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What Is an Original Equipment Manufacturer (OEM)?

By

澳洲幸运5官方开奖结果体彩网:The Investopedia Team

Updated August 08, 2024

Reviewed by

Khadija Khartit

Fact checked by

Suzanne Kvilhaug

What Is an OEM?

OEM stands for Original Equipment Manufacturer. In the manufacturing industry, OEMs produce components to sell to ot♊her companies that integrate the part🦂s into their products. For example, car manufacturers do not build every component used in their vehicles. The manufacturer that provides OEM parts is the company that produces the parts used in the car when it's new.

Key Takeaways

OEMs produce components to sell to other companies that integrate the parts into their products.
Value-added resellers (VARs) incorporate OEM components and create the final product for the end user.
Aftermarket manufacturers create alternative replacement parts at a lower price than OEM.

OEM and Value-Added Reseller

Complex consumer products like cars or computers aren’t fully engineered in-house by the manufacturer or seller. Vehicles and computers incorporate parts such as fuel lines ཧor processors, and OEMs design and build thes🎐e components.

The 澳洲幸运5官方开奖结果体彩网:value-added resellers (VARs) are companies like Toyota or Apple. These companies incorporate the individual components and create the final product for the end user. OEMs commonly sell their products business to business, while VARs sell to consumers.

Important

One example of the relationship between original equipment manufacturers and VARs is the relationship between an 澳洲幸运5官方开奖结果体彩网:auto manufacturer and a maker🌳 of auto parts.

Aftermarket Parts

A consumer who needs to replace a damaged component for their car may purchase an OEM part to ensure replacement parts are fully compatible. An OEM's products are sold by car dealerships and from the automaker and are more expensive than 澳洲幸运5官方开奖结果体彩网:aftermarket parts. Aftermar🐎ket manufacturers create alternative replacement parts at a lower price than OEM.

OEM products and aftermarket produ▨cts have distinct benefits and disadvantages for the customer. Many OEM and aftermarket products are nearly equivalent. Competition with aftermarket manufacturers helps drive down OEM prices and may bring OEM prices in line with aftermarket offerings.

OEM parts are usually guaranteed. Aftermarket parts may or may not be compatible and many vendors do not certify compatibility. A broad range of companies produces aftermarket parts at many different price points, which allows for a wide range of choices but can also make for a confusing experience for consumers.

Warning

Aftermarket parts are produced by vendors and may not have a consistent le❀vel of quality or compatibility.

Where Are OEM Parts Used?

In thꦐe consumer market, OEM parts are commonly found in the automotive industry, electronics, and information technology and software.

How Does Aftermarket Competition Affect the Automotive Industry?

Fierce competition in the automotive parts industry creates a strong ♛need for OEM and aftermarket manufacturers to distinguish themselves in the parts market. Among aftermarket manufacturers, this competition results in a wide range of prices and unique features of parts. The quality of some aftermarket parts equals or exceeds OEM products, while other parts companies compete by offering lower-priced products of inferior quality.

How Do OEM Companies Stay Competitive?

OEM companies, competing with aftermarket businesses, increasingly innovate supply chains and 澳洲幸运5官方开奖结果体彩网:product lines to deliver a superior product at 澳洲幸运5官方开奖结果体彩网:competitive pricing. OEM and aftermarket companies may use technologies such as 3D printing to efficiently create on-demaꦆnd parts and make their supply chains more flexible.

The Bottom Line

The original equipment manufacturer, or OEM, produces components other companies integrate into their products. O൩EM parts are in computers and automobiles. Car manufacturers are considered value-added resellers (VARs). Consumers can buy replacement OEM parts or use aftermarket manu🎶factured parts that commonly provide a cheaper alternative.

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