What Is OEM and Why Is It Important for Your Business?
Did you know that 80% of all iPhone screens actually come from Samsung?
If that’s surprising, then you’re in for even more surprises. Thousands of companies purchase third-party components rather than producing them in-house. The process is so common that it even has a name: OEM.
What is OEM? It’s a way for businesses to get high-quality components without draining their resources on building them themselves. It’s such a common practice that even giants like Apple and Ford make use of it.
Most importantly, OEM can benefit a small business as well. Keep reading as we discuss the importance of this concept, and how it can improve everything from prototype design to production.
What Is OEM?
OEM stands for original equipment manufacturer. In layman’s terms, this is when an established manufacturer makes a specific component that they sell to other companies. For example, Samsung screens.
Those other companies purchase these parts and use them in their own products. However, they brand their products as entirely their own.
So when you purchase an iPhone, it’s likely that you have a Samsung screen. But nowhere on the packaging or in the advertising will you see the word Samsung. Apple purchases the screen but gives none of the credit to Samsung.
It’s a win-win for both companies. Apple gets a high-quality screen to better sell the product, and Samsung makes a profit. Samsung then gets more business when other companies come to them to purchase screens.
This is a mutually beneficial relationship that you can find both in the electronics world and beyond. Many car manufacturers thrive off of OEM parts, for example.
What Is the Benefit of OEM Parts?
On the surface, it may almost seem like cheating. Apple is a multibillion-dollar company. Why do they not make their own screens?
The answer is quite simple: creating the production lines to make the screens is quite expensive. It requires invaluable industry knowledge, highly-skilled engineers, and highly-specialized machinery. Building the production lines just to create this single component can cost millions or billions of dollars.
You can observe the same phenomenon with computer chips. A single Taiwanese company dominates the market for silicon wafers. Virtually every company on the planet that requires silicon wafers has to purchase them rather than make them themselves.
In the case of semiconductors, creating a single facility to produce them costs billions of dollars. That facility quickly goes out of date and requires a costly overhaul every few years. This means that most companies simply cannot produce semiconductors affordably.
Using Apple as an example again, many components go into a single iPhone. They have radios, flash memory storage, batteries, and so forth. Producing all of these components in-house would result in an iPhone that costs thousands of dollars.
In other words, purchasing OEM parts gives you high-quality, industry-standard products without needing to fund your own manufacturing equipment and production lines. The benefits and savings with OEM far outweigh the cons.
Why Is OEM Important for Your Business?
Apple cannot afford to make everything in-house, and neither can a small business. OEM is invaluable for your business because it brings the cost of production down without sacrificing overall quality.
Further, there are some myths surrounding OEM parts. One common myth is that OEM products cannot be custom. They say that you are stuck with the way a manufacturer produces them even if it doesn’t meet your standards.
This simply is not always the case. Many manufacturers can completely retool their factories to produce OEM parts to your desired specifications. Apple, for example, has considerable influence on how Samsung produces Apple-specific screens.
In addition to this, OEM gives you freedom thanks to the free market. If you are not satisfied with the OEM products of one company, you can often go to another. With the exception of a few industries like semiconductors, there is flourishing competition.
Last but not least, you can save money by purchasing in bulk. It’s far cheaper to make a large run of products than to make smaller numbers one at a time. Establishing a long-term relationship with an OEM manufacturer can save you a lot of money.
How Does OEM Work with Your Business?
So you are sold on the concept of purchasing OEM parts. Now the question is, how do you get started?
First, you will want to contract a Chinese manufacturer. China has a low cost of living, and therefore labor is far more affordable. For this reason, there are thousands of Chinese companies ready to produce Western products at reasonable prices.
You’ll need to take the time to find a reliable company, as you’d want to avoid getting ripped off. But once you get a decent assembly partner, this will be an invaluable business partner for life.
You’ll need to take the time to establish bona fides. You can often find reviews and references from other Western companies. If they had a bad experience with a particular manufacturer, then it behooves you to stay away from them.
You will need a cultural and language liaison when collaborating with a foreign manufacturer. You may need to visit their factories to get a lay of the land.
You will also need to take steps to protect your intellectual property. Some companies have struggled to keep a leash on their IPs when dealing with Chinese companies. This is rare, but it is a caveat you should be aware of.
Get Your OEMs with Shield Works
What is OEM? It’s the most affordable way for companies to obtain specialized parts without building them in-house. OEM parts are high-quality and don’t require your small business to build a production plant for a single component.
Shield Works provides customized assembly, manufacturing, and other related services. Contact us today and find out how we can help you build your products of tomorrow.