Original equipment manufacturers (OEMs) produce components or products that are then integrated into the final products of other companies. OEMs often focus on specialized manufacturing, allowing other companies to outsource their production and reduce costs while maintaining high-quality standards in their own products.
Many OEMs excel at producing specific parts or subsystems, such as engines, graphics processing units, or circuit boards, that are essential for the functionality of finished goods. By leveraging OEMs, companies can avoid the undue expense of building their own factories and managing the complexities of manufacturing for specialized components.
What is an original equipment manufacturer?
An OEM is a company that produces parts, components, or products for another company, which then uses those parts to create a finished product. OEMs typically don't sell directly to consumers, but instead focus on business-to-business (B2B) sales.
This means that OEMs act as suppliers to other manufacturers, providing the raw materials that are essential for the production of the end product. The final product is typically branded and marketed by the company that uses the OEM's components, not the OEM itself.
What is the role of an original equipment manufacturer?
OEMs are the unsung heroes of many industries. They enable companies to bring their products to market efficiently and effectively without being unnecessarily encumbered by undertaking the full manufacturing process from start to finish.
However, it's worth noting that OEM products can be both hardware and software. In either case, the OEM outsourcing model allows companies to focus on their core competencies, such as design, marketing, and sales, while leveraging the expertise and economies of scale of OEMs.
What types of businesses work with original equipment manufacturers?
Many types of businesses work with OEMs. These can include companies in the automotive, electronics, technology, energy, and healthcare industries that rely on OEMs for sourcing parts, components, or even complete products.
For example, the food and beverage industry uses OEMs for sourcing production and packaging machinery. Likewise, OEMs also provide hardware components, such as servers, storage devices, and networking equipment, to some of the world's largest IT companies.
OEMs often work with value-added resellers (VARs), which are businesses that purchase products from OEMs and enhance them with additional services, features, or customizations before reselling them to end-users. OEMs also may provide replacement parts for their products, which can be purchased through VARs or directly from the OEM in some cases.
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OEMs in the real world
OEMs can be either private or public companies. Ford Motor Company (F -0.36%) is considered an OEM. Ford designs, engineers, and manufactures vehicles, including their parts, and also produces OEM parts for the replacement and repair of those vehicles. This means that when you buy a Ford part from Ford or a certified dealer, you are getting a genuine OEM part.
If you want a real-world example of the relationship between VARs and OEMs, consider Microsoft (MSFT -1.44%) and Dell (DELL -0.86%): Microsoft develops and sells the Windows operating system (an OEM product) to computer manufacturers like Dell. Dell then integrates Windows into its computers and sells the complete system to consumers.
OEMs often have specialized expertise and quality control processes, ensuring that the components they produce meet high standards and contribute to the overall quality of the final product. OEMs play a vital role in the supply chain, enabling companies to get their products to market faster and more efficiently.
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