OEMs Customers

OEM -- or original equipment manufacturer -- is defined as a company that manufactures a product that is sold to another company, which resells the product under its brand name. Business textbooks often refer to OEMs as "contract manufacturers."

The genesis of the term OEM comes from the Dutch phrase, loosely defined, simply means "under own brand."

The term is flexible, but OEM usually refers to manufactured products in major industries. Yet it could also mean a company that makes the ingredients that go into a fast-food milkshake, for example.

OEMs are different than value-added resellers, or VAR's. A VAR is a company or business that buys the OEMs component, part or product, and either improves on it or adds even more components to increase its value and ultimately sell it to customers directly.

A good way to look at OEMs and VAR's is this . . .

An OEM usually sells its products on a business-to-business model.

A VAR sells directly to OEM customers.

OEMs most commonly sell their products business to business, while VARs most commonly sell to consumers or other end-users.

OEM Examples

So-called "principal" companies can call OEM products, parts, and components their own, after signing a resell document giving a company the right to resell an OEM product. Aside from the financial benefits of being an OEM provider, OEMs gain free publicity on their products (think Goodyear tires on a Ford vehicle or an Intel microchip in a Dell computer.)

Consider these prominent OEM examples:

Auto Industry: A company that manufactures the steering wheel or the tires on a new car, truck, or SUV.

Computer software: A company like Microsoft that sells the operating system used in computers or other digital devices.

Electronics: A company that builds the car radio that is included in a new vehicle.

Manufacturing: A company that builds the engine that goes into a new bulldozer or airplane.