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What does OEM mean?

OEM is short for Original Equipment Manufacturer, who produces products and components that he doesn’t sell to the consumer, but to other manufacturers. There are two different definitions: in IT, the OEM is the producer of products, components or software that he sells to the PC producer. A well-known example is a PC with Microsoft Windows, built and sold by Dell or HP. In this case, Microsoft is the OEM.

OEM in automobile- and machine-building

In the automobile and machine construction industries, the term is used differently. Here the OEM is the producer of a product put together from many others and sold under the own brand name. In these cases, the automobile- or machine builder is the OEM. Many brand name producer sell nearly similar products as OEM and a variant for the consumer market. OEM products can be slightly modified. There is also the possibility that they can be customized to match the special requirement of a customer.

Advantages and disadvantages of OEM products

If, for example, a car manufacturer bets heavily on OEM components, this has some benefits, but also some disadvantages:

Advantages:

  • high volume purchase of components mean better prices
  • long-term plannability
  • components can be customized to meet special requirements

Disadvantages:

  • dependency on the component producer
  • low short-term flexibility concerning volume and specification

Should the component supplier suddenly have problems in his production, this in turn would be a big problem for the OEM, as his production might stand still, as well.

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