Any significant impact on a manufacturer’s profitability can result in many outcomes, including missing quarterly forecasts, declining stock price, layoffs, and closure.

The manufacturing request-for-quote (RFQ) phase, sometimes called request-for-proposal (RFP), is important to any manufacturer. Managing RFQ expectations early with the right tools, processes and procedures helps lay the groundwork for how your company is positioned, and perceived by electronics solutions providers, when negotiating pricing (your cost).

The ever-changing contract electronics services landscape

The hyper-competitive contract electronics manufacturing services (EMS) industry is always facing new challenges. Whether the electronics solutions provider is EMS, CM, CEM, ODM or JDM, technology understanding by contract electronics industry is typically 18 to 24 months behind understanding by their OEM prospects and customers.

And while sourcing contract electronics services saves OEMs costly investment in manufacturing plants, property and equipment (P,P&E) and can drive faster ROI, vertically integrated solutions providers have higher fixed costs than providers not vertically integrated, and both are constantly facing rising costs for obtaining capital amid challenges servicing revolving lines of credit common in industry. And, as providers take on more leverage, higher costs are passed on to customers.

But no two contract solutions providers are the same. Each factory has its own cost basis (staffing, overhead…), its own circuit board assembly line and work cell or workstation distinctions. You may have heard the term digital twin, whereas solutions providers state that any two locations/factories for the solutions provider have exactly the same assembly processes and lines in place. But this is deceiving. Every workstation, which is a stage for the entire production process, contains its own labor costs. Costing of workstations is directly related to outsourcing program (accurate) pricing and services fees.

This includes costing for both supplier direct labor, and costly indirect labor. So is F,G&A, S,G&A, and, even sales commissions are often included, in some cases, into a workstation costs – all tied to your supplier quoted pricing.

To further complicate pricing, each supplier workstation also has a set of further defined variables; like depreciation equipment value and a lot of other cost centers important to manufacturing finance and functional support teams (indirect labor) in office of program management. How EMS suppliers determine their internal costs will influence your quote pricing for your programs.

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Every labor type is important to understand for a particular location and geography and, labor application, such as how (and where) labor is added to the EMS manufacturing quotation process. And more importantly, where it should not be added.

From our experience assessing 1000s of outsourcing program price quotes issued by EMS providers, this is where lines become skewed: how is real value-add labor identified vs non-value-add labor? Knowing the latter is often rolled into quoted pricing for EMS program.

Contract electronics production locations also have currency exposure and related finance issues based on geography and local currency. You’ll often see bill-of-materials (eBOMs and mBOMs) quoted across different currencies; from euros to dollars to pesos to đồng…for example. So, normalizing Forex variables within your program quote is also extremely important, not only for budget forecasting and comparing your program total landed cost against other supplier quote pricing (apples-to-apples) but also EMS provider cost of capital and operating input costs for that geography.

And based on our experience, it’s more common than not to find gaps between service capabilities claimed by solutions providers, and reality. We find even wider gaps between internal costs solutions providers claim are needed to service customer programs (quoted pricing) vs actual cost and we regularly find annual spend savings of 5% to 15%+ run through both our cost modelers. Read more about our costing modelers, here.

Historically, long-standing enterprise RFQ procedures and practices were never a huge success. This is based on industry analysis of 5,000+ different outsourcing programs and contract electronics provider-prepared pricing quotes.

OEM company procedures, systems, and tactics previously utilized in the RFQ cycle management process are, today, archaic because internal costs inside contract electronics solutions providers is becoming more obfuscated.

In nearly every OEM company RFQ engagement project we conduct where the buyer already signed the contract supplier’s service level agreement, the OEM customer ended up paying considerably more for total landed costs than they should have. The takeaway is electronics OEM decision makers can no longer approach their contract manufacturing proposals and quote requests and run their RFQ cycle ‘as usual’.

Contract electronics RFQ best practices vs common industry practices

So, what do best practices  for the contract electronics RFQ phase look like?

We must discuss new procedures, new thinking, and new strategies in your RFQ cycle. Additionally, discuss common-sense ideas specific to your current RFQ practices that will assist you creating a more sound foundation in keeping contract electronics solutions providers on their heels, ensuring fees paid for contract electronics services are reasonable and your total landed cost for your program are what they should be.

Although it is impossible to review every important point of the RFQ cycle process in this article, we will touch on several. We offer this consulting service based on our experience and proprietary framework evaluating solutions providers and improving manufacturing RFQ processes. This is where Venture Outsource begins its RFQ cycle and process analysis; we conduct a complete manufacturing RFQ system assessment.

It is crucial that all of this information is accurate from the start. Knowing where holes are in the RFQ processes, errors are made, and how to root-cause and resolve these issues is a top priority. As a result, Venture Outsource offers a more thorough and beneficial assessment result than our competitors.

We begin with talking with you and learning more about your manufacturing program specs and sourcing and business objectives. We then evaluate your current functional group staffing and experience supporting your contract electronics programs, processes and flowcharts, forms and procedures.

