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Original equipment manufacturer - OEM

An original equipment manufacturer, or OEM is typically a company that uses a component made by a second company in its own product, or sells the product of the second company under its own brand. The specific meaning of the term varies in different contexts.

Aeronautical industry

OEM refers to the aircraft manufacturers. Examples of globally present OEMs in this industry are Airbus of Europe, ATR of France/Italy, Boeing of the United States, Bombardier of Canada, Embraer of Brazil, and United Aircraft Corporation of Russia.

Automobile industry

OEMs are the industry's brand name auto manufacturers, such as General Motors, Ford, Toyota, Volkswagen, Hyundai, Honda, Mitsubishi, etc. The OEM definition in the automobile industry constitutes a federally licensed entity required to warrant and/or guarantee their products, unlike "aftermarket" which is not legally bound to a government-dictated level of liability. OEM also applies to a multitude of licensed component manufacturers, such as Bosch, BBS, NGK, Pagid, Ferodo, GUD etc. While these meet the industry definition of OEM, they are frequently called OEM Suppliers within the industry to prevent confusion with the automobile brand names. Identical products, such as spark plugs, may be supplied through official franchised dealers in appropriately branded packaging (Volkswagen, General Motors, etc). The same product may be supplied through general auto retail outlets (in the UK - Halfords, A1 Motor Stores, etc), or 'trade' motor factors (UK - Partco, Euro Car Parts, APD) in the manufacturer's original branded packaging. OEM also refers to brands of components that an automaker uses in their particular vehicles. For instance, Mark Levinson audio is used in Lexus vehicles. Also, major tire manufacturers (Michelin, Bridgestone, Goodyear, etc.) produce a line of OEM tires that are factory-installed as standard equipment on many vehicles; these companies also produce other more expensive series of tires for motorists that want higher performance.

Electrical switchgear

Many OEMs exist across the United States to manufacture electrical equipment. These OEMs exist because typically the "national" manufacturers lack the ability to adapt to certain needs (ie. special data-center requirements, dimensional challenges as well as speed of delivery). An example of one of these OEM's is California-based Industrial Electric Manufacturing (IEM).

Computers

Beside referring to manufacturers, OEM can be used as an adjective to describe software licensed only for a particular system. OEM software is purchased alongside a system or hardware parts. OEM software is often cheaper than the full versions but not as cheap as academic or student editions. OEM hardware is hardware packaged for computer administrator and builder use. These products are normally plain boxed and often don't come with any instructions or references provided in retail packages. Technical support for such "OEM products" is usually the responsibility of the reseller, rather than of the manufacturer. OEM hardware is also called bulk hardware.

Operating systems

There are two types of OEM when it comes to operating systems. The first is when a pre-built computer is purchased, there is an OEM disk that comes with the system, which can not be transferred to another one, because that disk is designed to run only with the specific system components. The second type of OEM operating system is one that can be transferred to any other system, without the dependence on the components.

Contradictory uses in manufacturing

When a company licenses products or components from another company and sells 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.[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. 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. 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. 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 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 usable only 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. Such conditions have been ruled null and void by the courts of some countries, such as Germany. In those countries where they are deemed binding, 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.

Term origin

OEM is a term that may have been coined in the 1950s by IBM to refer to a vendor that purchased and resold their computers[citation needed], also soon after in the early 1960s by Digital Equipment Corporation and its vendors.[9][10][11] OEM refers to the manufacturer of a component of, or subassembly used in, the production of a larger item.

Bulk components

Bulk components are often mistakenly referred to as OEM products. However, these do not actually differ from retail versions except in their packaging and/or the way they are procured.

Value Added Reseller (VAR)

When the term OEM is used to refer only to the original manufacturer of the product (such as with computer hardware), the term Value Added Reseller is used to describe the reseller. The use of OEM as a verb results in the common misunderstanding/reversal of meaning. 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. However, this could also be taken to mean that the VAR considers themselves to be the OEM. An OEM 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.

Original design manufacturer - ODM

An original design manufacturer (ODM) is a company which manufactures a product which is eventually branded by another firm for sale. Such companies allow the brand firm to produce (either as a supplement or solely) without having to engage in the organization or running of a factory. ODMs have grown in size in recent years and many are now sufficient in size to handle production for multiple clients, often providing a large portion of overall production. A primary attribute of this business model is that the ODM owns and/or designs in-house the products that are branded by the buying firm. This is in contrast to a contract manufacturer (CM). This model is especially used in international trade, where a local ODM is used to produce goods for a foreign company which sees some advantage in the transaction, such as low labor inputs, transport links or proximity to markets. This is also used where local ownership laws possibly prohibit direct ownership of assets by foreigners, allowing a local firm to produce for a brand company for either the domestic market or export. This type of business is part of "outsourcing". An example is Compal Electronics, which makes notebook computers and monitors, and operates as a mass producer for numerous brand companies, assisted by low labor costs, low-cost transport, and the near commodity nature of the physical inputs (in Compal's case, computer components). The market research firm iSuppli issued a report in 2006 which demonstrated that 82.6% of PC notebooks are made in Taiwan by Taiwanese original equipment manufacturer (OEMs) and ODMs.