OEM parts are usually preferable to aftermarket parts since they are specifically designed to fit the needs of your vehicle and may have a higher quality. Although aftermarket parts tend to be cheaper, they may also wear out more often. Spend any amount of time in manufacturing, and you’re certain to hear the term ‘OEM’ thrown around. In simple terms, OEM – shorthand for original equipment manufacturer – traditionally refers to businesses that build and produce specific parts for other companies. These companies then go on to use these components in the manufacture of their final product. Original equipment manufacturers design and produce a product according to their specifications and then contract with another company for mass production. Original design manufacturers , on the other hand, design and build products that can be private-labeled by customers.

When you purchase a product, the manufacturer has usually built it with a bunch of different pieces — these pieces are the OEM products. As a consumer, you have a couple of different options when it comes to replacing the parts in a product you’ve purchased. You can use OEM products, meaning you replace the parts with new original parts that are the same as the ones the company used to manufacture the product. OEMs are well aware that the purchasing company is adding value to their original hardware products when they are resold. In this way, purchasing companies are able to outsource some of their product development. According to the concept we explained above, OEM products are top quality products manufactured specifically for an original product. In this case, Vista Electronic is manufacturing a component for Monkey Computers’ original keyboards.

Original Equipment Manufacturer vs. Aftermarket

With large scale production and investments technology, it allows OEMs to lower their costs. Hardware OEMs manufacture items like processors, motherboards, hard drives, engine components, television components, mobile phone components, etc. They design, engineer and manufacture complete products, and some also manufacture components. Firms that outsource business to OEMs are benefitted by reducing the direct costs of the business, which are fixed in most cases.

In other words, if the replacement also comes from ABC company, it is an OEM; otherwise, it is an aftermarket https://business-accounting.net/ product. There is a second, newer definition of OEM, typically used in the computer industry.

OEM: What Original Equipment Manufacturer Means, With Examples

An OEM is a company that manufactures or develops something that is sold by another company. With a host of OEMs across regions, the companies that outsource manufacturing to OEMs take the OEM definition and meaning benefit of supply chain diversification. Given the globalisation and interlinked supply chains, a single source of manufacturing would mean higher supply chain risk for the company.

• Input your business details, select a challenge, and see the real-world cost impact as validated by our customers.
• OEM relationships frequently overlap among companies bringing IT products to market.
• OEM products have become standard in many industries such as IT, automobiles, mobile phones, etc.
• In informal usage, the term OEM can sometimes be used as an adjective, as in “OEM parts” or even as a verb, as when a manufacturer says that it plans to “OEM” a new product.
• OEM parts are designed and produced by the original manufacturer; however, they are typically used as replacement parts.