Many OEMs typically decide which solutions providers to contact based on colleague recommendations or in-house research. The purpose of our service is to remove subjective influences. Whereas, our assessment results in a list of potentially suitable electronics solutions providers matching your program and business requirements using our proprietary framework.

We then advise how best to prepare your company for provider engagement, and we convey effective knowledge to you about suggested internal functional group staffing (and roles and responsibilities), and training to ensure OEM manufacturers absorb the information needed for smooth processes among functional groups (e.g., finance, purchasing, planning and scheduling, program management…) supporting your EMS manufacturing programs. Doing this effectively lays the groundwork for expectations about provider obligations.

If there are ineffective RFQ procedures and actions in the future, there should also be systems to flag these along with a protocol in place, enabling functional groups to work together and communicating more effectively to ensure gaps are closed.

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A little time and effort spent upfront will produce greater efficiency and better outcomes down the road. At Venture Outsource, we also provide certified education and documentation services that further upgrades your contract electronics services RFQ system.

Creating a list of potential contract electronics providers

Venture Outsource has knowledge and experience from 1000s of detailed discussions with OEM decision makers working in various industries and product markets. In most instances, we fount RFQ systems management was not aligned with OEM manufacturer finance and business analyst targets and desired outcomes.

RFQ cycle practices and administration are outdated. Yet, RFQ practices are still implemented without knowing how they will affect the OEM’s budget, planning and forecast, and program total landed cost. As Venture Outsource founder and lead consultant, Mark Zetter, has always said, “We help clients see the broader outcome – connecting the dots between their decisions and their consequences.”

Because of the revolving door nature of employment and hiring among solutions providers in industry, we found common supplier and vendor tactics and behaviors among sales, business development and marketing functions. Additionally, supplier quote pricing response to OEM RFQs is also comprised of inaccurate calculations supported by outdated systems and methodologies. As you read this article, many OEMs continue to share complaints and their experiences with Venture Outsource.

Let’s discuss what RFQ practices should look like. But before we do this, none of this matters if you are considering solutions providers not aligned with your business and program requirements.

Generally speaking, OEMs want solution providers, suppliers and vendors suitably located, with experience in the OEM’s industry, and experience with OEM product technology. Venture Outsource has built a comprehensive directory of contract electronics solutions to help you get started.

Invite the right contract electronics providers for first meetings

Venture Outsource has a long history building trustworthy relationships with OEMs gathering information and formulating electronics solutions plans of action, thus creating a rich, constantly updating range of information impossible to obtain elsewhere from one, single resource. Access to this non-public information is exclusive to our OEM clients and this helps you find top quality providers that could not normally be discovered anywhere else.

What makes some providers more flexible than others when negotiating contractual terms? Which providers are known for meeting more shipping commitments than they miss? Which providers are losing customers? If so, why are customers leaving? Which providers have long histories meeting schedules and commitments and delivering on terms they agree on? How well does the provider perform managing their own business and finances? Several questions to help you dig deeper about internal provider business administration can be found here.

Contract electronics providers rinse, wash and repeat when formulating quote pricing for your program, using similar templates and similar calculations and similar quote platforms (created in-house or by third-party vendors) from previous quotes – designed for the benefit of the solutions provider. We show you have you can use this to your advantage.

It’s important to also clarify not all RFQ best practices and procedures align with every OEM manufacturer business model. We make suggestions then we help you consider options.

If your understanding of contract electronics business is new you may want to target more solutions providers (not too many) to help you and your company gain more understanding about contract electronics industry, and differences between providers and services.

If your contract electronics manufacturing business understanding is seasoned, then 3 to 5 providers is usually sufficient to start your RFQ process, while being sure there will be one outlier. To optimize your organization’s use time and energy, either way, the number of suppliers on your ‘list’ should be based on understanding and OEM functional group staffing experience.

Setting expectation for first meetings with contract electronics providers

To save time, and money, OEMs want to drive the narrative and set the tone to achieve more detailed quote responses so decisions can be made sooner.

Additionally, nurturing the provider relationship should begin from the moment of first contact and continue with each exchange afterward with you in control.

Standing meeting agenda

So that your discussions stay focused and you get the answers to important questions from solutions providers you are talking with we suggest sending each solutions provider a detailed, standing meeting agenda, with time allocated for each line item, before you meet. At minimum, your agenda should aim to:

• discuss important program and business requirements
• optimize discussion workflow, keeping discussions on path
• extract the information you want
• save you time

Flowcharts and workflows

As the RFQ discussion progresses, we also recommend OEMs be prepared to ask every provider submitting a pricing quote to also include a flowchart, or workflow, for the program being quoted.

Most contract solutions providers will provide you a workflow for your program, upon request. The challenge, more often than not, is getting the proper amount of workflow detail from providers for your specific program.

If a provider is unwilling to provide detailed workflow information about your program when preparing their quote, ask; how are you able to calculate and determine quote pricing?

