OEM vs Aftermarket: what’s right for me?
Technical Insights

OEM vs Aftermarket: what’s right for me?

DA

One of the hottest topics in the industry for many years now has been the debate between OEM and Non-OEM – otherwise known as aftermarket products. Professionals on both sides have made very convincing arguments and they are fiercely loyal to their way of doing things.

We cover the pros and cons of each, so you can decide for yourself.

What’s the main difference between OEM and Aftermarket?

While the two have many similarities, the key difference is in the core competence of each party. OEM’s focus on designing and manufacturing a product. Non-OEMs specialise on the after-sales servicing, repairs of an existing product made by another company as well as manufacturing interchangeable spares for that product. IRE has decided to focus this discussion focused around the spare parts business vs repairs and servicing.

Original Equipment Manufacturer

Original Equipment, also known as OE, is created by the Original Equipment Manufacturer, known as the OEM. In this context, the OEM focuses on the design and manufacturing of oil and gas drilling equipment.

An OEM is a specialist company that designs and produces equipment for use in their industry. They then support the end users of that equipment with spare parts, repairs and technical support – this is usually charged at a premium price and in return, you get protection of warranty and liability. The parts are typically branded by the OEM even though all parts may not be manufactured by the OEM. The repairs and technical support are either handled directly by OEM or farmed out to authorised repair facilities.

Aftermarket Manufacturer

Non-OEM products, also known as aftermarket products, are produced by a third-party not officially affiliated with OEMs. They are focused on maintenance and repair of existing OEM products. Often Non-OEMs will also manufacture their own spare parts which are usually interchangeable with the OEMs. These services are offered at a much lower cost to the OEM however the warranty and liability protection is much less and as a result, it is considered far more risky for end users.

These are not approved and licenced by the OEMs so any interference can also void the original OEM.

The pros and cons of OEMs

Using OEMs may seem like the obvious choice – getting products that are marked as trusted by the brands you know and trust. However, due to external market pressures such as oil price variation, end users are sometimes forced to look at alternatives but that also comes with a risk. Here, we discuss pros and cons of each.

Pros of using OEMs

There are many benefits to opting for OEMs, including:

Brand guarantees

When you buy from the OEM brands, they generally provide a robust warranty. This guarantees you against any premature equipment failures which could lead to operational downtime as well as HSE related liabilities.

Not to mention, when you replace parts with certified OEM products, you also have more protection when negotiating with your client about lost time due to equipment failures. This is because your product is approved by the manufacturer and the correct process was undertaken – so no fault cannot be placed on the driller.
If you use a product that is not licensed by the OEM, such as a third-party product, you assume responsibility for the impact it has on the equipment. While a product may be faulty, you’ll likely be footing the bill for expensive repairs if any unlicensed replacement is the cause of machinery failure. In addition, there is also a potential health and safety impact that could have much bigger financial consequences for your business.

For example, the Macondo incident was one of the largest oil and gas disasters the world has ever seen. The drilling contractor, Transocean, was using Cameron BOPs that were maintained and serviced by the OEM. In the resultant investigations, authorities found there were some faults in the BOP and as a result, Cameron paid out a huge sum of money to the operator, BP, in warranty damages.

Equipment expertise

A manufacturer will always argue that no one can know their equipment better than the manufacturer themselves, and it’s hard to disagree with this. The manufacturer spends a huge amount of time on testing their equipment under different environments to ensure it will be reliable in the field. They also have direct feedback from customers who can report any issues or faults for the manufacturer to address. This kind of information is not disclosed publicly which puts non-OEMs at a disadvantage when it comes to equipment maintenance and knowledge.

Additionally, when OEMs find partners to work with, there is a great deal of training and quality standards that the authorised partner must adhere to in order to qualify as an OEM partner. Once qualified, the OEM will then disclose proprietary information to the partner which is used for the inspection and repair processes. This gives the OEMs and their authorised repair facilities (ARF’s) an advantage over Non-OEMs.

Cons of OEMs

There are some downsides to using OEMs, including:

Presumption of quality

It’s a common assumption in our industry that the top OEM brands will always offer the best quality on manufacturing and after sales services. Unfortunately, that isn’t always the case.
OEMs have to look at the big picture – they design and build their products for a global audience of customers. There is a high risk of liabilities and high upfront costs of designing and testing new innovations. Therefore, its imperative they streamline the production process and maintain economies of scale. Maximising efficiency is essential for business success. Inevitability, this leads to a lack of specialisation in some other areas.

Once a piece of OEM equipment has been run in the field for several years, the end user will have unique knowledge and experience on how to best maintain it. Sometimes, components fail more quickly than others and the OEM won’t be able to provide a quick or affordable solution. This creates an opportunity for smaller, more agile, Non-OEMs to specialise on certain OEM components. As a result, they can often find ways to improve the design or performance of specific parts and at the same time, save a lot of money and time for the end user.

