Your contract electronics solutions partner needs to be able to make a profit to survive. Otherwise, they can’t continue to serve you. Meanwhile, EMS providers are responding to OEM RFQs with activity-based quotations (activity-based costing; ABC) as more OEMs seek open-book EMS costing for program quote pricing from their electronics outsourcing partner.
Ideally, below are RFQ inputs your EMS provider might reveal:
- Material Cost
- Material Inventory Reserve / Adjustments / Scrap
- Material Freight-in Costs
- Material Duty Costs
- Product Warranty Reserve
- Capital / Finance Charges
- Material Overhead
- Direct Labor Overhead
- Direct Labor
Your EMS provider then determines the following: Total cost of goods (COGS) plus, SG&A and, their total operating costs so your EMS provider can then determine the amount of profit they will make from your OEM customer program. (Related: Top 10 impacts to EMS/ODM quote pricing OEM programs)
SEE ALSO
How to build costing modelers for contract electronic programs
But nothing happen unless people get involved so we then look at direct and indirect labor, knowing number of people and hour required will vary based on customer program volumes.
Direct labor
Direct labor is sometimes broken down into standard hours required for a given period and volume of production, overtime hours anticipated (and actual) for same period and efficiency (utilization hours loss of actual v ideal throughputs).
From here your EMS provider then determines their total direct labor costs, which includes direct labor benefits. This allows your EMS provider to determine total direct labor headcount and the amount of cost for direct labor that goes into each unit (of your product) produced.
Indirect labor
Managing people is an art form and managing EMS indirect labor is filled with uncertainty.
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