Is it cheap and convenient to buy OEM products to build your own business?
After hearing about OEM products from so many people around, you must be thinking about what is OEM meaning and how does it help you create your own end product.
OEM is a common term used in the automotive and IT industries. OEM definition evolved through years and today OEM refers to any company that manufactures the parts that can easily be used by another company to build its end product or the entire system.
This is a complete guide to help you understand OEM meaning. In this blog, you can learn about what is OEM, and relevant terms, benefits, etc.
According to the information, you will know what makes OEM products cheaper and why companies choose to buy OEM products.
Table of Content
Chapter 1: What is OEM meaning? Understand clearly the Differences of OEM, ODM, VAR, Aftermarket
Chapter 2: What makes OEM products Cheaper?
Chapter 3: Benefits of Working With an Original Equipment Manufacturer
Chapter 4: Common Tasks you need to finalize when buying from OEM Companies
Chapter 5: What Kind of Challenges you may Face while Working with OEM?
Chapter 6: Things to do while Working with a Chinese OEM
Chapter 7: Frequently Asked Questions About OEM
Table of Contents
Chapter 1: What is OEM meaning? Understand clearly the Differences of OEM, ODM, VAR, Aftermarket
1. OEM definition
OEM is an abbreviation of ‘Original Equipment Manufacturer’. It is referred to the company that sells its goods to other companies.
Those companies use them as essential components in the manufacturing of their end products and sell them to the users.
We may often define OEM as the company that purchases products and rebrand them into some new products. They then sell them to the other companies where they can be used as the component.
OEM also helps to save time and money significantly. Their ready-to-use components let the producers focus on their core business activities.
The buyers don’t have to spend much time on developing each tertiary part.
2. Why is OEM important?
Companies don’t have to spend time and money on OEM equipment production in-house. They simply integrate OEM parts into their products.
Due to economies of scale, OEM products are cheaper. They can also provide a good return on investment.
What’s more, OEM components extend the life of the partnering factory’s product. It helps to maintain the top performance and save cost with replacement parts. In this way, the factory’s financial bottom line can also be raised.
OEMs also adopt new technologies to help businesses build substantially support systems.
Because of these, a major reason behind choosing an OEM is that it can reduce the cost of manufacturer or reseller. This is also what makes OEM equipment meaning so important.
3. What’s the relationship between OEM and VAR?
A simple example can demonstrate the relationship between OEM and VAR. A company that manufactures electronic components sells its products to other companies like Samsung and Sony who assemble them while making their HDTVs.
A VAR (Value Added Reseller), as the name implies, acts as a reseller. VAR will package your product with some added values.
Hence, instead of selling your program as a standalone product, VAR will assemble it with other complementary products. After this, he will sell it to the end-users.
Traditionally, the main focus of OEM was on business-to-business sales. On the other hand, VAR is used to market to the end-users.
With the passage of time, the trends of doing business changed until 2019. Since then, an increasing number of OEMs began to sell their services and products directly to consumers.
Let’s say, a person who wants to build a computer on their own can purchase processors and graphic cards from Intel, Nvidia, or retailers.
Another example showing how OEM works is the relationship between an auto manufacturer and auto parts producer.
4. Differences between OEM and ODM
ODM stands for ‘Original Design Manufacturer’. ODMs manufacture equipment but they depend upon product specification or designs made by another company.
Comparatively, OEM has its own specifications and designs. Manufacturing equipment bears the logo of OEM Company.
Moreover, ODMs follow the design specified by the company that has outsourced manufacturing to the ODM.
Rather than the brand name of ODM itself, the produced component bears the logo of the outsourcing company. ODM is good for saving the cost of production connected to outsourcing.
5. Differences between OEM and Aftermarket
OEM is opposite to Aftermarket. OEM product is made specifically for the original product that is used by the end-user. Aftermarket is the component produced by the other company and used by the consumer as a replacement.
For instance, a person may need to get their car thermostat replaced that is built for their Ford Taurus by XYZ Thermostats. He can purchase the OEM part that is a copy of the original XYZ Thermostat used in the original car.
Or he can purchase an aftermarket that is an alternative made by another company. In simple terms, if the replacement comes from XYZ Thermostat, then it is an OEM product, else, it is an aftermarket product.
