![]() sells pre-designed and/or finished products.Īn OEM can still attach its own branding such as a logo (or participate in a licensing agreement), but the design tends to be pre-determined by the specifications provided by the customer (i.e. The distinction between the two is that the ODM designs the product themselves and manufactures it, i.e. ![]() ODM: What is the Difference?Īn original design manufacturer (ODM), much like an OEM, also builds products for another company. Since OEMs handle a specified stage of the production process, VARs can shift more of their time and effort to integrating features that enhance the end product. The relationship between an OEM and VAR can be best described as mutually beneficial because both sides rely on each other. From the OEM’s perspective, the reason the business model is feasible in the first place is because of the consistent end customer demand from VARs. VARs partner with OEMs to save significant time and capital, as well as to focus on developing and incorporating their technical features. The producer of the initial product is the original equipment manufacturer, while the buyer from an OEM is the value-added resellers (VARs).īefore selling the finished products to potential customers, the value-added reseller (VAR) integrates its own unique set of features into the OEM’s product. Value-Added Reseller (VAR): What is the Difference? outsourcing to an OEM to reduce the production and material costs (and focus on delivering their differentiated value-add). The decision to partner with an OEM typically comes down to the company’s core competency, where the company weighs the pros and cons of in-house production vs. Most OEMs partner with numerous manufacturers and related companies, so their products are manufactured at a larger scale (and thus lower costs) while delivering features that are on par (or better) than if it was manufactured in-house. OEMs are perceived as more efficient due to the concept of economies of scale, where increased output causes an incremental decline in the per-unit production costs. By partnering with a third party, a manufacturer (or reseller) can reduce costs and improve their profit margins since there is no need to build out certain in-house manufacturing facilities and manage production. Therefore, original equipment manufacturers (OEMs) could be viewed as a form of outsourcing. What is the Conceptual Meaning of an OEM? OEMs play a critical role in reducing production costs, especially for less established companies that lack the capacity to build all equipment/components in-house. The OEM business model initially gained traction in the computer software industry but has now spread and become deeply ingrained across industries such as automobiles, information technology (IT), hardware components, and advanced manufacturing. The purchased OEM parts are integrated into the VAR’s system until deemed marketable and able to be sold under the VAR’s branding (i.e. the value-added reseller (VAR) – now shapes the item into their desired end product. On the other side of the transaction, the purchaser of the finished item – i.e. The term original equipment manufacturer (OEM) describes any manufacturer of parts, components, or products with the intent to sell them to other companies (B2B). What is the Definition of Original Equipment Manufacturer (OEM)? The purchaser of an OEM’s product is called a value-added reseller (VAR) because they strive to improve upon the original product by incorporating additional features, which are often highly technical and differentiated. ![]() An Original Equipment Manufacturer (OEM) produces equipment, parts, and components on behalf of another company. ![]()
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