What is OEM?

In the wonderful world of manufactured products and equipment that needs replacement parts, original equipment manufacturer (OEM) is a very important concept to understand. The words indicate the nature of the part or product exactly. A company makes a part or an item from “scratch” and sells it to others is an OEM.

For example, a few large companies make electronic equipment in their own factories, using the most basic of parts to create items for sale. These companies may sell the finished product under its own name or sell to others who offer the item to consumers under another brand name. For example, Big A Company makes a computer but doesn’t sell Big A computers in the local store. But Little B Company might purchase hundreds of these computers and sell them in stores as Little B computers. Big A Company is the original equipment manufacturer or OEM. As we mentioned, you may also be able to buy the same computer as the Big A computer.

What’s the Difference?

This may seem to be a strange arrangement, but there is more to the story of buying and selling in the OEM world. A company may buy a large volume of the item and offer service and supplies in their own locations. This makes that second company a value-added reseller (VAR). They add some value to the original product, which was purchased from the OEM.

A value-added reseller might buy OEM parts from a large manufacturer and assemble them into finished systems. This final product and the service the second company provides make them a VAR. The original equipment manufacturer might make specific parts that are used by several VAR companies. The only way you would know that a product you buy contains OEM parts is to “take the cover” off, so to speak.
Electronic OEM

This scenario occurs regularly in the world of consumer electronics and personal computers. An OEM might put together the main component of a computer – the motherboard – and this key component might be used in the desktop computers sold by companies “A,” “B” and “C.”
One of the ways that some people save money is by purchasing OEM parts or basic components directly from that company, bypassing the cost of “added value.” In many cases, the energetic and creative individual can put together their own computer from OEM components, saving a lot of labor costs and supplying some of their own parts along the way. There has been some confusion in the manufacturing world when trying to define OEM and VAR. Especially in the world of computers and consumer electronics, companies buy and use parts in a dizzying array of arrangements. The reasons for this vary. One primary reason might be the lower costs of having someone else make parts that the buyer isn’t set up to manufacture. According to Wikipedia, one of the early computer/business companies, Digital Equipment Corporation, used the term “OEM” nearly 50 years ago.