Aftermarket products are chosen by many people because they are cheaper. They are also easily accessible in the market. Sometimes aftermarket products do a great job in manufacturing of a certain part.
6. What’s OEM meaning for a brand company?
Let’s throw some light on special consideration on OEM meaning. Some VAR companies like Dell and IBM have begun to use branded components from outside.
Hence, with the passage of time, OEM became to be known as a company that rebrands manufacturer’s products for resale.
For example, Dell has stopped using chips from an anonymous producer. It has switched to Intel which is itself a brand and adds value to Dell computers.
Dell advertises Intel’s service by prominently saying ‘Intel Inside!’ Likewise, Intel advertises its equal partnership with Dell Technologies.
Altogether, this makes Dell an OEM in the minds of companies that supply assembled components and the public.
This is how we put light on special consideration on OEM definition.
Chapter 2: What makes OEM products Cheaper?
1. OEM companies only produce parts of a product
After we define OEM, it is important to know why their products are cheaper. OEM companies manufacture only parts of the end product through simple production lines.
The focus of their designers, manufacturers, and testers is on fewer and similar products. They don’t have to pay to integrate a large number of technical components into one system.
Thanks to the economies of scale, many brand companies do partnerships with others to produce goods in a massive amounts. This reduces the time and price significantly.
However, it is important to verify what you purchase from OEMs. The components you buy from OEMs should be cheap enough and come up with performance and features.
2. You don’t need to pay for the packages
OEM hardware software is taken out of production plants for distribution to the companies who build their own systems such as Apple, and Dell.
These companies buy components like graphic cards and chips from OEMs in bulk through routes, those are not accessible to a normal user.
That’s why OEM products are packed in a generic box or a plain wrapper instead of retail packaging. As understood by OEM business meaning, their products can be least seen on any large retail store.
These reasons stop the OEMs to spend money on packaging. This reduces overall cost and you get components cheaper.
3. There are no other distribution channels between you and OEM
Distribution through channels is a common factor for the increasing price of the product. Distribution channels between users and sellers normally lead more cost because middlemen also earn profit from the products.
As per OEM definition, they produce components that are no further gone through the distribution channels. They can be old directly from the factory to you. The specific needs and demands are met through these components.
OEMs understand that in product distribution and fulfillment of orders, they should keep internal costs down for high profits.
That enables them to function in a way by which end cost is not so high.
4. The factories won’t pay a lot for advertising and other things
OEMs do not spend a lot of money on advertising their businesses and services. Advertising mostly costs so much.
Since that, the ultimate cost of production is also low. This enables them to sell their products at reasonable and cheaper rates.
It is the other companies who spend on advertising because they have to sell products to the end-users directly.
While OEMs have to sell their equipment to factories and companies, so advertising is not a good option for them to introduce their services to other companies.
In addition to this, there are other things that let OEMs sell products cheaper. For example, their focus is away from providing other supporting activities like technical support or investment in customer services provisions.
Chapter 3: Benefits of Working With an Original Equipment Manufacturer
1. You can get the right fit to fulfill your purpose with the help of OEM
No one can knock the notion of behind using the ‘universal parts’. They do serve many crucial purposes.
OEM meaning is clear. They produce the right parts that are the best fit for the end system. OEM designs them specifically for the machines or components. Quality plays a vital role too and OEMs offer quality and durability.
Because of the advantage of having an original design, OEMs can produce components that can perform more precisely.
Since the right components perform better operations, efficiency is recognized too. Altogether, this leads to savings. It results in a low production cost and high-profit gains.
2. OEMs are able to produce high-quality parts by working with experts
OEMs are stamping their names on each part. As revealed by OEM business meaning, they work closely with their customers and establish designs, plans, and stages according to the requirement specifications.
This adds to the possibility of bringing the components that have utmost quality.
OEMs work hard to keep their customers satisfied. They try to maintain a long and healthy relationship with them. Building confidence and trust in them will obviously open gates for more projects opportunities.
Aerospace, medical, electrical, and robotics are a few industries that never compromise on quality.
Their OEMs work hard to maintain the standard of quality and avoid miserable outcomes. This is what makes quality a guarantee in OEM equipment meaning.
3. You can get the right parts faster by working with OEM
When you order equipment from an OEM, other variables are ultimately eliminated. This makes the identification of parts an easy job.
Therefore, ordering from OEM business meaning is that you get the right parts faster.
