Original Equipment Manufacturer (OEM), Defined

What Is an Original Equipment Manufacturer?

From Ford to Apple to Lenovo, many of the world’s best-known brands built success by using supplies that were manufactured by another company.

The companies making these supplies are known as original equipment manufacturers (OEMs), and they create component parts for vehicles, appliances, industrial equipment and a wide range of other products. Most OEMs work directly with brands that have a strong retail infrastructure for selling finished products directly to consumers, allowing the OEMs to focus on maintaining an efficient, high-quality manufacturing process.

As cars, computers, televisions, smartphones and other everyday devices feature more complex designs and more extensive integrations of technology, original equipment manufacturers are playing a more essential role in stabilizing supply chains and making sure large manufacturers and brands have access to the parts required for all of the products they offer.

Factors That Define OEMs

Original equipment manufacturers are one subset of spare parts manufacturers, all of which may be used by retail brands to source component parts for their final product. But while OEMs may share some characteristics with original equipment part providers, original design manufacturers and aftermarket suppliers, OEMs can be identified by the following attributes:

Expertise in Specific Parts

Most OEMs have specialized manufacturing expertise to build specific products or original parts for a retail brand. A computer or smartphone retailer, for example, may prefer to work with a microchip manufacturer that has in-depth experience with all the requirements needed to create these microchips and meet expectations for higher quality assurance. Or take the example of Microsoft, which offers OEM versions of its Windows operating system that are then used by computer manufacturers like Dell and HP in their end product. 

Works With Other Manufacturers

It’s common for OEMs to manufacture components for many different companies, including retail brands that are direct competitors. By providing their services to a wide range of businesses, these OEM manufacturers are able to achieve economies of scale that helps reduce the cost of production. These savings are then passed onto the retailer, which can in turn reduce its own production costs and provide better prices to its customers. 

Lesser-Known Brand Identity

While OEMs do sometimes sell their products directly to consumers, many of these manufacturers have limited brand identities among the general public. Since their core business model is selling to other businesses, OEMs are less invested in building their own brand identity.

Common Types of OEMs

Original equipment manufacturers can serve a wide range of industries, but they’re more commonly used in industries that manufacture complex products built of many different component parts, including:

• Automotive industry OEMs: Vehicles are built from many different components. Even when car manufacturers build their own vehicles on assembly lines, they do so using auto parts supplied by OEMs. These OEM parts can range from bearings and transmission systems to car seats, cameras and other electrical components.
• Industrial equipment OEMs: Like the engine in an automobile, industrial equipment requires many different component parts, all of which must meet strict criteria. OEMs are regularly used to supply these component parts as well as replacement parts used to repair industrial equipment and minimize downtime.
• Technology OEMs: Businesses selling computers, smartphones, tablets and other tech products use OEMs to procure microchips, batteries, processors, camera lenses and other parts for their devices.

Benefits of Partnering With OEMs

Original equipment manufacturers play a crucial role in the development of today’s most popular products. In fact, many brand names wouldn’t be able to manufacture their own products without outsourcing high-quality component parts from OEMs. Here are some of the top benefits of working with an OEM partner:

Niche Expertise

Many retailers choose to work with OEM companies because they have specialized expertise that is hard to find anywhere else. Compared to the cost of trying to acquire this niche expertise through internal hires, businesses find it far more cost-effective to work with an OEM that has the skilled employees, industry expertise and proven processes required to manufacture the required components.

Cost Savings

Partnering with an OEM is typically far cheaper than trying to handle these manufacturing tasks in-house. Other sources of spare parts may also be more expensive and come with greater uncertainty regarding the quality and durability of those products.

Investment in Research & Development

Instead of spending time, money and resources to develop component parts within your company, partnering with an OEM allows you to benefit from the research and development that the OEM has already done. This reduces the expense of manufacturing your required parts and accelerates your timeline for making the component parts available to your own production processes.

Quality Assurance

With well-established processes and a strong track record of delivery for other customers, OEMs have a reputation for consistently delivering high-quality products.

