There is an old saying, you win business on price and lose it on service.
However, service is more often than not an amalgam of several focus areas used to describe anything that does not have clear expectations and deliverables which should be stated in the EMS provider services agreement.
Many executives recommend that when OEM executives are evaluating and searching for EMS providers, a simple statement of contractual business T&C’s be included in the request for quote (RFQ) package.
These should be agreed to at the beginning stages before anyone signs anything – and everyone is still keenly motivated.
SEE ALSO
RFQ Best practices for EMS programs
EMS Manufacturer internal cost vs OEM quoted pricing
Price rates
Surprisingly, this basic element from any customer’s agreements is often omitted or left as TBD. Service providers aren’t going to fill this in later.
Many OEMs believe that they establish a price based on a quote and assume subsequent quotes will follow in the same manner. Moving in this direction can cause problems later. State your cost formula(s) and then fill in the rates.
The following is a typical formula:
[(Material + Mark up) + (Labor rate + Mark up)] x SG&A x Profit % rate
An even simpler version:
X% over BOM
RELATED DOCUMENTS
OEM RFQ terms for EMS programs
NRE PPV template for EMS programs
Quite often, EMS providers will tell you about their elaborate systems, and EMS cost v. OEM price methods or activity-based costing… We’ve heard them all.
Just fill in a table and spell out the simple rates that you will be charged for labor by function, over head rates, SG&A and profit and know what is rolled into each. The only variables should be time and quality yield rates, which should be stated by you.
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