Original Equipment Manufacturer (OEM)
What an OEM is
An original equipment manufacturer (OEM) produces components or parts that are used in another company’s finished products. OEMs typically sell to other businesses (B2B), while the buyers that assemble, rebrand, or retail the final product are often called value-added resellers (VARs).
How OEM relationships work
- OEMs design and manufacture parts or subsystems to a customer’s specifications.
- VARs or original equipment makers integrate those parts into finished products, add branding, and sell to end users.
- Common examples: electronic components inside TVs and PCs, brake systems in cars, and custom fasteners used on branded clothing.
Special considerations
- The boundary between OEM and retail sales can blur. Some OEMs also sell directly to consumers or through retailers, especially in industries like automotive and computer parts.
- When OEMs supply parts directly to consumers, those parts are often referred to as “OEM parts” and are valued for exact fit and specification matching.
OEM vs. Aftermarket
- Aftermarket: third-party replacement parts and accessories made after the original product is sold.
- OEM parts are made to the original specifications and are often more expensive.
- Aftermarket parts can be cheaper and, in some cases, equal or superior in performance (e.g., performance upgrades that became factory-installed options).
- Example: A car thermostat originally manufactured by an OEM can be replaced by the same OEM part or by an aftermarket equivalent.
OEM vs. ODM
- OEM (Original Equipment Manufacturer): makes components or products according to another company’s design or requirements.
- ODM (Original Design Manufacturer): designs and manufactures products that a client buys and rebrands; the ODM supplies both the design and the production.
- ODMs can reduce R&D costs for clients and often support lower minimum order quantities, which can be attractive to smaller brands.
OEM in technology and branding
- In electronics and computing, OEM arrangements are common—hardware makers often incorporate third-party parts and preinstalled software from other firms.
- “Ingredient branding” (e.g., advertising a component supplier inside marketing for the finished product) can raise visibility for suppliers while creating co-marketed value propositions.
- Using third-party components affects responsibilities for warranties, support, and updates, so OEM agreements typically clarify those obligations.
OEM in specific contexts
- Automotive: OEM parts are those used by the vehicle manufacturer during assembly but may be produced by a separate supplier. Aftermarket parts are alternatives made by other companies.
- Software: OEM software is licensed to hardware manufacturers to be preinstalled on devices (for example, operating systems bundled with new PCs).
Should you pay for OEM parts?
- OEM parts generally cost more but match original specifications and fit.
- Aftermarket alternatives can offer comparable quality at lower cost—or improved performance in some cases.
- Consider price, warranty, compatibility, and reviews when choosing between OEM and aftermarket parts.
Key takeaways
- OEMs supply components used in other companies’ finished products, typically operating B2B.
- VARs integrate OEM components, add branding or enhancements, and sell to end users.
- Aftermarket and ODM options present cost and design trade-offs; the best choice depends on priorities such as price, quality, customization, and support.