Electronics contract EMS manufacturers will incorrectly price direct labor (DL) cost into quoted pricing during RFQ phase when quoting OEM programs. This has more to do with not knowing how to quote DL cost properly vs doing so intentionally.
Many electronics OEM equipment manufacturers recognize DL costs tied to MCOGs in EMS quotes.
But, what many OEMs do not often do properly is map DL costs per EMS factory activities on the production floor, namely, identifying the following, to name a few:
- Activity station
- Process phase or activity
- Task, with timing (takt)
- Headcount, operators
- Optimal units per shift
- Production line (or cell) vs location variables
- Value add coefficient
The above is only a partial list for OEMs when drilling down to try to understand, and justify, DL costs when managing DL assigned your OEM outsourcing program presented in the EMS manufacturer’s quoted pricing.
Interested parties can contact Venture Outsource. We have detailed costs per EMS factory by region and geography for S,G&A, F,G&A, EMS direct labor, EMS indirect labor (IDL), EMS industry asset and equipment costs (with amortization by ForEx and geography), plus much, much more.
In your search results, you can add more Industries, Services and Geographies.
With the above in mind, electronics OEMs also need to quantify costs as they measure appropriate EMS key performance metrics. Doing so helps drive your company performance through quantifiable (and defensible) value analysis and value engineering (VAVE).
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EMS manufacturing sourcing cost audit certification
Its common for EMS suppliers to get away with excessive fees (profit) if OEMs fail to exhibit EMS RFQ best practices during OEM-EMS proposal request phase and subsequent EMS contract services level agreement negotiations.
In nearly every instance of the OEM program engagement, the EMS/ODM supplier wants to maintain a minimum, visible posture related to pricing, and negotiations, presented to OEM prospects (and existing OEM customers) — all based on EMS/ODM markups (profit).
More on this is detailed in this article about ten factors impacting EMS quote pricing of OEM contract manufacturing programs.
For insight into identifying costly indirect labor (IDL) internal EMS factories, which is second to your OEM program MCOGs, take a look at this list representing a high number of expensive indirect (IDL) positions. supporting EMS manufacturing cost centers.
As OEM decision makers consider other aspects of contract manufacturing value stream mapping as it relates to OEM-EMS business relationship costs internal EMS factories quoted into outsourcing programs, and OEM quote pricing vs OEM cost reduction benefit, we also recommend this article on EMS contract manufacturer (internal) costs vs OEM quoted pricing vs OEM ideal target costs.
Readers can follow Mark Zetter on Linkedin, here.
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