OEM program workflows prepared properly, accompanied by robust ‘should costing’ techniques, help OEM decision makers more accurately predict program ROI and total landed cost while reducing annual program spend for contract electronics services.

In addition to better positioning for contract negotiations, another positive is OEM leadership has a deeper degree of confidence in the EMS provider’s understanding of the OEM’s program and related challenges concerning internal providers costs and fees paid by OEM customers.

Flowcharts also help push customer program accountability into more layers of activity beneath the EMS manufacturing factory roof – because you know where your money is being spent while also revealing areas for potential cost reductions during quarterly business reviews and even re-/negotiating contract service level agreements.

Final round discussions

OEM team consistency and communication is important as you move to your final selection. Ideally, we recommend taking two to three solutions providers into the final found. You want to be in a position to be able to negotiate the contract, master agreement, SOW before you award the business.

For the person performing contract negotiations for your company, we suggest not having the highest level in your company doing the negotiations with solutions providers. Instead, let that person be the tie-breaker with their counter part.

Awarding the business while creating a sound OEM-EMS relationship foundation

How your relationship with your chosen providers evolves impacts how your company’s time and money is spent. You want a sound supplier relationship with expectations clearly laid out and proper metrics and reporting in place so your company has more time to focus on your company performance instead of focusing unnecessary energy managing supplier performance.

Having proper metrics, reports, and reporting frequency in place helps you effectively keep your thumb on the pulse of the relationship and manage provider performance more efficiently.

Venture Outsource recommends using weighted factor scoring on specific quantitative and qualitative RFQ criteria either based on feedback received or discovery from your RFQ team.

Next, select the final solutions providers based on the overall company and factory and team(s) who will be running and managing your business and ensure there is upfront clarity of the solution provider transition team.

And always check references. The higher level the references, the better, because its more about validating core values than capabilities, at this point – assuming your due diligence was done properly.

Then, ensure all company stakeholders are consulted for the final decision. Every OEM functional group and team member should be in agreement on your company’s implementation project plan and time line and resources commitments before announcing the business award.

If your company is public and your decision has material impact, ensure communication is done in a controlled manner.

When awarding the business, communicate the decision and rational to all stakeholders. Ensure everyone is enrolled in the decision. Update budgets accordingly and manage the expectations.

Then celebrate with your contract manufacturing quote team!

	EMS Manufacturing Best Practices Detailed questions about EMS manufacturing RFQs, EMS supplier performance, and EMS service contract agreements. Request here

Vetting, Selecting, Contracting with EMS Solutions providers

Every electronics industry has different sourcing, design, manufacturing and supply chain requirements specific to products and quality specs in that industry. Below are links to different industry contract electronics manufacturing pages, filled with detailed information, trends, and tips. Venture Outsource has knowledge and experience with every industry.

Contract manufacturer RFQ process assessment

Venture Outsource can provide you and your company with a thorough review of your current RFQ process. We can help you evaluate your systems, policies and procedures to ensure your RFQ process is effective and tied to your business objectives and goals.

You must understand the RFQ process to evaluate it. Venture Outsource can give you the most comprehensive review of your RFQ process and help you discover where you are missing opportunities for better internal bench strength and industry best practices. We can even be there to assist your company with cleanup following the review and help to implement or make changes suggested.

Contract manufacturer performance management assessment

Venture Outsource can also help you evaluate your current, or prospective EMS provider(s), including provider selection and supplier performance metrics. Our suggestions will identify specific KPIs to match your business objectives, with suggested reporting frequency by your contract manufacturers.

Depending where you are in your contract manufacturing journey, this service can guide you to invite only the right EMS providers for first-round discussions (while eliminating poor EMS providers from consideration) so your final-round EMS discussions are with a select number of ranked candidates, with a clear outlier.

Contract manufacturer service level agreement (SLA) assessment

Another Venture Outsource service frequently requested is review and development of contract manufacturing SLAs for better positioning, and understanding, as you go into contract negotiations (and re-negotiations), with focus on terms, conditions and industry SLA best practices to protect you agains clauses and conditions with a higher likelihood of having direct material impact to your business and objectives, saving you time, and money.

When you work with Venture Outsource management consultants, know we respond to all questions during client engagements quickly. Learn more about our contract electronics industry online training and education and the unique way our consulting services and research projects are set up to better serve our clients here.

Get list of EMS manufacturers for your requirements (Its free)

Save time and money. Find quality EMS manufacturers. Fast. Venture Outsource has a massive, global database of contract electronic design and manufacturing capabilities. Speak with a Provider Advisor.

“Was able to very quickly find details on the important elements of setting up EMS and ODM partnerships, talked with an advisor for personalized info on quality providers matching our requirements while getting up to speed quickly about the industry and connect with key staff from like-minded companies and potential partners. Great resource.”

— Jeff Treuhaft, Sr. Vice President, Fusion-IO

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