If you work in manufacturing or production, you’ve probably seen the acronym OEM used before. What does OEM mean in business, and how is it different from a VAR? Here’s what you need to know about an OEM, or original equipment manufacturer.
What is an OEM?
The OEM definition typically refers to an original equipment manufacturer, or company that produces goods used as components for another company’s products. The secondary company then sells the completed item to consumers and is called a value-added reseller (VAR).
OEMs often serve retailers that sell directly to consumers in the computer and automotive industries. Imagine a Dell laptop – its computer parts won’t all be manufactured by Dell itself. Some key components, such as the memory card, will be manufactured by an OEM instead.
In addition to physical components used in retail manufacturing, OEMs might also sell less tangible inventory like product licenses, hardware, and software.
OEM definition vs VAR definition
To better understand the OEM meaning, it’s helpful to take a closer look at its relationship with a VAR, or value-added reseller. The VAR is the company that purchases products from an OEM. They add in user-friendly features or customise the product to add end value and sell the products directly to consumers.
In this way, OEMs and VARs work together in a mutually beneficial relationship. OEMs produce goods that will be useful to VARs, and VARs use these to create completed items that will be useful to end consumers. OEMs are usually B2B companies, while VARs focus on B2C sales.
However, it’s becoming increasingly common for OEMs to sell their products directly to consumers. For example, a person building their own computer might choose to purchase the components directly from an OEM.
OEM meaning on the aftermarket
OEM products are the original versions of any item – this is baked into the name and definition. When another company manufactures a new product that’s designed to be interchangeable with these originals, this is called the aftermarket. The new parts are produced on the aftermarket by companies trying to undercut the OEM in price, but the quality usually doesn’t match.
What is an OEM example?
There are plentiful examples of how OEMs work, commonly within the automotive and computer software industries. Imagine that Company A produces spark plugs which are purchased by automakers for use within their brand-new cars. The spark plugs are OEM parts, which can then also be purchased on the aftermarket by car restorers or mechanics to use during repairs.
In the case of computer programming and design, an OEM example would be Microsoft Windows operating systems. Microsoft produces the operating system as an OEM product which is then sold off in volume licensing deals to a range of computer manufacturers, including Dell and HP among others.
What does OEM mean for your business?
Should you purchase products directly from an OEM? There are several benefits to purchasing these items directly from the original manufacturer.
Quality – When you purchase OEM products, you’re getting the original item used by other businesses in their own production.
Lifespan – OEM parts tend to last longer than comparable aftermarket parts.
Durability – Along with quality and a long lifespan comes durability OEM parts are designed to last in a multitude of situations.
Cost – Although you might expect to pay more due to the quality and lifespan of OEM parts, they’re often lower in cost due to the economies of scale. The OEM meaning ensures that these items are produced on a mass scale, which drives down cost for your business.
It’s worth looking into OEMs if you’re interested in purchasing higher quality parts that last for longer. However, don’t discount the aftermarket either. It’s best to weigh all options carefully to find the best value.
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