Why select a more expensive EMS cost model when someone else can do it cheaper? Assuming you’ve done your EMS feasibility analysis, ask yourself what does a higher price actually mean? Have you determined your baseline costs? Do you know the internal EMS costs for the providers you’re considering? Look at the total cost of ownership to you as a company.
Many OEMs approach this decision by comparing EMS pricing from individual EMS responses to your RFQ process, comparing the EMS program fee (cost) for the same OEM product or program, from all EMS providers who responded. And even if EMS pricing is compared to total EMS vended cost you still might not be including your other in-house resources; your engineering team, your materials team, your risk of having a failure somewhere.
From a strategic RFQ perspective many OEM decision makers might always do best by choosing a higher priced EMS partner because this could be more reflective of your total cost of ownership.
SEE ALSO
Understanding open-book EMS costing for OEM quote pricing
OEM RFQ process and EMS quote review and audit
Total cost of ownership for OEM programs you identify for outsourcing, whether you do so across the street, across state lines or overseas, must take into account a number of variables. For example: You have a Tier-1 EMS provider response to your RFQ and you have a response from a Tier-4 provider. The Tier 4 provider might be 5% cheaper. When taking into the entire transaction for that provider 5% is most likely a significant.
In your search results, you can further target provider options by choosing End Markets and/or Services.
However, assume the Tier-4 provider has little or no infrastructure and as a result, in instances that surface during the relationship, there is little or nothing you can go to him for to achieve issue resolution. Suppose you have an issue on your PCBA or you have an issue on your ICT or functional testing. If you need to have BGAs analyzed, SMT placements analyzed…. There is a whole gamut of potential issues you can think of.
There is a benefit to going with higher priced EMS manufacturers.
Putting this into a different context, if you’re talking about 5% on a spend of $1 billion for your outsourcing program this is different than if your annual outsourcing spend is $100 million. Again, this places emphasis on looking your total cost of ownership.
The challenging part of this decision equation for OEMs is evaluating your risk of failure – your lost opportunity costs when something happens.
Contrary to the direction above, for some larger OEMs who can carry more risk, it can also makes sense to select smaller EMS providers, depending on what the potential risks might look like. Whereas, if you’re an OEM portfolio company start-up formulating your outsourcing strategy if you select a Tier-4 or Tier-5 provider you’re going to take on a lot of risk you might not be able to overcome when something happens.
It’s safe to say no electronic OEM wants to invite risk into his manufacturing or supply chain operations. Risks you’re probably more likely willing to accept are in your sales and marketing groups.
OEM decision makers: Expand your EMS provider options speak with a provider advisor, its free. Get a list of capable EMS firms matching your program requirements, including quality providers you likely have no previous knowledge of. Your advisor will also share feedback with you we hear from other OEMs about EMS providers you may be considering or you are already working with. Learn more
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