Understanding OEMs and VARs
What is an OEM?
The term Original Equipment Manufacturer (OEM) relates to manufacturing, engineering, and sub-assembly of a product. But it can be confusing because an OEM manufacturer does not always produce all the parts in their product. In some cases, OEM manufacturers may make the final product or just components, especially electronics and automotive, that are sold to another OEM. These parts can be assembled and purchased via other manufacturers for their own products. In a nutshell, an OEM can be any manufacturer that makes and sells a part to another company to be used as a part of their product.
The best example to understand this relationship is that of an automobile manufacturer and a manufacturer of automobile parts. A vast network of OEMs manufactures various parts such as brake cylinders and mufflers. These parts are then sold to an automobile manufacturer responsible for assembling these parts into a final product. The finished vehicle is then distributed to the consumer via car dealers.
What is a VAR?
On the other hand, companies that purchase these components are known as a value-added reseller (VAR). A VAR company integrates additional features into the product, reshaping it anew, thus adding value to the original product. VARs and OEMs operate parallel because OEMs sometimes work to meet the specification of the VAR firm.
The OEM and VAR are dependent on each other. OEMs manufacture sub-assembly parts or often complete goods for a VAR company, OEMs are not responsible for the final outcome.
This example can be seen in the electronics industry, where an OEMs makes electronic parts which are used by several VARS to produce the final laptop or HDTV. The OEM components are not promoted in the final product. It is marketed as the VAR’s product only.
The question of what is an OEM and what is a VAR is now being muddled even more. Previously, the roles were clearly defined. OEMs targeted business-to-business sales and VAR companies targeting the end user. However, this has changed recently, as many OEMs are marketing and selling their product or service to the consumers directly.