Understanding manufacturing manpower and labor costs is a learned skill which requires education over preparing and evaluating ‘n’ number of quotes plus, having an intrinsic understanding of the entire contract manufacturing business model.
For example, it takes a high caliber, manufacturing executive to be able to cost out, and create an accurate quote for any OEM, even a startup.
The biggest challenges for OEM professionals regarding RFQ phases and quoting for EMS manufacturing services are processes and labor.
The majority of persons on either side of the manufacturing quote (OEM and EMS) focus on raw materials because materials is proportionally a larger amount (always estimated at 65% to 85%) of MCOGs, while labor cost falls to a second priority.
Many will say its materials, but costing and PPV for materials is the easy part if you have a thorough understanding of VMI, distributor model markups and how sourcing availability and demand impact unit pricing.
Manufacturing labor costing is difficult because the truth about how a process or methodology is trained in university, or throughout the millennia, lets say, is not tied directly to how labor is actually utilized and how/why the manufacturing business model exists.
The disconnect between the EMS manufacturing business model and how the manufacturing labor cost is calculated (estimated) is because the laborer is somebody who is considered indirect labor (IDL), or direct labor (DL). But direct labor, by methodology, in its truest form, is somebody who contributes to the ‘actual production’ of that item during that time or, that unit of measure.
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