Make vs buy: Calculate OEM in-house manufacturing cost vs EMS outsourcing savings (or loss)

Make vs buy cost-benefit analysis

Electronic OEM hardware and equipment companies can compare in-house manufacturing costs vs. potential savings from outsourcing with EMS manufacturers. You will need the following:

  • OEM materials cost of goods sold
  • OEM direct labor (hourly)
  • OEM cost rate
  • number of units to be manufactured

 

SEE ALSO
Manufacturing capacity planning and acquisitions

 

Instructions

  1. Click [CLEAR FIELDS]
  2. Input program cost and rate variables identified above
  3. Input quote pricing figures provided by contract electronics provider(s) you are considering
  4. Input % savings (based on discussion with contract manufacturers, claiming they can save you this amount)
  5. Select [CALCULATE OEM SAVINGS]
  6. You can change variables to see how different scenarios impact your program cost

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Clear Fields

* Indicates required field.

OEM INTERNAL FIGURES
?  $ *
ANNUAL cost of materials required for product / program.
?  $ *
OEM fully-burdened direct labor hourly rate (average).
?  $ *
Determine OEM internal cost rate per hour from items such as direct and indirect labor, utilities, supplies, square foot or meter overhead costs, additional space required, rents which the OEM will not be paying for because it will be outsourcing.
(Working backward: use above costs to determine hourly savings based on ANNUAL hours to build and ANNUAL number of units forecasted / to be manufactured)
?  *
ANNUAL direct labor hours required to build product / program.
?  *
ANNUAL number of units forecasted / to be manufactured.

MCOGs SAVINGS (%)
?  % *
Based on discussions with contract manufacturer: enter percentage amount contract manufacturer indicates he can save the OEM on procurement of MCOGs if / when contract manufacturer absorbs OEM procurement responsibilities.

ELECTRONICS SOLUTIONS PROVIDER'S FIGURES
?  $ *
Direct labor hourly rate per the contract manufacturer.
?  % *
Material mark-up (%) per the contract manufacturer.
?  % *
S, G & A (%) per the contract manufacturer.
?  % *
Profit (%) per the contract manufacturer.

Please correct the fields highlighted in RED and resubmit


COST RATE / HOUR COMPARISON
$ 62.00
vs.
Electronics Solutions Provider $ 49.71

SOLUTION PROVIDER COSTS
Direct Labor Hourly Rate $ 552,750.00
Material Mark-up $ 4,950,000.00
S,G & A $ 1,800,000.00
Profit $ 900,000.00
Total Outsource Cost $ 8,202,750.00

OEM SAVINGS
Cost Rate / Hour Savings $ 12.29
?  $ 2,027,250.00
?  $ 3,150,000.00
Total Annual Savings $ 5,177,250.00
(OEM Cost Rate / Hour Savings) x (OEM Direct Labor Hours)
ANNUAL amount contract manufacturer will save the OEM on materials cost vs. ANNUAL cost OEM would incur for procurement otherwise.

 

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