The driving force behind innovation and productivity in the United States is the Original Equipment Manufacturer (OEM) industrial marketplace, the backbone of supply chains that serve the automotive, aerospace, electronics, and industrial machinery industries. OEMs are a group of specialized manufacturers who produce components, subsystems, and technologies that are integrated into finished products by Value-Added Resellers (VARs) or end product manufacturers.
Operating in a business to business (B2B) environment, OEMs provide efficiency, specialization, and scalability that allows their customers to focus on design, branding, and customer experience, while OEMs provide high-quality, mission-critical parts. The structure, industries, and distributor relationships in this ecosystem are essential for American manufacturing and industrial production to continue to evolve in a global, digitally connected economy.
Working with an OEM source is important for reducing maintenance costs, improving asset performance, and removing downtimes. OEMs are part of the grand scheme of modern manufacturing in that they provide the cooperation, teamwork, and resources that alleviate certain aspects of industrial operations. They produce the parts, components, machinery, and equipment that enables manufacturers to produce their end products.
OEMs have capabilities that their clients do not have that include the resources and facilities necessary to complete finished end products. Essential parts are outsourced to OEM companies, who use their expertise, high quality tools, and trained staff to manufacture needed parts. In essence, OEMs are a service for VARs that enables VARs to sell their products to end users or the public.
In essence, OEMs provide a “finished” product that can be a component of a larger product, such as a Briggs & Stratton engine for a Toro mower. In such an instance, the engine can be sold alone as well as part of a mower. The concept of OEMs stretches beyond the traditional view of manufacturing where a company produces every part or component of a product.
The concept of OEMs is in some ways similar to Henry Ford’s little factories that were placed in rural areas around Detroit to provide support for small towns. Local residents and farmers were given jobs for producing parts for Ford’s larger plants closer to Detroit.
Before digging into the many facets of OEMS, it is important to understand the difference between OEMs, ODMs, and aftermarket, which can be confusing. Industrial operations and manufacturers need to understand the differentiation between these three key market components in order to comprehend the spectrum of modern manufacturing.
An OEM is a manufacturer that has the abilities to produce products in accordance with customer specifications. The items OEMs make meet the exact parameters required by their client, including machinery and raw material’s constraints. OEMs provide solutions for a wide array of companies who have limited resources and limited manufacturing capabilities.
The skills of OEMs make it possible to produce products without concerns regarding buildings, staffing, and maintenance issues. Clients manage product design, do market research, marketing, and product testing while OEMs produce the parts and components to ensure the quality of final products.
The success of an OEM depends on being “designed in” to the first generation of a product. When the product becomes successful and accepted by federal agencies, such as the FDA, the OEM is locked in for the life of a product, assuring them ongoing work and sales. This is another example of the codependency between OEMs and VAR.
This factor of OEMs and VARs working together is the reason that VARs work closely with design engineers at OEMs to build custom solutions to match an OEM’s specifications. The working relationship can guarantee a five to ten year run.
ODMs are completely different from OEMs. They conceptualize, research, design, and manufacture products in house for their customers. ODMs operate as white labels where products are designed and produced as a generic brand sold to other businesses or as private labels for a key market. In essence, ODMs do R and D, testing, and manufacturing of complete products for another company.