OEM parts are also packaged in a simple manner to be shipped and labeled accordingly. They are shipped faster than a distributor, also because the supplier is OEM itself.
4. You can keep all trademarks & intellectual copyrights
While working with an OEM business, you can commission your supplier to build the parts or a subsystem according to your desired specifications instead of a complete product. You can then assemble them according to your needs.
Upon affixing the company trademark on the end products, you can sell them in the market under your brand name.
This will help you sell them at a competitive price because you get the components at a cheaper rate.
You can also keep all trademarks and intellectual copyrights for your end products that you sell to the consumers.
5. The little things matter and OEM delivers the finest in precision machining
In many industries, the businesses require precision results because the little things in precision machining matter.
It does not matter what kind of material are you working with, be it steel, aluminum, plastic, or carbon. You would not get the utmost results until the most talented mechanists haven’t worked on it.
There are a team of intellectuals and experts sits together in an OEM company. They know how to utilize the latest technology.
They are also familiar with possible negative outcomes of using any unsuitable material. They design and plan the component carefully before it is processed in the development phase.
Reaching an OEM means those experts can give attention to each detail and operate every step very precisely. Therefore, you will get the good-quality products as your wish.
6. It is cost-efficient to work with an OEM
As highlighted earlier, working with OEMs mean you are saving your production cost and time. You need to assemble a wide range of components to build a system like automobiles and computers.
If you get indulged in producing every component itself, then you are going the wrong way! That probably means you need more technicians, more labor, more space, more time, and ultimately, more money!
Hence, the best idea is to find reliable OEMs and get the ready-to-use parts for your system.
As we told before, the OEMs made single components and have shorter production line. And they won’t spend much on the fancy packaging for their products.
These factors make OEMs provide lower price for their customers, and that is the reason why sell OEM products is profitable.
Chapter 4: Common Tasks you need to finalize when buying from OEM Companies
1. Do research about how to start an OEM buying business
Building relationships with an OEM equipment business without knowing possible risks can be dangerous for you. Hence, it is better to create a feasibility report that provides real insight.
You can analyze startup costs, capital requirements, and manufacturing processes. The report will ensure whether you should work with a particular OEM or not.
It will also eliminate project errors and make sure you won’t waste money and effort while cooperating.
2. Calculate the number of costs in advance
Calculating the amount of cost in advance will entail precise approximations. Product costing helps entail neat breakdowns for critical cost aspects.
This includes the cost of prototyping and procurement of raw materials.
If you can ensure what you gonna to buy, and calculate the cost with the information from Internet, you can negotiate with the OEM company for a supply of better services but the cost still under your budget.
You should be able to keep the track of capital throughout the lifecycle of your project. With product costing, you will be able to do perfect pricing while working with OEMs.
3. Make sure the contract is clear and understandable
A vague and unclear contract agreement between you and your OEM will be dangerous for your business. If you are living abroad, then understanding a Chinese business and culture can be difficult.
Working with Chinese OEM requires you to include everything in the contract. Include your policies, costing, deadlines, raw materials, terms, conditions, and everything in between.
If you have some problems in reading the detail of a different language contract, ask the OEM company to prepare an English one for you, or you can find an agent who can help you deal with the cooperation details.
4. Balance the “quality, cost, and date” related to OEM manufacturing
Definition of OEM puts light on the importance of lead time assessment. Lead time assessment includes balancing a lot of things related with the product.
It is a critical process that can largely impact your supply chain process, inventory schedules, and stock replenishment.
As we told before, the detail things about the products, cost, shipping date and so on, should be included in the contract.
You can arrange the next steps on time, and try to save your labour and money as much as you can.
5. Find some companies who can handle all the processes of working with an OEM
There are some third-party manufacturing consultancy companies that work with OEMs.
These companies assist them in providing production solutions. You can also seek their help in the entire process.
They will assist you in making prototypes, finding the suppliers, packaging, and arranging logistics. After understanding the OEM business meaning properly, you can find some companies like these who can handle your tasks.
Chapter 5: What Kind of Challenges you may Face while Working with OEM?
After we define OEM, know OEM business meaning and its benefits, you should also be aware of some challenges of working with OEMs.
While working with Chinese OEMs, you are at risk of compromising your intellectual property like copyrights, design patents, and trademarks.
