Entrepreneurship lives in the American Spirit as surely as independence, as evidenced by the approximately 32.5 million small businesses across the nation. Yet, despite that independent, entrepreneurial spirit, business is a collaborative endeavor.
Let’s say you design a new product and want to take it to market. Unless you plan on manufacturing every single part in that product, you’ll rely on parts produced by others. When customers need replacement parts, where do they turn?
Both of these problems are solved by using an OEM or original equipment manufacturer. Not clear on what an OEM manufacturer is, does, or how to pick one? Keep reading for our breakdown of the OEM’s role and tips for selecting one.
What Is an OEM Manufacturer?
An original equipment manufacturer fills a specific niche in the world of goods production. They make parts that other companies use to finish their products.
Take electronics production as a case in point. Almost every piece of electronics and, these days, most electrical appliances use circuit boards. While the electronics company may design the circuit board, most of them rely on other companies that specialize in printed circuit board manufacturing to produce the actual boards.
You see similar cases in car manufacturing. Auto manufacturers buy parts like glass and radios in bulk and install those parts in their vehicles.
How Does OEM Manufacturing Work?
OEM manufacturing typically works in one of two ways. In the first case, the OEM manufacturer produces a part in bulk that lots of other companies use as designed.
For example, a ball bearing manufacturer might simply produce ball bearings in a set of specific sizes and materials. Businesses that need ball bearings will design their products around the available sizes and buy from that company. The ball bearing manufacturer is an OEM manufacturer because all of the other businesses use their products as is.
The other option is when a business works directly with a contract manufacturer. In those cases, the business typically needs a custom part that they can’t get elsewhere.
For example, a product might need a part with a specific level of precision. While similar parts might be on the market, they don’t meet that level of precision. The business will then work with the contract manufacturer to design and make the part to the right level of precision.
OEM vs. Aftermarket
You traditionally see OEM contrasted with aftermarket manufacturing. Aftermarket manufacturers make parts that work with a product but were not made by the OEM.
These parts often perform as well as OEM parts, but not always. In some cases, such as car parts, aftermarket parts are generally considered generic or cheap stand-ins for OEM parts.
Selecting an OEM
Selecting an OEM might look simple on the surface, but it’s a fairly complicated process for businesses. Let’s take a look at some of the biggest factors you need to keep in mind.
OEM manufacturers tend to specialize. For example, they may specialize in working with particular industries.
Let’s say that your business produces food preparation equipment for restaurants. A lot of food prep equipment is made from specific grades of stainless steel. Minimally, you want an OEM that works a lot with steel and, preferably, one that has experience with production equipment.
That experience on their part will save you a lot of headaches because you won’t need to walk them through why you’ve chosen a particular material for a part.
On the other hand, let’s say that you make toys. In that case, you probably want a company that deals a lot in plastic extrusion and has experience with toy production. In that case, as long as they understand safety requirements for toys, they can offer you recommendations about materials.
In many cases, one of the biggest factors is whether the OEM can offer customization services for your part. Most contract manufacturers will offer some level of customization, but the service may prove limited in some ways.
For example, they may only offer customization for certain kinds of materials or processes. You should do a little research and even contact the companies in advance to get a handle on what kind of customization services they offer.
Another factor you must keep in mind is the overall cost. Manufacturing is an expensive proposition, but it’s often substantially more expensive to do OEM manufacturing domestically. The labor and overhead costs for the OEM are just higher when they operate in the US as opposed to overseas.
You can often find OEM manufacturers in China that will cost you less, even when you add in the shipping costs. While part costs aren’t the only concern, they can make a real difference in your per-unit profits.
If you can get the parts made to your specification levels for less, it’s practical to do so.
You must also keep an eye out for production minimums. Depending on the company, they may require that you order a certain number of the parts before they’ll even consider taking you on as a client.
For example, some companies might require a minimum order of 500 parts, while others might require a minimum order of 5,000. Given that setup is often the most expensive part of setting up a production run, these minimums make sense. Yet, the order size minimum for a company might prove higher than you need or want.
OEM and You
An OEM is often the best and only solution for businesses that need specific, customized parts. Of course, picking the OEM is often the bigger challenge.
You must consider many factors. Does the OEM have experience in your industry? What are the overall costs?
Does the OEM offer customization services that meet your needs? Will you meet the minimum order threshold for a company? When you need a part made just so, however, there is no replacement for a good OEM partner.
Shield Works specializes in OEM manufacturing. For more information about our services, contact Shield Works today.