We analyzed and processed 1000s of EMS manufacturing sales quotes for OEM programs ranging from NPI to large-scale manufacturing and this includes highly complex systems builds across multiple factories and geographies. What we found is, manufacturing quoting software and RFQ quote processes deployed by EMS manufacturers are designed to create or protect EMS provider profits.
I’ve witnessed first-hand the vast majority of all EMS industry quoting activities and RFQ technical application capabilities. These tools and platforms are incapable of thoroughly identifying actual, internal EMS costs – in great detail.
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EMS providers don’t really apply their true business costs leaving OEMs to determine EMS quote value, which is different than OEM price, in an environment that is negotiable – because the OEM can take their program to a competing EMS manufacturer if they don’t like the price.
So why do OEM purchasing managers routinely pay more than they need to when sourcing EMS services?
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EMS manufacturer actual costs vs OEM quoted price
Many electronic OEM equipment manufacturers build their EMS sourcing programs around contract EMS manufacturers they know. Maybe it’s the devil you know? The majority assume some level of trust was built into the relationship and they overlook the potential savings. This is where the money is often left on the table and the OEM just did not have the team in place to better prepare for costing.
OEMs will then discard quotes from some EMS provider in the RFQ phase because of price – the quote is too expensive or EMS pricing is higher than what the OEM thinks they should pay.
But what if your costs tied to an EMS manufacturer’s quote become more reasonable as your program scales and, you built your EMS sourcing strategy around the potential of the OEM program?
OEMs rarely go through a detailed EMS discovery process with EMS providers because its easier to rely on EMS manufacturer disclosures, as fact, followed by vetting some of the EMS factory’s processes and engineering capabilities.
This is because the OEM-EMS relationship typically starts at the price, without detailed EMS internal factory and functional group analysis.
The EMS manufacturer is also often left to deal with RFQ packages that are missing significant detail. These are not low cost customer acquisition costs, but often in the thousands of, even tens of thousands, of dollars just to create a general response with reasonable details baked into the response to the OEM.
Instead, we recommend OEMs vet each, narrow program assumption that plays out over the lifecycle of your OEM program because the OEM purchasing manager’s job primarily is to secure the best price per volume anticipated based on the product’s future.
To do this, OEMs first must figure out all of the cost drivers for your EMS sourcing program, including ways to diversify and mitigate supply chain shortages. But what about ways to offset lack of visibility in OEM forecasting and supply disruptions caused by your EMS partner?
We can tell you how much your outsourcing program costs your EMS manufacturer (their internal cost) to produce your product. We can tell you how much you room you have to cut costs during negotiations.
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