At IRE, we have discovered several Non-OEMs who are able to design and manufacture spare parts that are a proven improvement on OEM design. In many cases, these Non-OEMs have had extensive experience repairing OEM equipment and therefore see common failure points in certain components. Contact us to find out which non-OEM parts we provide that out-perform the OEM.

Expensive limitations

Working with big OEM brands is generally the safest option from a liability point of view but it can come with a heavy price tag. This is rarely questioned when oil price is high and the industry is performing well. However when oil price drops and operators start to squeeze the sub-contractors, the end users simply cannot afford to pay the higher OEM prices.

Replacement parts are priced above market rates on certain products because the OEM knows their customer has almost no other option, especially when the operator requests “OEM parts only” in their contract. Additionally, when an OEM uses parts which they buy from other manufacturers, often called Original Equipment Supplier (OES), we found that the OEM also charges unreasonable markups on these items, despite the fact they didn’t manufacture them. This has squeezed end users into a corner and forced them to find alternative options with Non-OEMs.

In our experience, we’ve found that some OEMs were buying parts from other manufacturers and charging over 50% markup on that item before selling on to customers. End users could buy the exact same product either direct or through and agent and typically save around 30% without compromising on quality.

After Sales Service

If the OEM equipment fails in the field, the process to investigate the root cause of failure, design a solution, test the solution and then resolve issues for the customer can be long winded. This is where the Non-OEMs have excelled by finding customised solutions that are often an improvement to the OEM design or process. End users expect immediate support and remedy to issues they face in the field – otherwise they are losing money.

The after sales business for OEMs must follow strict procedures to maintain consistency throughout their global network of repair shops and ensure protection against expensive warranty payouts. OEMs often lack the agility and flexibility to respond in an effective manner. Rarely do they have the resources to develop a quick and effective solution that gets the end user out of a sticky, and potentially very expensive, situation. Non-OEMs are specialists at after sales service so they can be more customer focused and deliver tailormade solutions to common issues found in the field.

The pros and cons of non-OEMs

Non-OEMs have generated a lot more consumer trust over recent years, and many professionals now prefer them to OEM branded products.

Pros of Non-OEMs

There are many benefits to opting for aftermarket products, such as:

Affordability

As major OEM brands are able to set their own price for customers still under warranty, aftermarket products must compete with each other and must be low enough to draw customers away from OEMs.

This competition may even have an impact on the price of OEM products. If the cost of an OEM is much higher, consumers are more likely to try a new product from an aftermarket seller. If enough of those customers leave, OEMs often have to look at making their own products more affordable.

Variety

OEMs often design down to meet tough price points, meaning that they are often not the best on the market. Many professionals are disillusioned with paying top dollar for an OEM brand name because they have no other choice. Now, operators are starting to accept Non-OEMs under certain conditions. This has allowed end users to explore a wider berth of options and they are finding the Non-OEM’s frequently offer much better value for money.

Cons of Non-OEMs

While they may be cheaper in general, there have been some concerns with aftermarket products raised:

No guarantees

When you install an OEM part, you have the peace of mind that it is designed to work specifically for that purpose, with the particular equipment it has been installed on. For example, critical components may have specific material specifications or a patented design which makes it hard to copy.

While non-OEM parts are supposed to offer the same function and performance, often they may not offer a guarantee that the specifications of that part are completely the same as OEM. Parts may be incompatible or become worn out in different environments, which can result in expensive machinery failures. If there is a major accident or HSE issue e.g. blowout, tied to that equipment failure, the risk falls on the end user for using a Non-OEM part which could be detrimental to their business.

Knowledge gaps

When you bypass the OEM, you assume a level of risk. Whether you’re working with a service provider who is uncertified and under-qualified to repair a specific piece of equipment, or shopping around for the cheapest parts, a knowledge gap could result in damage to equipment.

If a warranty is broken through using unlicensed equipment, the OEM will not take as much responsibility for the resultant liabilities, and it will be up to you to cover the costs to get your machine up and running.

How do I choose?

When looking to replace parts or service your equipment, you should decide between OEMs and aftermarket products on a case by case basis. Carrying out proper due diligence, or finding a trusted source to do it for you is the right way to do this. Consider the risks related to each different piece of equipment, as well as the expectations from the operators will be critical in making the final decision.

Work with suppliers

With over two decades of experience and strong OEM and non-OEM relationships under our belt, we work every day to offer expert, tailored advice to fit the specific needs of our customers. We’ll work with you to find the parts and spares that make the most sense financially and practically to your business – whether they are from an OEM or non-OEM.

If you want to work with a supplier with OEM and aftermarket connections, get in touch with our team today at sales@irefze.com to discuss how we can support your needs.

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