| Original Equipment Manufacturer (OEM) vs Original Manufacturer (ODM) vs Aftermarket | |||
|---|---|---|---|
| Feature | OEM Parts | Aftermarket Parts | ODMs |
| Definition | Parts produced by the original manufacturer for use in their products | Parts produced by third party companies for replacement, repairs, or upgrades | Companies that design and manufacture products to be rebranded by other companies |
| Quality | Typically, higher quality, designed to fit and function exactly like the original parts | Quality can range from lower than to higher than OEM, depending on the manufacturer | High-quality, often customized to meet specific requirements of the brand purchasing them |
| Price | Generally, more expensive due to higher quality and precision | Less expensive but can cost more for high-performance parts | Varies based on customization and production scale and can be competitive |
| Warranty | Often come with warranties from the original manufacturer | Warranty varies by manufacturer; some may offer limited or no warranty | Typically provided by the ODM to the brand, which then offers its own warranty to end customers |
| Business Focus | Focuses on manufacturing components for integration into the company's own products | Focuses on producing parts for the aftermarket, often for repair and upgrade purposes | Focuses on designing and manufacturing products to be sold by other companies under their own brand |
| Product Customization | Limited customization; parts are made to specific standards for the original products | Offers a wide range of options; consumers can choose based on performance, price, and other preferences | High level of customization; products are designed to meet the specific needs and branding of the purchasing company |
| Examples | Automotive parts (brake systems by Bosch for Volkswagen) | Car accessories, computer components like graphics cards | Consumer electronics (e.g., smartphones designed by an ODM for a major brand) |
One of the confusions about OEMs is in regard to aftermarkets, which produce parts, components, and sub-components that are built to be like OEM products. Parts manufactured by aftermarket companies are used for the repair or enhancement of original products. Aftermarket is a secondary market that sells parts for products that have been sold on the original market. They attempt to compete with OEMs, which is challenging due to the adherence by OEMs to manufacturing regulations. The prevalence of aftermarket is mostly found in the automotive industry.
The one factor that stands out regarding aftermarket parts is their cost, which is much less than OEM parts. The difference in cost is achieve through production methods and the types of raw materials.
The benefits of OEM parts are
The foundation of modern industrial manufacturing is built on the products provided by OEMs. The largest companies in the world depend on OEMs as sources for a wide variety of services that support, enhance, and provide capabilities that would otherwise be too costly and time consuming.
The partnerships between OEMs and VARs reduce costs and expand the market reach of a company. Companies can focus on their strengths while OEMs provide high quality parts and components. Partner management ensures quality and streamlines the supply chain as it facilitates global expansion.
Automotive Manufacturing: In the automotive industry, OEM partnerships are critical for sourcing key components like engines, transmissions, and electronics.
OEMs like Bosch and Continental manufacture components that are integrated into cars sold by BMW, Ford, and Mercedes-Benz. These partnerships are crucial for maintaining product quality and meeting production deadlines. Manufacturers partner with OEMs to ensure timely delivery and compliance with safety standards.
OEMs offer companies the opportunity to purchase specialized reliable components at low cost using the expertise and technical capabilities from experienced manufacturers. The heart of modern innovation can be found in OEMs, who push their boundaries by investing in research and technologies to improve their components and create new solutions.
The OEM industrial market is diverse encompassing a wide range of industries. It involves companies that produce components or products that are integrated into products sold by other companies.
Industries Included in the OEM Industrial Market in the USA:
Automotive: OEMs supply engines, transmissions, and electronic components to auto manufacturers. The process involves a tiered supply chain where different suppliers contribute components at various levels.
Medical Devices: OEMs for medical devices are specialist in the manufacture of medical equipment, including scanners, surgical tools, and monitoring systems. The strict regulations regarding medical instruments requires manufacturers to adhere to government and professional standards.
Essentially, the OEM market includes any industry where manufacturers rely on other companies to produce parts or subsystems for their final products.
Technology has revolutionized production processes and changed the fundamentals of modern manufacturing. OEMs are prepared for the innovations that will improve efficiency, productivity, and sustainability. The injection of the many new technologies is transforming the way companies do business.
Artificial Intelligence (AI): AI is reshaping how OEMs run their businesses. It is predicted that the use of AI will improve efficiencies, provide predictive maintenance, optimize product design, augment customer analysis, and enhance after sales support.
Internet of Things (IoT) Devices: IoT collects real time data on machinery and equipment, which is used to monitor assets and predict failures. The collected information is downloaded into analytics software for prescribing maintenance to reduce downtimes.
Edge Computing: Edge computing enables faster data processing for IoT devices to provide insights quicker and localized. It has lower latency for real time responsiveness for immediate information on equipment performance. A key element of edge computing is cloud computing, which provide flexibility and a scalable infrastructure for production processing for quicker access to high volumes of data.
