user. This is also true for fridges, vacuum cleaners, washing machines, etc.
  • OEMs in the automotive industry: Outsourcing parts of cars and other vehicles is extremely beneficial. It enables OEMs to keep up with industry standards and modify the products based on upcoming trends. Toyota Motors, Mercedes-Benz, Volkswagen, etc., are popular OEM examples. 

Conclusion

Businesses and manufacturing companies that are seeking to become more efficient and successful should consider the advantages of outsourcing their production processes. By partnering up with an OEM factory, these companies can be sure of timeless production and industry standards. Through this, they can concentrate all their energies toward being more innovative and creative. It enables them to launch more products at a quicker pace. It is a cheaper and more efficient option than producing all items from scratch. 

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