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What Is an Original Equipment Manufacturer (OEM)? An original equipment manufacturer (OEM) traditionally is defined as a company whose goods are used as components in the products of another company, which then sells the finished item to users.

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An OEM is the opposite of a third-party manufacturer that produces parts for sale in the aftermarket. An OEM refers to something made specifically for the original product, while the aftermarket refers to equipment made by another company that a consumer may use as a replacement.An OEM is also different from an original design manufacturing (ODM), a type of private labeling for manufactured parts. An ODM company can produce and manufacture a product according to their own needs, but they may alter the design to meet a client company's specifications. These products may then be sold by the client under their own brand.For example, say a person needs to replace their car thermostat, created expressly for their Ford Taurus by ABC Thermostats. They may buy the OEM part, which is a duplicate of their original ABC thermostat that was used in the original manufacturing of the vehicle. Or they may buy an aftermarket part, an alternative made by another company. In other words, if the replacement also comes from ABC company, it is an OEM; otherwise, it is an aftermarket product.Aftermarket equipment can be cheaper than an OEM product, but it may also come with a significant downgrade in quality or product lifetime.An ODM arrangement does not have as much flexibility as an original equipment manufacturer, since the client is simply customizing an existing design. However, original design manufacturing has lower costs for research and development, leading to lower prices for the end consumer. Moreover, ODM products typically have a lower minimum order quantity, making them more attractive to smaller clients.

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