What is an Original Equipment Manufacturer (O.E.M.)?

Original Equipment Manufacturer or O.E.M. is a Company that manufactures and sells products or parts of a product that its buyer, another Company, pledges to its customers while putting the products under its branding. O.E.M.s commonly operate in the auto and computer industries. 

An O.E.M. is often the direct client of a retail Company that sells directly to consumers. For instance, a Lenovo laptop computer’s parts aren’t all manufactured by Lenovo. Some features, such as their processor or memory module, may be the products.

Special Considerations on Original Equipment Manufacturer

This somewhat contradictory evolution in using the term O.E.M. (which can also be used as an adjective, as in “O.E.M. parts” or even a verb, as a manufacturer saying it plans to O.E.M. a new widget) is usually attributed to the computer hardware industry.

Some V.A.R. companies such as Dell, I.B.M., and Hewlett Packard started to accept branded parts from outside sources in their products. So over time, O.E.M. came to refer to companies that rebrand or openly use other manufacturers’ products for resale.

Most of this had to do with which Company was responsible for warranties, customer support, and other services, but it also reflected a subtle shift in the manufacturing dynamics. In one instance, Dell stopped using chips from anonymous makers and switched to Intel for the computer processors in its computers.

Since Intel is a Brand Name, it brought added value to Dell’s computers. Not only did Dell advertise this prominently (using the slogan “Intel Inside!”), but its marketing materials also suggested that Intel and Dell were equal partners in the processor and computer design. This contrasts with Dell just telling Intel how to build the processors, as it did with its old suppliers. All of this made Dell the O.E.M., both in the minds of companies supplying the assembled parts and in the public’s mind (after all, people think of the finished hardware and software package they buy as “a Dell computer”).

Characteristics of an Original Equipment Manufacturer

  1. O.E.M.s sell licenses

O.E.M.s typically sell product licenses to use their parts to the value-added resellers they market to.

  1. O.E.M. for hardware

Hardware can be easily bought off the internet, whether from a retail product manufacturer or an O.E.M. However, O.E.M. hardware is usually shipped incomplete with parts such as cables and adapters necessary for the installation and operation of the hardware.

  1. O.E.M. for software

O.E.M. software, like the hardware, usually doesn’t come with a lot of stuff, except for the essential software and its license key.

Original Equipment Manufacturer vs. Value-Added Reseller

Essentially, Value-Added Resellers  sell products from an Original.Equipment.Manufecturer. but incorporate certain added features before doing so. The two share a mutually beneficial relationship, as Value .Added Reseller help Original .Equipment Manufacturer sell their products, and O.E.M.s entrust their products to V.A.R.s, allowing them to sell them with more features that will enhance the operation of the products.

Original Equipment Manufacturer vs. Aftermarket

While an Original Equipment Manufacturer produces original equipment, an aftermarket manufacturer, on the other hand, makes products that are made to look like and work interchangeably with those of the O.E.M.

In simpler terms, the parts are not original products because they’ve been manufactured by companies, locally-based or foreign-based, without approval from the O.E.M.s to produce such products. Though usually cheaper, the products are not guaranteed to function as well as the O.E.M. product.

Example of an Original Equipment Manufacturer

To better illustrate how O.E.M.s work, let’s consider an example. Say Company A is into manufacturing memory cards. They will not produce only one type of the product but several versions of it, which are then, in turn, sold to various computer manufacturers/retailers. Those companies are value-added resellers who market directly to the public.