Augmented Reality (AR) and Virtual Reality (VR): AR and VR are technologies that improve customer experiences. AR improves real world work by quickly providing digital information while VR is able to create simulated environmental conditions. The use of these technologies is ever growing as engineers find more uses.
Blockchain: Blockchain reduces fraud and improves relationships with OEMs by providing smart contracts. When products are delivered from an OEM, blockchain marks delivery completed, and payment is immediately executed. Blockchain can track the authenticity of parts and components to ensure they match required quality.
In the US industrial OEM marketplace, distributors play a crucial role in bringing products to market and supporting manufacturers.
The role of distributors in helping Original Equipment Manufacturers (OEMs) with aspects of their business include:
However, the distribution landscape is changing, and OEMs might consider growing or introducing direct-sales channels to gain competitive advantages. Although distributors have historically played a vital role in OEM success, a shift towards direct sales might become more prevalent in the future.
A new dawn for industrial channels: Meet customers where they want
Distributors have traditionally helped OEMs access a fragmented customer
base, hold inventory as needed, manage working capital, aggregate products
for end customers, and provide technical support. But now, as customer expectations rise and digital channels expand, distributors must reinvent how they create value—meeting customers where they want, when they want, and how they want it (C. Angevine, B. Ellencweig, A. Gupta, and D. Shafi, 22 Sept, 2022).
Distributors buy products from OEMs, store them and sell them to customers in their designated territories. Distributors also provide local customers with technical support and other services, depending on the product.
In summary, distributors are key partners for OEMs in the industrial marketplace, providing essential services that bridge the gap between manufacturers and end-users, optimize supply chain operations, and expand market reach.
The OEM industrial market in the USA is served by a diverse range of distributors, each with their own specializations and value propositions.
Key types of distributors include:
The selection of the right distributor depends on the specific needs of the OEM, including the type of products required, the level of technical support needed, and the desire for value-added services.
In the USA, several specialty/value-added distributors cater specifically to the OEM industrial marketplace. These distributors go beyond simply supplying products and offer services that enhance the value chain for OEMs.
Examples of specialty/value-added distributors:
These distributors offer specialized services such as customization, kitting and assembly, vendor managed inventory (VMI), technical support, supply chain optimization, and integrated solutions.
The right specialty/value-added distributor significantly benefits OEMs by improving efficiency, reducing costs, and enhancing product quality.
There are many companies that provide Maintenance, Repair, and Operations services to the OEM industrial market in the USA. These companies offer a wide range of products and solutions designed to support the optimal performance and longevity of industrial equipment
Key players in the MRO industry serving industrial OEMs in the USA:
Services offered by distributors:
The MRO market in the USA is significant and serves various industries, including manufacturing, aerospace & defense, automotive, and energy. MRO companies play a crucial role in ensuring the efficient operation and maintenance of industrial equipment, helping OEMs to improve their productivity and profitability.
It's important to note that the specific MRO services and solutions offered by these companies may vary depending on their specialization and focus areas. For example, some may focus on particular industries like aerospace, while others may offer a broader range of industrial supplies and services.
Prominent OEM product distributors serving the industrial marketplace in the USA:
W.W. Grainger
: A leading industrial distributor with a large customer base.
Motion
: Ranked among the top industrial distributors.
: A market leader owned by Air Liquide.
: Another top industrial distributor.
: Provides a range of industrial components.
WESCO International
: Has a dedicated division for industrial OEM solutions.
: Known for its extensive product offerings and services.
Distribution Solutions Group (DSG)
: Provides distribution solutions to the OEM and industrial technologies markets.
: Focuses on aftermarket parts for various industries, including agricultural and construction.
AFC Industries
: Offers solutions for OEM manufacturers, distributors, and users of C-Class components.
Bosch
: A major global automotive OEM.
: Offers a wide range of automotive solutions.
Continental
: Known for various automotive parts, including tires and brake systems.
: A leading distributor of genuine OEM foodservice equipment parts.
Dell Technologies OEM Solutions
: Supports various industries, including industrial automation.
Note: This is not an exhaustive list, and many other OEM product distributors cater to the industrial marketplace in the USA.
Remember to research and compare distributors to find the best fit for your specific needs.
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