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What are OEMs?

What is an OEM? Do you need an OEM? What kind of values do OEMs provide? These are all common questions with regards to OEMs. This post will explain OEMs and provide examples of how Apple and the automobile industry works with them.

First, real quick, we understand that some people are visual learners. If that is you, check out this video on YouTube.

OEM, or Original Equipment Manufacturer, is the original company that has manufactured a product, part or component. They keyword in this definition is “original.” This means an OEM is the company with the production lines, machines, labor and other manufacturing operations needed to run a factory to make your product or part. Usually the client will provide the OEM with their design, specifications and requirements and the OEM is tasked with using their machines to make the part for you. Remember, if the supplier does not have the machines to make your part, then they can’t really be an OEM.

The most common reasons to use OEMs:

  • Expertise: OEMs understand how to make products that they specialize in. For an example, Apple leverages the skills, resources and expertise of Foxconn. Foxconn specializes in electronics manufacturing and final assembly or consumer electronic products. So, instead of Apple investing into a manufacturing plant and worrying about all of those operational headaches, they outsource this out to Foxconn.

  • Quality: OEMs have quality control processes in place that are proven to work. To compliment their internal processes, they also have quality procedures set up for their suppliers that provide raw materials and sub-components.

  • Quick Lead Times: Rather than taking time to invest into your own facility, an OEM will have the infrastructure in place already. OEMs, also have relationships with raw material suppliers that can get materials quickly to be fabricated for your part.

The most common example of brands leveraging OEMs will be Apple’s relationship with Foxconn. As everyone knows, Apple designs, develops and sells consumer electronic products, but they do not own the production lines to make these products. They contract this out to a company that has the production lines to make it. In this case, Apple contracts production and assembly out to Foxconn, a Taiwanese electronics contract manufacturer.

Foxconn is not responsible for making all of Apple’s parts but instead they are mostly responsible for final assembly. Apple works with many other suppliers and semiconductors (Apple’s supplier list can be found here) that provides parts for them.

For an example, the processor in their phones is made by Intel, their SDRAM by Micron, the camera’s for Sony and the Flash drive is from Toshiba. These companies are tasked with making these components for Apple and they most likely will not put their logo on it – that’s why you see the Apple logo on certain parts if you take a part your Apple product. You can view these companies as OEMs.

For another example, below is a picture of an iPhone XS board that iFixit posted of a recent teardown. The SoC highlighted in red is Apple’s A12 chip. This part is designed by Apple but manufactured by TSMC, a Taiwanese semiconductor company. TSMC manufactures the part but as you can see from the below picture, puts Apple’s logo on it.

Automobiles is another industry that leverages OEMs as well. However, they don’t quite work together the same way as consumer electronics do.

Let’s imagine you have a new Ford car. Inside this car, you will have seats, tires, a radio, engine and so many other parts and components. However, Ford does not make all of the parts, even if their logo is on it.

Ford does not have the capabilities, resources and expertise to make each part for their car. In fact, most parts found inside your car are not made by the actual brand (Ford in this example) but are supplied by OEMs that specialize in making that specified part. Ford finds huge value in working with OEMs because these OEMs place all of their attention in making their niche part.

Those OEM parts in your Ford car might also be distributed to multiple other car brands as well. These OEMs will remove the Ford logo and put the logo of the respected brand on the part.

If one of these OEM parts do happen to breakdown then you will look at replacing the part with either an OEM part or an aftermarket part. The advantage of OEM parts is that it came with the original car so you know there will be no compatibility issues. It tends to be more expensive, but you have a 100% guarantee that it will fit properly in your car. On the other hand, an aftermarket part is from a third party. Therefore, this is not the same part your car originally had. This part might be perfectly fine but more research will be needed by you to ensure it’s compatible with your model and year.

If you need some additional information, please feel free to reach out to us.

If you enjoyed this post, you will also like What is Contract Manufacturing.


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