The Benefits and Drawbacks of OEM Partnerships

Written in collaboration with Mary D.

Every company wants greater, better and more business coming their way – and partnerships are often a necessary and fundamental way to getting there. OEM partnerships are a way for companies of all sizes to team up and focus on one particular product. Many of today’s most successful products would not be what they are or nearly as successful without the invention of OEM partnerships.

As with any partnership, certain matches will work out and others will not. Recognizing and considering the benefits and drawbacks of an OEM partnership will ensure that both parties set specific goals and go into discussion with some background as to what they should expect from one another.

Interpretation

To analyze OEM partnerships, let us first recognize that the definition of an Original Equipment Manufacturer (OEM) has undergone several evolutionary steps and is not any more the same as it used to be. While some view the OEM as the literal original equipment manufacturer, as the name implies, others view it as the supplier of the component. Let us work with the latter, as it more accurately refers to the buying, rebranding and selling of equipment. From this point of view, the Original Equipment Manufacturer is the company that buys and rebrands a component (that was ironically originally made by another company) to then sell it as part of their greater product. The component can be both in the form of a software or a hardware.

One of the probably best-known, World-wide examples of such a partnership would be between Apple and Foxconn. In it, Foxconn is the supplier that actually produces the final product (iPhone, for example), while Apple is the OEM that buys, rebrands and resells this product with its logo all over it. Another example would be the company ABB, acting as the supplier to different OEMs around the World – and in this case to Delta Instruments (dairy/food) – providing them with manual and automated dairy product analyzers of proteins, fat, lactose…etc.

Benefits

OEM Partnerships benefit and open many doors for the involved parties.

  • OEM partnerships mean increased access to new markets.
  • OEM partnerships reduce the time and cost of development.
  • Companies that sell to an OEM have more and often better customers.
  • High quality is expected from all involved in an OEM partnership. OEMs have strict quality requirements and high standards for consistent order volumes, which ensures the production of high quality components and greater product expertise. If one side of the partnership is unable to meet the requirements and standards, then the partnership is quickly reconsidered. OEM partnerships are comprised of extremely professional parties.
  • Equipment manufacturers need proof of ISO certification so that they understand what the norms and practices to expect from the other party and the procedures and policies that are set in ISO. Getting certified protects quality of work and opens the doors to other partnerships.
  • OEM partnerships normally take into consideration the worldwide industry standards and often – like in the case of ABB – provide OEMs with the option of world-wide sourcing.

Drawbacks

As in any business partnership, there are drawbacks to OEM partnerships.

  • Partnerships need to be extremely well thought-out, or they could fade away very quickly. With all the benefits of selling to an OEM, negotiations can sometimes lean towards the needs of an OEM. It is important that the interests of both parties are protected so that expectations are met and both parties know what they are getting into.
  • Extra support or product improvements may be demanded by OEMs even if they only come from a lack of understanding of the product or market requirement.
  • As in any partnership, the relationship may just not work out due to, for example, personal reasons or changes in business goals.

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