An Original Equipment Manufacturer (OEM) is a company that makes a part or subsystem that is used in another company's end product. For example, if Acme Manufacturing Co. makes power cords that are used on IBM computers, Acme is an OEM.
However, the term is used in several other ways, which causes ambiguity. It sometimes means the maker of a system that includes other companies' subsystems, an end-product producer, an automotive part that is manufactured by the same company that produced the original part used in the automobile's assembly, or a value-added reseller.
Automotive parts
When referring to auto parts, OEM refers to the manufacturer of the original equipment, that is, the parts assembled and installed during the construction of a new vehicle. In contrast, aftermarket parts are those made by companies other than the OEM, which might be installed as replacements after the car comes out of the factory. For example, if Ford used Autolite spark plugs, Exide batteries, Bosch fuel injectors, and Ford's own engine blocks and heads when building a car, then car restorers and collectors consider those to be the OEM parts. Other-brand parts would be considered aftermarket, such as Champion spark plugs, DieHard batteries, Kinsler fuel injectors, and BMP engine blocks and heads. Many auto parts manufacturers sell parts through multiple channels, for example to car makers for installation during new-vehicle construction, to car makers for resale as automaker-branded replacement parts, and through general merchandising supply chains. Any given brand of part can be OE on some vehicle models and aftermarket on others.
Computer software
Microsoft is a popular example of a company that issues OEM software for their Windows operating systems. OEM product keys are priced lower than their retail counterparts, but use the same software as retail versions of Windows. They are primarily for direct OEM manufacturers and system builders, and as such are typically sold in volume licensing deals to a variety of manufacturers (HP, Dell, Toshiba, etc.). Individuals may also purchase them for personal use (to include virtual hardware), or for sale/resale on PCs which they built. Per Microsoft’s EULA regarding OEM, the product key is tied to the PC motherboard which it’s initially installed on, and there is typically no transferring the key between PCs afterward. This is in contrast to retail keys, which may be transferred, provided they are only activated on one PC at a time. A significant hardware change will trigger a reactivation notice, just as with retail. However, a motherboard change for reasons other than a defect will officially cause Windows Activation to consider it a new PC, and will likely result in permanent deactivation on said PC.
Direct OEMs are officially held liable for things such as installation media, although they are not required to provide it upon sale of a PC hardware, and may indeed exclude it to reduce cost. Instead, manufacturers tend to include a recovery partition on the hard drive for the user to repair or restore their systems to the factory state. System builders further have a different requirement regarding installation media from Direct OEMs. On versions of Windows which require a valid product key for media download from Microsoft (like Windows 7), OEM keys will be rejected, and the party will be given a notice to refer to the manufacturer.
Economies of scale
OEMs rely on their ability to drive down the cost of production through economies of scale. Also, using an OEM allows the purchasing company to obtain needed components or products without owning and operating a factory.
See also
- Rebranding
- Private label
- Store brand
- Original design manufacturer (ODM)
- Electronics manufacturing services (EMS)
- Contract manufacturer
- Secondary market
- Value-added reseller
- Open design
- Open hardware
- Outsourcing