OEM Specifications

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 by augmenting or incorporating features or services, it adds 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.

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 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

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.