A CFO in an electronics OEM recently commented about the range in pricing they received for quotes from sending one identical RFP to four CEMs to contract both electronics services design and manufacturing for the OEM program. He wanted my opinion on should cost pricing for EMS.
As expected pricing varied from provider to provider. But one thing the OEM took issue with and was not prepared for was the prices submitted by providers was spread so wide.
I’ll note here that all providers had similar technical services capabilities, manufacturing footprints, years of market expertise…
Provider due diligence shed some light on how each provider was leveraged. One provider had just completed a large acquisition financed by a lot of debt. The OEM discovered part of the acquisition carries certain investor financial convenants for provider management specific to balance sheet items and debt:equity ratios.
What’s interesting is this provider also quoted the lowest pricing in the RFP process by a considerable margin. The provider could be under pressure to meet his financials and is willing to bring in business at or below cost with hopes to drive program efficiencies that lower internal costs, meanwhile he brings in revenue to reduce risk of defaulting.
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