EMS providers have relied on most of their new business opportunities (leads) coming from vendors and suppliers. The lion’s share of these leads come from electronics distributors, second only to existing customers.
One bad outcome of this for OEMs is the distributor-EMS provider relationship drives higher OEM semiconductor pricing.
Driving the flawed electronics distributor model is distributors give (OEM) leads to EMS providers. EMS providers then buy components from that distributor who gave them the OEM program.
Seems harmless. But distributors mark up semiconductors they get from semiconductor firms then sell these components to EMS providers. EMS providers then mark up these components, again, for sale to OEM customers.
To add insult to OEM injury, common practice among EMS providers is to negotiate with distributors for volume discount purchases for greater purchase price variance (PPV).
EMS providers then use the components across multiple EMS customer accounts without notifying OEMs or sharing PPV (savings) with OEM customers.
Better EMS sales people
Two primary benefits I see for OEMs as distributors lose their stranglehold on the supply chain include:
- Better components pricing for OEMs (See: Electronics distribution ripe for disruption)
- Better service from EMS providers
With the inevitable decline of leads from distributors they trade like candy with EMS providers, poor performing EMS marketing and sales people will be easily identified as they no longer meet quotas. EMS management can choose to help develop these individuals, or show them the door.
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