Apr 25, 2021
An Original Equipment Manufacturer is a company that manufactures a product based on the design of another company.
A perfect example is Foxconn, which manufacture phones for Apple, they don’t do any R&D nor design work for Apple’s products.
For a company like Apple, doing the design of their products – even though they don’t manufacture them, means that at the very core, the product will have qualities unique to the company.
They – the company doing the design, retains IP, not the OEM manufacturing company.
A really out there example of something that follows a similar route but is not at all related to technological manufacturing would be third party reproduction.
If a couple gives the makeup of their baby to another person, to carry it for them. The baby born would not be related to the person that birthed it even though she was the one who carried it.
In regards to Original Equipment Manufacturer, there aren’t many terrible companies out there because the word would get out pretty rapidly.
Imagine if one OEM was given the recipe to AirPods by Apple, and ended up making standard earbuds; they’d never work for a big brand again.
OEM vs Non OEM, Which is Better for Your Business?
An OEM might not be the manufacturing partner you need if you’re trying to build a business around say, mass consumer electronics such as Bluetooth speakers or e-scooters.
For this, a non OEM (ODM List of Companies) will be the ideal manufacturing partner for you; they already have invested in R&D, have the molds, and set up production lines that are ready to receive orders.
You can still make branding changes such as product color or printing logos and patterns on the plastic parts.
This article that will help you figure out what you need.
Keep in mind that by its own nature, OEMs deal with products that use up millions of dollars for development, they can not screw up as that would mean huge losses of money for their customers and risk never being in business again.
So everyone involved in the process needs to be very experienced and equipped to make sure nothing goes amiss.
This sort of interaction is incredibly common among many well-known companies that you have probably heard of, for example, Foxconn, a Taiwanese OEM, makes products that are designed by Apple, Huawei, Google, Dell, and Nintendo.
The OEM business model is very common and is also all around you.
What is the Benefit of Partnering Up with an Original Design Manufacturer?
The benefit of using an OEM as a manufacturer is that the designing company doesn’t have to worry about the whole manufacturing operations.
Instead, they can focus on other aspects of the business such as sales and marketing.
What are The Disadvantages of Working with an OEM?
There are not disadvantages really, it’s just more challenging, time consuming and expensive.
If you’re going to work with an OEM that means that you will first invest a lot of money doing all the product research and development.
Apart from spending a lot of money, you’ll spend a lot of time until you have a prototype that can then be taken to mass manufacturing.
You’ll also have to do testing to make sure the product meets any required certification – this can take months.
You will also have to pay for setting up a new production line, including plastic injected molds which are always very expensive.
But you already planned for all of that, so what else could go wrong?
Original Equipment Manufacturer (OEM) and IP Protection
Well, if your product becomes a hit in the market, chances are that someone will want to copy your product, after sending so much money on R&D that’s the least you want.
Make sure you do some work to protect your IP. In a way, many companies that use OEM must feel like Coca-Cola.
Carefully guarding their secret formula and ensuring no competitor gets their hands on it.
Some will go to the extent of splitting the manufacturing process into 2 or 3 plants, that way no one knows the full recipe.
You can also make sure to thoroughly research OEM companies to see if the previous companies that have used them are happy with them or have experienced any negative ripping off.
Some recommend using a fake design when trying to find your OEM manufacturing company so that not too many know the real design before they get started.
We definitely recommend protecting your IP. but as we mentioned in our DFM Rules article, do not take it too far.
If you’re working on a new to the market electronic device please read that article.
What is OEM Trade?
OEM trade usually refers to the sale and purchase of OEM parts, by OEM parts, we’re talking about original parts from the manufacturer.
This OEM trade, looking to but parts made by the manufacturer is something you’ll mostly hear about in the automobile industry.
Many, in an attempt to find a better deal, try to get parts directly from the car manufacturers instead of the car dealers, and so the OEM trade term is born.
An OEM company is in charge of the complete manufacturing process, which includes final product packaging.
While a company like Apple, the product designer, will also be very specific on what the packaging designs will look and feel like, it is up to the OEM plant to source the materials and set up the packaging line.
OEM packaging also involves custom boxes, crates, skids, pallets, and other materials that are used to ship the product from the manufacturing plant to warehouses and then the retail store.
There’s a lot that goes into OEM packaging, which is why some OEM companies might even decide to outsource this particular operation to other companies.
Since we’re talking about packaging, here’s an article about sustainable packaging for electronics.
Now you know that an OEM follows another company’s product design to come up with the end product.
So, if a product is defective, who is responsible for fixing or replacing it?
Well, if you’re an end customer, say, you bought an iPhone and is defective, you would go to an Apple store and get it fixed or replaced according to the Apple warranty terms.
You, as an end customer, wouldn’t go to an OEM for warranty claims.
But if you’re Apple, and your OEM partner is Foxconn, and a whole batch of iPhones is defective, then of course Foxconn is responsible for fixing or replacing the defective product as it is probably stated in an OEM warranty agreement.
OEM sales make up a big part of the global economy, but because of the nature of OEM, not many talk about OEM sales.
It’s the brands like Samsung and Apple that get all the coverage.
OEM sales continue to increase year after year as their presence across different industries continues to grow.
You’ll find OEMs in the following industries
- Computers and Peripherals
- Consumer Electronics
- Industrial IoT