Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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Tools for EMS manufacturing quote pricing analysis - Optimize total landed cost savings for your contract electronics outsourcing programs

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5 Ways electronics OEMs and EMS providers purchase from semiconductor component vendors

By VentureOutsource.com Staff

After semiconductor components manufacturers finish jumping through hoops just to get their chipsets on the OEM AVL more work remains so they can secure purchase orders for their ‘now qualified’ components.

The buyer can be the OEM, and it can be the contract electronics (EMS) provider. The latter comes into play when considering build location for the OEM product and whether the EMS or (original design manufacturer) ODM is involved in the bidding (and the ‘buyer’ is the contract electronics solutions provider).

The way a semiconductor vendor secures POs for their components from OEM and EMS/ODM companies can involve up to five (5) scenarios. These are not entirely sequential, and this depends whether a ‘step’ occurs exclusively with the EMS/ODM company instead of the OEM.

Scenario 1: OEM bids for components

Bidding for components by the OEM can be separated into OEMs that have their electronics design and product manufacturing in-house, and OEMs that outsource these activities. Where OEMs source these activities to contract electronics solutions (EMS/ODM) providers, drivers supporting this vary.

Given the materials COGs for OEM product, OEMs need frequently updated components cost understanding to help them with product ASPs, which plays into OEM forecasting MCOGs and gross profits.

Additionally, a great number of EMS contract service level agreements are negotiated against cost-plus pricing and fixed materials pricing. In wanting to minimize EMS/ODM costs OEMs do what they can to try and feel comfortable they are getting the most competitive bid from their EMS/ODM suppliers who typically have deeper access to understanding component-pricing trends.

OEM requests for updates on component pricing also help OEMs further develop and maintain important relationships with component vendors – important because OEM product innovation and marketplace dominance can often rest on OEM product innovation and technology that comes from the components OEMs place in their products.

In the past, a lot of OEM bidding took place on a quarterly basis. This is being replaced by annual bidding with OEMs wanting quarterly cost reductions across the term agreement which can push more risk onto semiconductor manufacturers as prices for raw materials like copper, gold, and oil fluctuate.

Scenario 2: OEM outsources to EMS provider (location dependent)

The OEM trend in outsourcing will only become more embedded in supply chains as companies and marketplaces become increasingly more competitive.

Of noteworthy mention, even the companies offering semiconductor assembly and test (OSAT) like ChipMOS, Hana Microelectronics, Shinko Electric, and Tianshui Huatian Tech, to name a few…providing outsourced integrated circuit (IC) packaging services (v. being captive to the die manufacturer) are also outsourcing equipment and module design and manufacturing to the components manufacturers and EMS and experiencing steady growth year-on-year while doing so.

 

SEE ALSO
Effective RFQ best practices for sourcing EMS services
6 Steps how semi components get on OEM approved vendor list (AVL)

 

For OEMs outsourcing to EMS providers, the semiconductor vendor must have knowledge of which EMS provider(s) the OEM is partnering with and the EMS factory locations for the OEM customer program builds.

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