OEM Service Definition

What Is an Original Equipment Manufacturer (OEM)?

An original equipment manufacturer (OEM) traditionally is defined as a company whose goods are used as components in the products of another company, which then sells the finished item to users.

The second firm is referred to as a value-added reseller (VAR) because augmenting or incorporating features or OEM services add value to the original item. The VAR works closely with the OEM, which often customizes designs based on the VAR company's needs and specifications.

Understanding an Original Equipment Manufacturer (OEM)

VARs and OEMs work together. OEMs make sub-assembly parts to sell to VARs. Although some OEMs do make complete items for a VAR to market, they usually don't play much of a direct role in determining the finished product.

A common example might be the relationship between an OEM of individual electronic components and a company such as Sony or Samsung that assembles those parts in making their HDTVs. Or a maker of buttons that sells to Ralph Lauren its little fasteners customized with the letters RL stamped on them. Typically, no one integrated part from an OEM is recognized as playing an especially significant role in the finished product, which goes out under the corporate brand name.

Traditionally, OEMs focused on business-to-business sales, while VARs were marketed to the public or other end users. As of early 2019, an increasing number of OEMs are selling their parts or services directly to consumers (which, in a way, makes them a VAR).

For example, people who build their own computers can buy graphics cards or processors directly from Nvidia, Intel, or retailers that stock those products. Similarly, if a person wants to do their own car repairs, they can often buy OEM parts directly from the manufacturer or a retailer who stocks those parts.

One of the most basic examples of an OEM is the relationship between an auto manufacturer and a maker of auto parts. Parts such as exhaust systems or brake cylinders are manufactured by a wide variety of OEMs. The OEM parts are then sold to an auto manufacturer, which then assembles them into a car. The completed car is then marketed to auto dealers to be sold to individual consumers.

There is a second, newer definition of OEM, typically used in the computer industry. In this case, OEM may refer to the company that buys products and then incorporates or rebrands them into a new product under its own name.

For example, Microsoft supplies its Windows software to Dell Technologies, which incorporates it into its personal computers and sells a complete PC system directly to the public. In the traditional sense of the term, Microsoft is the OEM, and Dell the VAR. However, the computer's product guide for consumers is most likely to refer to Dell as the OEM.