Costs for manufacturing electronics products are influenced by various drivers related to a specific factory and to the combination of products that factory produces. Factory overhead and equipment utilization fluctuate and so do costs. Its easy for EMS providers to overestimate costs, especially when extra contingencies are added resulting in higher than expected quotes presented to OEMs for the cost of manufacture.
Determining accurate or fair OEM product costing by EMS providers for SMT, PCB assembly, EMS workforce labor (direct and indirect), systems testing … is easy when manufactured or assembled by well managed, cost efficient, productive and competent EMS providers in a specified geographic region of the world. (TIP: How to drive costs out of your EMS manufacturing program)
But EMS is a business model filled with uncertainty and electronics OEM decision makers sourcing contract electronics solutions are always on the lookout for better ways for managing their EMS provider business partners.
A few of the numerous questions OEM decision makers asked for our EMS industry online discussion for EMS open-book costing to assist OEMs in better understanding EMS provider quote pricing include:
- What drives the EMS supplier SG&A and profit?
- When bidding competitively do tier-1 EMS providers generally have the lowest price?
- Do you have suggestions for handling prepaid material, MOQ and excess material in open-book costing models? Specifically, when should materials ownership change hands between OEMs and EMS partners? What are some best practices for maintaining accurate unit COGS while also tracking prepaid material credits as the excess material is consumed over time?
- Can you provide clarification on EMS provider SG&A and indirect labor allocation? I have seen in the market they are doing different allocation on those cost lines, as a result the IDL:DL ratio varies a lot.
- From a concept standpoint what should we consider as SG&A / IDL for headcount allocation and any other costs associated with SG&A?
- What are typical mark-ups for MOH and EMS profit? What is included in MOH?
- What are the top 4 metrics EMS provider use to develop a cost model for a specific customer? Business volume, inventory turns…
- In an open book model, where components are negotiated by OEM, but purchased by EMS, what is the common approach to adjust finished pricing when new component prices are established?
- Is ultimate goal to form a partnership to where basically you are both (OEM/EMS provider) using the same cost models and just really negotiating profit in the end?
- Negotiating NRE or capital is all fair game correct? I would think so if EMS wants your business correct?
Overall, dozens of questions have come in and by sharing these few questions above we hope this provides other OEM decision makers unable to attend with thoughtful input when making decision concerning EMS providers you are already currently managing or considering.
