Know-How Exchange : Other

Hi gpotocar,

This confusing term has two meanings:

1) Originally, an OEM (original equipment manufacturer) was a company that supplied equipment to other companies to resell or incorporate into another product using the reseller's brand name. For example, a maker of refrigerators like Maytag might sell its refrigerators to a retailer like Sears to resell under a brand name owned by Sears. A number of companies, both equipment suppliers and equipment resellers, still use this meaning.

2) However, more recently the term can be a misnomer because OEMs are not the original manufacturers - they are the customizers. OEM is used to refer to the company that acquires a product or component and reuses or incorporates it into a new product with its own brand name.

3) Along these lines you also have a VAR (value-added reseller). This is a company that takes an existing product, adds its own "value" usually in the form of a specific application for the product (for example, a special computer application), and resells it as a new product or "package."

I hope that helps.

Under Pepper Blue's answer, I had never heard of the description of 1) being used for OEM. The term we used for that was Private Label. But I guess it is showing a historical side that I didn't know.

I managed OEM products as part of my Product Manager job for a division of a Fortune 500 (though it was a very small part of our business). Michele's answer is quite good. Some additions I had:

- the buyers are often a lot more concerned about price than if you sold entire components. And they are generally buying much higher volumes, so have a lot more say in price.

- the quality issues mentioned are not always the same as what other customers need. They are concerned about manufacturablility of your part (installing it into their system), along with the standard needs related to its function once installed.

- there is a lot of support required up front to spec the product in to the design. They won't buy until they know it fits into their entire system, and they are trying to fit it while they are also designing everything else. Means that the whole design is in flux - you could spend a lot of time trying to get them to use your product, and all of a sudden it gets designed out because of some other change made now prevents them from using yours. It goes the other way too - you get last minute rushes to see if you fit for an application you weren't chasing because they now need to meet a new spec due to design changes.

- you will hear of them asking for changes to your product

- if the industry you sell to has JIT manufacturing, delivery becomes a big issue.

Hi,

From a business perspestive there are two keys marketing features that makes the OEM business model very different.

The first issue is to win business you have to get designed-in at the design stage of the customer's end product, e.g a computer as part of a CATT scanner or an engine as part of a car. If you don't win the business at the design stage it is unlikely that your customer will change a key component half way through the life of a end product. There are lots of issues to address to win the design-in, such as compability with earlier models, conformance to regulatorly standards, the guarentee of availability of spares for several years. volume pricing, etc.

The second issue revolves around demand and forecasting. The demand for your product is based on derived demand, i.e. there is no demand for engines as such, rather is there demand/forecast for cars and this results in a one-to-one derived demand for engines. Getting your production schedule right is critical. If your customer has built (say) several hundred CATT scanners, but can not ship them because you have not shipped the computer that has been designed-in, your customer can not change the design at short notice to use an alternative computer. Your customer customers will be very upset and you will be in real trouble. The result may well be that you don't get designed-in to the next generation of CATT scanners.

Hope this helps
Pat Divilly
CEO MarketWare International
www.marketware.biz

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