The term “Original Equipment Manufacturer” is ambiguous lately. People once referred to an OEM as a company that made a product that a second company would then sell under its own brand name. Nowadays, OEM can refer both to the manufacturer and the brand seller and even the value-added suppliers between them.
Markups Without Added Value:
As manufacturing becomes more specialized in America, there are plenty of cases now where having several “value-added suppliers” is practical-especially if the companies involved are all local which keeps shipping costs manageable.
In some cases, you will encounter what might be termed “middle man contractors” who are nothing more than excellent networkers. They know practically everyone in their area. They have great sales expertise. When they have an order for a custom part, they dial the phone until it is warm to the touch and by the end of the week they have accomplished something that the original buyer would initially find difficult to duplicate. They have got the part made in a very short time and delivered it in good faith. You will usually only find middle man contractors in very industrialized areas with diverse specialization in close quarters. Otherwise, shipping between companies begins to offset the cost and lead time benefits.
Note that usually the middle man contractors do not actually add value to the part-if so, only a little. They simply manage the processing of the parts for you, which you could otherwise do yourself if you knew the companies actually adding value to your parts. The savings from cutting out this company or individual could of course range from 10% to 30% or more.
Please note that middle man contractors are not always bad. They may not add physical value to the part but they do add value in other areas. Sometimes their expertise in locating and networking with specialized OEM services is well worth their fee. Also, these individuals or corporations may be extremely skilled in haggling and finding a good deal, offsetting their charge.
When it’s Best to Find a Real “OEM”:
Exceptions aside, it is usually better to take the extra few minutes researching real value-adding companies and managing the process steps between them on your own. If your company feels slightly strained at this point and it is possible that you may be buying from a middle man contractor, you might be able to save a significant amount by changing your suppliers.