Although they are among the most important parties in computer manufacturing, the original equipment manufacturer (OEM) is often overlooked. The majority of people only see the final product and don’t understand the work that goes into producing computers, laptops, printers, etc. either.
In this article, we will shed some light on this process through the role of the OEM. First, we will identify OEM is and determine how they work. Then we will compare OEM to other parties such as aftermarket and ODM to provide further practical context.
Let’s get started!
What Does OEM Mean?
OEM stands for the original equipment manufacturer. So, the term is used to refer to companies that produce parts to be used by other companies to create larger-scale finished products.
For example, a company tasked with building an electrical train track may outsource the production of hardware for the track to an electrical OEM. That way, they can focus on the electrical side and software products, and use a specialist OEM to take care of the hardware.
Apart from electrical engineering, OEMs are common in industries such as computer manufacturing and the auto industry. This is typical because end products in these industries are made up of several different parts, as shown by the diagram below of an electric train.
Now that we’ve got the basics covered, let’s take a closer look at how OEMs work.
How Do OEMs Work?
OEMs can operate in different ways. First of all, they can be hired by other companies on a freelance basis. For example, an engineering company working on a one-off job may require unique parts to complete the project. In that case, it makes sense to outsource the production of those parts to an OEM who will work on the project on a temporary basis.
On the other hand, an OEM may produce and sell some parts regularly. For example, a spark plug for a car is something that an auto-parts manufacturer would regularly produce. Companies can simply buy the parts like any other product. In some cases, an automatic order and invoice may be set up between the OEM and the purchasing company.
Finally, some companies hire OEM partners to produce parts for their end products as contract manufacturers. The OEM is paid to produce the parts and gets a share of the revenue on products they contribute to. Overall, it becomes more of a collaborative process. The OEM works with the partner company to manufacture a specific part for a larger scale project as opposed to selling a product that they already manufacture.
It is important to note that OEMs are not tied down to a single company. Depending on the size of the OEM they may partner with multiple companies on different types of projects.
Original Equipment Manufacturer vs. Aftermarket
It is important to understand the difference between OEM and other similar parties that provide parts for end products. First, let’s take a look at aftermarket manufacturers and establish how they differ from OEMs.
Aftermarket products are parts that can be used to replace parts manufactured by an OEM. The first difference to note is that aftermarket products are generic, meaning they can be used for a wide variety of similar products.
For example, a wire pulling compound designed to be compatible with all types of cables and conduits could be considered an aftermarket product. On the other hand, an OEM manufactures quality products for use as part of a specific end product, not for general use.
As they are generic, aftermarket products are also much cheaper than OEM products. Aftermarket products are also readily available, unlike OEM products. These differences are summed up perfectly in the graphic below in the context of the automotive industry.
Companies working on an end product with a fast-approaching deadline may resort to aftermarket products for a quick fix if an OEM product becomes obsolete. However, despite the convenience they provide, you may have to sacrifice quality by choosing to use aftermarket products.
As we mentioned earlier, aftermarket products are not designed for a specific product. So, in the long run, it may be best to solve the issue with the help of the OEM. Most OEM parts should have a warranty, so you can also save on production costs by going back to your OEM partner.
OEM vs ODM
ODM stands for original design manufacturer. It refers to a company that produced the initial design for a product.
As we know, an OEM manufactures products and sells them to other companies to be used in a larger-scale product. On the other hand, an ODM creates a product design and hires another company to manufacture the product using their product specifications.
In summary, an ODM designs products and an OEM produces them. The graphic below sums up the difference nicely.
When purchasing parts in industries such as electrical engineering, it is critical to understand this distinction. If you are looking for a very specific type of part with specifications, you may need to consult an ODM to come up with a design for an original product.
It’s also worth noting that some companies may be an ODM and OEM rolled into one. If you can find a partner like this, it is probably the best scenario. You can cut out the middleman and collaborate on design and manufacturing with the same company.
In summary, OEM stands for an original equipment manufacturer. OEMs can be very helpful. Outsourcing to OEMs is quite common, particularly in industries such as engineering and car manufacturing, where many individual parts make up the end product.
Depending on your business and the project you are working on you can hire an OEM on a freelance basis, or partner with them. In the long term, partnering is probably the best option, as you can regularly call on the OEMs’ expertise.
You should also keep in mind the differences between an OEM and both ODMs and aftermarket products. ODM stands for original design manufacturer while aftermarket products are cheaper, generic parts that can be used to replace OEM parts at short notice.
Keep these tips in mind when outsourcing. Good luck!