An original equipment manufacturer, or OEM, manufactures products or components that are purchased by another company and retailed under that purchasing company's brand name.[ref 1] OEM refers to the company that originally manufactured the product. When referring to automotive parts, OEM designates a replacement part made by the manufacturer of the original part. When referring to computer operating systems, OEM refers to the manufacturer of the hardware that someone else's operating system runs on. This case is commonly used by Microsoft (in the case of PC Windows licensees), and also by Google (in the case of Android Open Handset Alliance members).
Confusing and contradictory definitions
The term OEM may also, somewhat counter-intuitively, refer to a company that purchases for use in its own products a component made by a second company. Under this definition, if Apple purchases optical drives from Toshiba to put in its computers, Apple is the OEM, and Toshiba would classify the transaction as an "OEM sale".
- Contradictory usage
- Alternatives to contradictory or confusing use
Instead of OEM, companies may label themselves resellers.
Companies who buy parts and then resell those parts with some amount of additional value added along the way (such as assembly, customer support, or continued maintenance) may be better termed value-added resellers (VARs) or resellers.
When referring to automotive parts, OEM designates a replacement part made by the manufacturer of the original part. In this context, OEM stands for "original equipment from manufacturer". As most cars are originally assembled with parts made by companies other than the one whose badge appears on the vehicle, it may happen that a car company sells OEM spare parts without claiming to be an OEM itself.
An automobile part may carry the designation OEM if it is made by the same manufacturer and is the original part used when building and selling the product. The term aftermarket is often used for non-OEM spare parts.
In purchasing parts at national, discount auto parts retailers (e.g., NAPA, Auto Zone, Advance Auto Parts, Pep Boys, etc.), many parts will have OEM prominently displayed—but followed by a qualifier, such as, "meets OEM standards", etc. Such auto parts are not OEM; they are simply claiming to have been manufactured to the same specifications as the OEM parts. These parts are better termed "OEM spec. parts", although they may carry the label "OEM", instead.
Economies of scale
OEMs rely on their ability to drive down the cost of production through economies of scale. Also, using an OEM allows the purchasing company to obtain needed components or products without owning and operating a factory.
Origin of term
While the term was used in the early 1960s and 70s in the US to refer to value-added resellers, OEM is currently defined by IBM to refer to "a manufacturer of equipment that may be marketed by another manufacturer". It may derive from a Dutch phrase, "onder eigen merk", which means "under own brand".
Companies also use OEM labels to track the products they manufacture. This allows the company to track the product from the factory, to the warehouse, then to the store where the product is sold. When the store receives the shipment the product is removed from the company’s inventory control system.
- Contract manufacturer
- Original design manufacturer
- Private label
- Value-added reseller
- Original Equipment Manufacturer (OEM) and Aftermarket Parts thepartsbin.com
- *OEM Definition helpwithpcs.com
- OEM Definition answers.com
- OEM webopedia.com
- Ken Olsen: PDP-1 and PDP-8 (page 3), economicadventure.com
- Dictionary of IBM and computing IBM site
- gte.net - Frequently asked questions about hardware
- Dictionary of IBM and computing official IBM site
- Tracy Kidder ((C)1997). "The Soul of a New Machine - CHAPTER ONE- How to Make a Lot of Money- 16th paragraph, "companies known as original equipment manufacturers, or OEMs"", Random House Inc. Retrieved on 2008-08-08. Archived from the original on 2008-08-08.
- Moving On The Economist, Jan 13th 2005
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