Original Equipment Manufacturer

From Wikipedia, the free encyclopedia

Original equipment manufacturer, or OEM, is a term that refers to a situation in which one company purchases a manufactured product from another company and resells the product as its own, usually as a part of a larger product the original company is selling. However, there is confusion among many as to whether OEM refers to the company that buys the product and resells it or the company that originally manufactured the product.

Term 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 OEM of the climate control system for the Fusion vehicle manufactured by Ford)

The term OEM (original equipment manufacturer) was coined in the 1950's by IBM. It designated a customer that purchased IBM computers and resold them as part of a larger product. The first OEM's sold oil refineries.

Contradictory uses in manufacturing

When a company purchases products or components from another company and resells the products or components with the purchasing company's name or logo on them (usually, but not always as part of a product), the company that resells the product is called the OEM, as in these examples and sources.^[1][2][3] For example, when IBM purchased Tandon floppy drives for IBM's original PC, IBM sold the floppy drive to the end user via sales of IBM's PC, and IBM was called the OEM in relation to the Tandon floppy drive. However, in another common usage, Tandon would be called the OEM in this example, as in these examples.^[4][5]

According to Search Data Center, the former meaning (the reseller is the OEM) is the modern meaning, and the latter meaning (the manufacturer is the OEM) is a holdover from an older usage.^[6].

The full extent of the confusion can be seen by browsing the contradictory definitions pulled up by Audit My PC from the results of various search engines.^[7]

In the above example also, the Tandon Floppy drive would be called an OEM product.^[8]. In the verb form, it would be said that IBM OEM'ed the Tandon floppy drives.

There is a growing market for the sales of OEM products directly to end users via online auction sites and such. An OEM product will differ from its retail version in price, the extent of the warranty, parts, instructions, and sometimes even functionality. 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.

VAR

For those who use the term OEM to refer only to the original manufacturer of the product (Tandon in the above example), the term Value Added Reseller or VAR is used to describe the reseller. Those who use the term in this way call the reversal in meaning a misunderstanding that arises from the 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. This could be taken to mean that the VAR considers themselves to be the OEM.

An OEM (original manufacturer, not reseller) 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.

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 sometimes 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). The OEM version of a software package may also be limited to be useable with the hardware it came with. For instance the Nero burning ROM OEM software only functions with the same brand burner it is bundled with.

Typically OEM software licenses require the installer to agree to additional terms to have a valid license. Microsoft requires certain conditions of distribution and support for its System Builders, which is how it describes the installers with privileges to use OEM licenses. The requirements include: automated methods of installation of the product; customization of the installation to identify the OEM; first level technical support of the product; application of a Certificate of Authenticity (COA) to the hardware; and distribution of original media and booklets.

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 an obsolete motherboard, single SIMM, or a cable splitter to satisfy the letter of the licensing agreement. This practice is questionable, and may open the end user to audits by publishers.

The practice of utilizing OEMs 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.

False OEM software in spam e-mails

Companies and websites passing off pirated and illegal software as "OEM software" have become a major source of e-mail spam. According to SurfControl OEM scams accounted, as of December 2003 , for 5% of all e-mail spam.[1]

ODM

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. Some OEMs (original manufacturers, not resellers) have taken on a larger role in the design of the product they are manufacturing and become ODMs.

Bulk components

Bulk components are actually not different from the retail ones, thus the adjective bulk should be correctly referred to the package, not to the component itself. It is a common abuse of language to talk about "OEM product" when "bulk-packaged" is intended.

Automotive

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 (FMVSS) and Department of Transportation (DOT) regulations. Examples of OEM automobile companies include General Motors, Ford Motor Company, Honda and Toyota. The last remaining small OEM automobile company in North America is Saleen. Small "tuner" companies do not qualify for automotive OEM status as they do not bear legal liability for vehicle safety or performance, nor are they required to provide any form of warranty on their products.

Aviation

In the aeronautics industry, OEM refers to the aircraft manufacturers. Examples of globally present OEMs in this industry are Boeing of the U.S., Airbus and ATR of France, Embraer of Brazil and Bombardier of Canada.

References

1. ^ http://www.webopedia.com/TERM/O/OEM.html
2. ^ http://www.helpwithpcs.com/jargon/oem.htm
3. ^ http://www.sandisk.com/Oem/Products/
4. ^ http://www.wisegeek.com/what-is-oem.htm
5. ^ http://smallbusiness.sagesoftware.com/OEM/
6. ^ http://searchdatacenter.techtarget.com/sDefinition/0,,sid80_gci214136,00.html
7. ^ http://www.auditmypc.com/acronym/OEM.asp
8. ^ http://compreviews.about.com/od/general/a/OEM.htm