1. Lack of after-sale service and maintenance service
OEMs normally focus on building the components. They have huge orders where they have to prepare a large number of similar components.
Their focus is upon manufacturing and most workers only keep their ey es on it throughout the working hours.
Hence, OEMs least offer after-sale service and maintenance service. Once you buy components from them and need some after-sale services after some time, OEMs will be less likely to offer you maintenance services.
2. Risk if a poor partnership with OEM manufacturers
While working with OEMs you are at risk of poor partnership with them. A passionate OEM might be willing to compete with you.
You share most of your designs, ideas, and specifications. Hence, chances are that your OEM might copy them use them to build a new end product itself.
Moreover, for any reason, if you have a poor partnership with an OEM manufacturer, then you will encounter the outcomes.
Sometimes you will lose your products because they have problems sending those to you. Then you will waste all the efforts you did before, while the OEM still can sell those parts to other companies.
Because of that, always keep in mind that make good connections with the OEM. Trust will be the foundation of all rapport.
3. Other challenges like lack of product understanding and minimum quantity order
Working with OEM equipment meaning is simple but can be challenging in some other ways as well. You might face difficulty in understanding their product.
Obviously when you are building a technical system like a PC or a heavy vehicle, then you must also be aware of every technical detail of each part.
In order to find solutions of problems you encounter, it is important that you know the details of everything you know.
Buying products from OEMs means you may have little understanding of certain part. This can cause problems for you if you get stuck somewhere.
In addition to this, some OEMs have set minimum quantity orders. You might not need a bigger number of components while OEMs have set that limit. This will waste your money.
Chapter 6: Things to do while Working with a Chinese OEM
1. Protect your IP because China only acknowledges locally registered trademarks
China is the country where trademarks are acknowledged that are registered locally. If you are attempting to manufacture in China, it is extremely significant to register your trademark in China.
You can do it through the World Intellectual Property Organization or China Trademark Office.
If you are not locally registered then you will face some risks. For example, Chinese customs will block your goods, some companies may copy your products and register the trademark before you do. It will spend much of your time to correct these things.
2. Negotiate an airtight contract that covers everything from specifications to quality control
Try to formulate a comprehensive contract while working with OEMs in China.
The airtight contract must cover everything from component design, raw materials, choices of equipment, deadlines, production activities, packaging, branding, privacy, contract duration, quality assurance, quality control, and everything in between. Also, pay attention to these areas:
- NNN agreement
- Termination terms
- Exclusivity agreement
- Non-compete terms
- Payment terms
3. Pay attention to quality assurance & quality control
The entire purpose of working with an OEM is to get the quality components while saving your time and money. Hence, do some research on leading OEMs around you.
Find the OEMs that have technicians and specialists for your end product. Know how they have worked with your competitors and what quality do they offer them.
Before you sign the contract with them, question them about their manufacturing activities and the quality of raw materials. This is beneficial in deriving the quality of your own end product.
4. Get help from reliable sourcing agents like EJET Sourcing
If you are willing to work with an OEM in China, it is recommended that you look for a reliable sourcing agent like EJET Sourcing.
EJET Sourcing is a big name in China that has always supported its clients who look for a helping hand while starting any business in China.
Agents at EJET Sourcing are available to provide any kind of support. They will find you the most reliable OEM companies and durable OEM components. Do not compromise on the quality of your product.
Chapter 7: Frequently Asked Questions About OEM
1. What are OEM products?
OEM stands for Original Equipment Manufacturer. It works closely with another company that produces end product and provide that company the manufactured components that can be assembled.
2. What is the difference between OEM and VAR?
OEMs focus on business-to-business sales and sell components to another company. VARs market their end products to the public who are the consumers.
3. Can we build our own computer using OEM products?
Yes! You can buy components like graphic cards and chips from the OEMs at a cheap rate and assemble them. You should know what you buy.
You should also have technical knowledge regarding your system.
Once you assemble those parts and build your PC, sell it with your own brand name.
Conclusion
Now you know what OEM business meaning is and how can you get components at a cheaper price.
You can buy components from OEMs that work precisely to build durable parts. This way you can save your time and money and build your own system like a car or a PC.
There are many benefits of working with an OEM but you face certain challenges as well.
So EJET Sourcing helps its clients to come out of the hassles of finding OEMs and quality equipment for their end products. Contact us for any inquiry regarding OEMs business.
