Original Equipment Manufacturer

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An original equipment manufacturer (frequently abbreviated "OEM") is a company that builds products or components which are used in products sold by another company (often called a value-added reseller, or VAR). An OEM will typically build to order based on designs of the VAR. For example, a hard drive in a computer system may be manufactured by a corporation separate from the company that markets and sells the computer, or a loudspeaker in a stereo system made by a company that specializes in audio manufacturing.

In some usages, a VAR is sometimes called an OEM, despite this being a complete reversal of the literal meaning of both terms. This misunderstanding arises from use of the term OEM as a verb. For example, a VAR might say that they are going to OEM a new product, meaning they are going to offer a new product based on components from an OEM.

In the automotive industry, status as an OEM is a legal identification. OEM status (in the United States) signifies that the company's automotive products have been tested and validated according to Federal Motor Vehicle Safety Standard and Department of Transportation regulations. Examples of OEM automobile companies include General Motors, Ford Motor Company, and Toyota. The last remaining small OEM automobile company in North America is Saleen, Inc.. Small "tuner" companies do not qualify for automotive OEM status as they do not bear legal liability for vehicle safety or performance.

Some OEMs have also taken on a larger role in the design of the product they are manufacturing. The term Original Design Manufacturer (ODM) is used to describe companies that design and manufacture a product that is then sold under other brand names and does not necessarily acknowledge the Original Design Manufacturer brand.

OEM hardware can be purchased by end users at considerable savings of 30% or more. For example, OEM hard drives are purchased in a simple plastic bag without the additional cables or bulky box found in the more expensive retail package.

[edit] Software

OEM, when used to describe software, is used to differentiate that version of the software which is bundled with other hardware or software from that same software package sold on its own as a retail package. The packaging and legal rights that come with the OEM versions of a software package generally differ from what is provided with the retail versions. The functionality of the software is often the same, but it is quite common for the OEM version to be a version with reduced functionality. (For instance the OEM version of Cyberlink PowerDVD supports two-channel audio but not multi-channel sound systems. A customer who wishes to play DVDs with multi-channel sound is required to pay to upgrade to the full version).

OEM software may be licensed under conditions requiring that it be sold with computer hardware. To avoid contravening the conditions while passing OEM software savings on to end users, some retailers will sell OEM software with a "token" hardware device of small cost, such as a tiny SIMM or a cable splitter.

The practice of utilizing OEMs and Value Added Resellers (VARs) in today's cost competitive environment falls under the broader category of outsourcing - a popular business strategy which taps into the original manufacturer's ability to drive cost out of production of the product through manufacturing economies of scale; thereby being able to pass on a more competitive purchase price to the reseller which, in turn, makes each partner in the transaction more competitive.

[edit] OEM origin

OEM is a term that predates the computer/electronics industry. It refers to the "original equipment manufacturer" of a subassembly used in a manufacture of a larger item (e.g., Delphi is the GM OEM supplier of the climate control system for the Cobalt vehicle manufactured by GM).