Contrary to popular EMS industry belief, nearly every EMS provider today does not purchase components and materials using procurement economies of scale (volume), across multiple customer programs, in an effort to achieve lower MCOGs for your OEM customer program.
The deeper you go into the inner, business workings of even the largest EMS providers, and understand how customer quotes convert to drive procurement and generate OEM program work orders, it becomes apparent EMS providers have less control than customers would believe over processes and activity surrounding EMS materials procurement and customer inventory management.
And even less control over the EMS industry’s second greatest cost: EMS provider S,G&A. (Related: How to drive costs out of your EMS manufacturing program)
Even large EMS providers like Foxconn, Flex,
Jabil, Celestica, and Sanmina do not have the
technical capabilities to optimize MCOGs.
Where vertical integration might offer some real competitive advantage for EMS provider, capability for an EMS provider to increase material spend v EMS competitors with less spend capability does not transfer to lower MCOGs for the OEM customer.
SEE ALSO
Adaptive and technical challenges facing EMS providers (graphic)
Errors in the EMS RFP quote process
Should cost analysis for EMS quotes
Here’s why. EMS providers routinely insulate the business risk with double-ordering/making risk buys and keeping every OEM’s program and related materials neatly packed in a shoebox.
EMS providers just aren’t equipped to delve into the entire, global materials marketplace; locate ‘real’ best pricing among the billions of parts in the components and materials universe, identify and purchase the desired or alternative (similar spec) OEM program materials needed using purchasing economies of scale (volume) for lower (optimal) per unit cost reductions, pipeline inventory delivery based on availability, and then keep track of which components belong to which OEM customer program(s).
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Measuring EMS WIP (% raw materials)
Even big EMS providers like Foxconn, Flex, Jabil, Celestica and Sanmina, to name a few, do not have the sophisticated, technical expertise or technology stacks in-house to do this, nor are the tech stacks cobbled into frankenware by third party vendors like IBM Watson, Oracle and SAP. You would think the large technology consulting firms would have this figured out by now, but they don’t.
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