These third-party producers, which keep global manufacturing running, can also bring your product to life. Find out what OEMs are, how they differ from original design manufacturers (ODMs), and discover what benefits aftersales markets can bring to your business.
Understanding original equipment manufacturers
Original equipment manufacturers (OEMs) make products and components that other companies sell under their name. OEMs range in size from small fabrication shops to global mega-manufacturers.
OEMs offer many advantages to brands. Among them, they can achieve economies of scale to make products and parts more cost-effectively. Also, as specialists, they can offer production quality guarantees. This can help free up money so that you can focus on other areas such as design or marketing.
OEMs in the supply chain
OEMs can play different roles within supply chains, depending on the contracts they have signed with their clients, but they generally operate business-to-business.
“You can have, say, a chocolate maker that sells to a department store which will put its branding on the packaging," says Samir Dani, Professor of Operations and Supply Chain Management at Keele University.
Larger OEMs will often engage with smaller OEMs to source smaller or more specialised components.
“Engaging closely with other OEMs in our supply chain has proven vital for our growth,” says Tom Humble, Chief Experience Officer (CXO) and Founder of ECD Auto Design, which provides specialised parts made in the UK for vintage cars, primarily Land Rover Defenders.
OEMs vs value-added resellers (VARs)
Value-added resellers (VARs) take parts or entire products from OEMs and sell them on to consumers. This can range from simply rebranding OEM products to assembling OEM components into the final product.
These VARs contribute significantly to familiar brand names seen in retail stores. They add their value to diverse products, from children's toys to appliances and automobiles, before these items reach consumers.
In the case of common goods like washing machines or electric heaters, VARs might integrate a unique control system into the user interface for added value. Others may provide additional enhancements.
“Some VARs, including some large retailers, will have assembly lines at their receiving warehouses, where they put the products together,” says Dani. “Others may simply have a packaging machine in which they box or bag products.”
Depending on the market or product, OEMs will decide to sell either to VARs or direct to consumers. For example, Bosch, the German engineering company, sells OEM parts to car brands whilst also selling home appliances under its name.
OEMs vs original design manufacturers (ODMs)
OEMs create and supply products based on the specifications of their VAR customers, whereas original design manufacturers (ODMs) research and design their own goods. Often referred to as "white label" or "private label" suppliers, ODMs produce unbranded goods that are sold under a VAR’s name.
Essentially, OEMs can provide businesses with bespoke products, while ODMs provide an "off-the-shelf" solution.
ODMs can be an attractive option for those businesses lacking their own research, design, and manufacturing capabilities. They're also sought after by businesses that have identified market gaps and want to act quickly with products that are ready to sell.
OEM vs aftermarket parts
Outsourced manufacturing can also include companies that supply non-branded aftermarket parts for ongoing maintenance. These are third-party companies that make spare parts or components almost identical to those made by OEMs, but without the OEM's logo or licence.
These products are less expensive because they usually aren’t made under licence of the OEM or brand. Depending on the terms of warranty, use of aftermarket parts can nullify any product warranties provided by the OEM or brand owner.
However, in other circumstances, aftermarket companies can become OEMs by default when the original manufacturer no longer produces the part - as can be the case with some of those components produced by ECD Auto Design.
“We do not hold licenses from Land Rover to manufacture parts or upgrade their vehicles – our customisations are done independently, based on the preferences and requirements of our clients,” says Humble. “By nature, we also provide aftersales support and services to our clients, offering maintenance, repairs and additional upgrades.”
Sourcing OEMs
Brands have market shares and reputations to protect. When sourcing suppliers such as OEMs they go to great lengths to ensure the companies they contract pay the highest attention to product design, safety and cost.
Contracts negotiated between OEMs and their suppliers will focus largely on invoices and payment terms. To give you greater flexibility in paying your suppliers, with the American Express® Business Gold Card you can have up to 54 days to settle your balance¹.
Quality assurance
OEMs are contracted to supply products that are built to tight specifications. The contracting company will insist on stringent quality controls because it will be on the hook for legal costs or reputational harm should a deficiency in a product cause injury or damage.
Quality assurance processes take time to put in place and that can pose difficulties for makers of fast-changing products, such as smartphones or laptops, which may be updated every six months. In this case, the OEM’s reputation for reliability will be a deciding factor.
“When the product lifecycle is short, you may find that by the time an issue has been found, the company would already have moved on to the next model,” says Dani. “In the aerospace industry, however, quality assurance is better because it needs to be monitored and traced within an aeroplane that lasts for 50 years.”
Identification of hardware and parts
Should quality issues be discovered in a finished product, or batch of products, the offending part must be identified so that the fault can be remediated. VARs and OEMs alike will keep close track of where each component was made so that faulty parts can be traced back to the source of production.
Researching OEMs
Businesses that outsource to OEMs should first identify their in-house production limitations and then look for suitable manufacturers to plug any gaps. Online B2B marketplaces can provide a means of connecting manufacturers and suppliers.
Industry organisations, such as the Society of Motor Manufacturers and Traders (SMMT) in the UK automotive sector, will also play a crucial role here. They maintain a registry of industry participants, including manufacturers and suppliers.
“Finding the right OEM suppliers is crucial for our business,” says Humble. “We carefully evaluate potential suppliers based on their quality, reliability, and ability to meet our unique customisation needs. We maintain strong partnerships with suppliers who can deliver the high-quality components required for our projects.”
Sustainability in manufacturing is now crucial, leading to increased public and investor examination of OEMs' operations. As a result, contracting brands and VARs typically request a sustainability report or evaluation from a sustainability auditor to determine how effectively an OEM manages its environmental impacts.
Are OEM products right for my business?
OEMs use their skills, tools, and spaces to manufacture high-quality, custom products at a premium cost.
Buyers may alternatively source parts from aftersale suppliers, who make almost identical parts more cheaply, only without the licence's warranty coverage and other guarantees associated with parts made by OEMs. Buyers can lower their costs by using trusted aftersales providers if they are prepared to bear the costs of any faults in the products.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