Warranties & Customer Support

One overlooked benefit of working with an OEM is the peace of mind that comes with the manufacturer’s product warranty as well as its customer support resources. Unlike some other sources of procuring spare parts, OEMs are careful about protecting their reputation among B2B buyers — and their limited product warranties and customer support channels are designed to make sure customers are happy with their purchase.

Training & Manuals

It’s common practice for OEMs to provide manuals accompanying the products they manufacture, ensuring that the businesses purchasing these OEM components are able to use them properly. In cases where the components are highly complex or require careful use, some OEMs will also provide training programs to make sure the workers handling these components are educated on how to properly operate and maintain the equipment.

Key Considerations Before Partnering With OEMs

Before reaching an agreement to partner with an OEM for component part production, evaluate the fit of that OEM’s services with your organization’s needs. Consider the following criteria:

• Technical expertise: Does the OEM have experience manufacturing the products your business needs? Do they understand the specific challenges and specifications that need to be met?
• Communication: Find out what kind of communication you can expect from the OEM and what channels will be used to facilitate two-way communication between your business and the OEM. Ask specific questions about how the OEM will inform you of manufacturing delays, quality assurance issues, shipping timelines, milestone updates and new challenges the company is facing.
• Scalability: In addition to meeting your current production needs, find out if the OEM is able to accommodate an increase in production volume to support your own business growth. The OEM’s existing production commitments may matter here: If the manufacturer isn’t confident in its ability to expand production beyond your initial scope, it might not be a great fit for a long-term partnership.
• Licensing agreements: The terms of an OEM licensing agreement will likely address many different considerations in your partnership, including royalties earned, confidentiality about your partnership, branding requirements and restrictions, payment expectations, exclusivity clauses and other details. Review this agreement closely and make sure you’re comfortable with the terms before signing.

OEM vs. ODM vs. VAR

OEMs, ODMs and VARs have interconnected relationships that can blur the lines between these different entities. But businesses seeking out an OEM partnership should take care to understand the important distinctions between each of these — and make sure they understand what they’re getting from their manufacturing partner. We’ve already established that OEMs are specialized manufacturers delivering component parts for larger retail and industrial products. Here’s a quick rundown of what ODMs and VARs offer:

Original Design Manufacturer (ODM)

An ODM is a type of manufacturer that specializes in designing products that meet the exact specifications of the company ordering the product. Through their expertise in designing niche component solutions, ODMs are a convenient partner for businesses looking to outsource the research and design required to create these new products. In some cases, businesses will ask an ODM to design a product before shipping that design to an OEM for production. 

Value-Added Reseller (VAR)

Value-added resellers (VARs) typically enhance the value of OEM-manufactured products through one of two ways: either by selling OEM products directly to consumers using their stronger brand identity or by incorporating those OEM parts as components of larger products. In either scenario, VARs differ from OEMs by selling products to end users, while OEMs prioritize sales to businesses.

OEM Use Case Example

When Ford set a goal of producing 2 million electric vehicles annually by 2026, the automaker had to face one of the most daunting obstacles to manufacturing EVs at scale: Increased electric vehicle production meant the company had to dramatically increase its supply of battery cells and related materials.

Given the challenges of acquiring these raw materials at scale — as well as the complexity of manufacturing battery cells on their own — Ford sought out OEM partnerships with global battery cell manufacturers around the globe, including partners in China, North America and Europe.

Through those OEM partnerships, Ford was able to stabilize its battery cell supply chain and increase its battery manufacturing capacity. Some of those partnerships also enabled Ford to reduce its battery production costs and even reduce its dependence on rare minerals used in certain EV batteries.

How a CMMS Can Assist With OEM Partnerships

A computerized maintenance management system (CMMS) can help you manage your OEM partnerships on any scale to maximize the value of these strategic relationships. A CMMS software streamlines your ability to monitor and manage OEM partnerships through the following capabilities:

• OEM parts inventory and management
• Centralizing documentation for your equipment maintenance
• Automated preventive maintenance reminders 
• Warranty management for OEM parts
• Maintenance KPI tracking to evaluate the value of your OEM partnership

Find out how Coast’s CMMS can help your business get more out of its OEM partnerships — sign up today to learn more.