Orginal Equipment Manufacturer (OEM)

A company that produces and sells parts or products that are used in another company's end product. The acronym OEM stands for Original Equipment Manufacturer and they often participate in business-to-business relationship.

That is, they do not retail their products, rather, they leave that to their partners who will use the OEM parts in their final products, brand it and sell to the end users.

The partners in this case are referred to as Value Added Resellers or VARs. The business relationship between OEM and VARs is very common in tech industry.

You see items like computers having a popular brand but using parts from original equipment manufacturers like NVidia (graphic chips manufacturer) or Intel (processor manufacturers).

What has been explained so far is how OEM works in the traditional sense of the word. But today, many OEMs are retailing their products directly to the end consumers.

Although they still operate as OEM, these companies have now changed from selling only to VARs to selling directly to the end users as well. Again, this is common in the tech industry.

It is not uncommon to see people get a part from an OEM automobile part manufacturer or a computer part manufacturer to augment their car or computer.

Despite this, the relationship between a VAR and an OEM remains intact because of the benefits involved.

Benefits of using OEM parts

Value added resellers gain from their relationship with original equipment manufacturers because it is less expensive to buy parts from an OEM than it is to manufacture those parts.

So to keep price low, VARs will often seek out OEM in the industry they are operating in and strike a business deal with them. At the customer's end, buying direct OEM parts may not be very cheap but it is much safer to buying aftermarket parts.

Take for example you want to replace the graphic chip of your computer to bump it up for better performance. It is not possible to get this single chip from your VAR which could be any of the major laptop brands like Dell, Hp, Lenovo or Apple.

So you are left with two choices. Either you get an aftermarket part which is prone to compatibility issues or you buy from the OEM.

Now you can see why many OEM had to start selling directly to the end users. It is simply because the market exist and if the OEM does not meet the demand of the end users, then the aftermarket sellers will fill the void.

By buying OEM parts, end users can avoid the less expensive but often unsafe aftermarket parts.

OEM vs Aftermarket parts

Third-party manufacturers are companies that produce a copy of the original part for sale. These parts are often referred to as aftermarket parts. They are just a look alike and are meant to be a replacement of the original part.

In most cases, these third-party manufacturers do not have the permission of the original equipment manufacturer. But that does not mean that the replica is often bad.

Sometimes, the aftermarket parts are good enough that many consumers prefer them to the original parts. Also, these aftermarket parts are easily accessible to the consumer and also less expensive compared to the original part.

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