A Guide to OEMs

What is an OEM?

An Original Equipment Manufacturer (OEM) is a company that produces parts, components, or complete products that other companies can purchase to sell under their brand. OEM products can be found in industries like automotive, electronics, and manufacturing, where specialized parts are integrated into a final product. This model allows companies to leverage the expertise and efficiency of OEMs while focusing on branding, marketing, and distribution.

How OEMs Work

OEMs work by manufacturing parts or products that another company needs to complete its own goods. For example, a car company might buy engines from an OEM instead of making them in-house. This lets the buyer save time, reduce costs, and focus on design and marketing.

Companies work with OEMs through contracts that outline product specifications, quality standards, and customer-specific requirements. The OEM produces the parts according to these requirements, and the buyer integrates them into their final product. This partnership helps both sides benefit from each other’s strengths.

Benefits of Working with OEMs

One benefit of working with OEMs is that they often use Advanced Product Quality Planning (APQP) to ensure parts meet high standards before mass production. This process reduces the risk of defects, improves consistency, and boosts overall product reliability. It also helps companies launch products faster with fewer quality issues.

Another advantage is that OEMs may follow the Production Part Approval Process (PPAP), which verifies that manufactured parts match design specifications before full-scale production begins. This ensures smooth integration into the buyer’s product and minimizes costly rework. As a result, companies can confidently deliver high-quality goods to their customers.

For many, working with an OEM is also more cost-effective, as parts, research and development, parts assembly, and labor are already accounted for. While they may be expensive upfront, working with OEMs for long periods of time can lead to more savings for the buyers, especially when purchasing in bulk.

Common Challenges

While working with OEMs benefits companies in different ways, the process isn’t without challenges. It’s pretty common for companies to run into a few road humps when working with an OEM. Here are some of the most common challenges involved between OEMs and their buyers:

Quality Control

Maintaining consistent quality can be challenging when relying on an OEM, as the buyer has less direct oversight of the production process. Any defects or inconsistencies in the OEM’s output can affect the buyer’s final product and reputation. To prevent this, companies must set clear standards and monitor quality through inspections or audits.

For OEMs, using an asset management solution can help ensure the quality of their products. On the other hand, for buyers, an asset management tool can also help them identify quality issues on their received products while in use.

Regulatory Compliance

OEMs must follow industry regulations, but differences in location, laws, and standards can lead to compliance risks for both the OEM and their buyer. If the OEM fails to meet required guidelines, the buyer may face legal or financial consequences. The same can be said for OEMs, as they may also have different requirements. Close collaboration and regular compliance checks help reduce these risks.

Communication Gaps

Misunderstandings can occur if the buyer and OEM do not have clear, frequent communication. This can lead to delays, incorrect specifications, or unmet expectations. Using detailed documentation and regular meetings can help keep both sides aligned.

Best Practices

There are many ways for companies to improve relationships with an OEM to ensure that products are always up to standard. Below are a few best practices to keep in mind when working with OEMs to prevent costly incidents in the future.

Best Practices for OEM

Implement Clear Contracts

Having clear contracts ensures both the company and the OEM understand the scope, timelines, and manufacturing Standard Operating Procedures (SOP) requirements. Well-defined terms reduce misunderstandings and create a legal framework for resolving disputes. Storing these contracts and other necessary documents in the cloud also ensures that all parties are aware of any changes in implementation. This clarity helps maintain a smooth and productive working relationship.

Set Performance Metrics for Both OEMs and Buyers

Setting measurable performance metrics allows both parties to track quality, delivery times, and cost efficiency. These benchmarks help identify areas for improvement and keep production on target. Regularly reviewing metrics ensures the OEM meets expectations consistently. It’s the responsibility of both parties to monitor their performance progress, and doing so with a digital form helps ascertain all records are easily accessible.

Conduct Regular Audits on OEM Sites

For buyers, conducting a factory audit with mobile-ready forms helps verify that the OEM follows agreed-upon processes, quality standards, and safety protocols. Audits can uncover issues early, before they affect the final product. They also encourage continuous improvement and accountability.

Maintain Transparency Across All Operations

Maintaining transparency builds trust between the buyer and the OEM. Buyers should be transparent to OEMs about their needs and requests, while OEMs should be open about possible issues and questions. Openly sharing challenges, production timelines, and any changes to plans keeps projects on track. It also strengthens long-term collaboration.

Share Information Digitally and Regularly

Sharing accurate and timely information across digital channels allows the OEM to meet product requirements efficiently, and for buyers to make changes in their marketing plans as needed. This includes design updates, quality expectations, and delivery schedules. Good information flow sent through digital means helps prevent costly errors and delays.