What does OEM really mean?
OEM is an abbreviation that exists in a range of industries – automotive, IT, aviation and marine, among others. But, while it seems like in most of them the definition is clear and quite broad, in the marine industry the letters OEM have led to discrepancy. The issues range from the words behind the abbreviation to who is entitled to use it in the conduct of their business, with larger companies in the marine industry often claiming they are the only ones to do so.
The term “OEM”, although disputed, generally signifies a company that manufactures components or other equipment using its own drawings by its design and using its own manufacturing facilities. In Asia, the term refers to aftermarket/spare parts, while in the USA, for example, to companies that produce the original/genuine equipment. Sometimes, it means the opposite of “aftermarket” i.e. companies that produce components specifically for the original product.
Taking a more neutral view, the Cambridge Dictionary defines OEM as “a company that makes parts and products for other companies which sell them under their own name or sell them in their own products”. Those other companies are referred to as value-added resellers (VAR) because they add value to the original item by incorporating features or services.
The reality in the marine industry
Originally, the term OEM referred to the companies who manufacture and then supply their parts to other companies that resell those to the user. However, some large-scale engine manufacturers claim to be the only companies that can be referred to as OEMs. However, they often only design and assemble the engines and outsource the actual manufacturing of the parts to another company. The usage of the term OEM here can be misleading because the OEMs, in this case, are not the original manufacturers.
The manufacturing companies can also sell these parts on the aftermarket with slight modifications not affecting quality or infringing patent protection. But when those parts are sold to the aftermarket and without the brand of the engine manufacturer, they are not considered “OEM” or “genuine/original” but alternative spare parts.
The problem the ambiguous definition creates
Considering the disputed definition, the automotive industry is a good example. Automotive manufacturers refer to themselves as OEMs although the term is slightly inaccurate, considering they focus mostly on design, marketing, sales and assembly of the final product. This is an “unfortunate misnomer”. The parts that go into the assembly are usually produced by other companies, which either work exclusively for the OEMs or sell on the aftermarket as well.
Looking back at the literal definition of OEM and the example of the automotive industry, it becomes clear that the term can be used to the advantage of certain actors in the marine industry. Prohibiting manufacturers from using “OEM”, despite their parts being of high quality and manufactured according to original drawings, allows for large-scale engine manufacturers to gain a competitive advantage by creating an apparent yet sometimes unrealistic differentiation between their own products and those of the manufacturers.
This is particularly important for ship owners. As the final customers in the supply chain, they would prefer faster, cheaper and safer options. They would also choose to have certainty, especially when it comes to insurance and classification societies. However, the misconceptions about non-OEM parts can be misleading. First, quality can be the same, as there are numerous independent companies with a high level of technical knowledge and standards. Second, the prices of independently produced parts are lower. And third, the number of independent manufacturers is far higher, providing greater choice.
How to avoid confusion
Without a doubt, the definition behind the term OEM is very disputed, considering the many actors who (following one or the other definition) would be entitled to use it. To avoid confusion, one can refer to the company manufacturing the components as “OEM”, and the company designing and assembling the engine, as “System Designers and Assemblers” or “SDA”. This way, both get recognized for their work and the differentiation is more straightforward.
Overall, the lack of clarity surrounding the definition of the term OEM and the uncertainty as to who is allowed to use it can lead to an imbalance between large-scale and independent engine manufacturers in the marine industry. Ultimately, it can all be to the disadvantage of ship owners.