What’s OEM Meaning? Why OEM items are so much Cheaper?
August 9th, 2021
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.
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.
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 suppl