Savvy OEMs can benefit knowing how contract electronics services providers determine pricing for better understanding provider quotes during the RFP/RFQ process. Performing should cost analysis for electronics services involves understanding how contract manufacturers turn what is typically considered a cost center – into a profit center. (READ: How to drive cost out of your manufacturing product portfolio)
From one electronics services case study, we share partial information below from an actual OEM program running three shifts with global program management and distribution and taking into consideration procurement and pipelining materials in-house to the contract manufacturer for SMT, PCB assembly and electro-mechanical assembly work, including configure-to-order box build, pack out and shipping.
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The intended benefit here is to show OEMs ways some electronics services providers justify internal costs (read: pricing) based on the contribution of OEM-program supported provider costs and salaries of functional group personnel.
Various links throughout this article direct readers to relative, helpful information to provide further knowledge in that area.
This study begins with estimated revenue from the OEM program equal to $9,375,000, followed by other internal contract electronics provider cost considerations (list for reader appreciation), and detailing gross margin and other program financials for the electronics provider.
Revenue
$9,375,000
Other Materials Costs*
Freight-in (% of sales)
Inventory Reserve (% of Material)
Warranty Reserve (% of Sales)
Material Shrinkage (% of Material)
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Manufacturing Direct Labor Costs
Manufacturing direct labor costs for this case study came to just under two percent.
Manufacturing Shift 1
Manufacturing Shifts 2 and 3
Test
Pack-out
Direct Labor Overtime
Employment Burden
Manufacturing Overhead
Each of the line-items below represents a contribution (as a percent of involvement or ‘internal cost’ to provider) when the provider is determining ‘pricing’ he sets for the OEM customer while also covering his costs and making a profit.
In your search results, you will be able to further target provider options by choosing End Markets and/or Services.
For absence of doubt, assume the contract electronics manufacturing general manager** for the facility is making $150,000 annually and spends roughly 10 percent of his time on this particular OEM program, per month.
Provider quoting functions then assign a minimum internal cost of $15,000 toward the full ‘price’ he quotes the OEM, where:
General Manager Yearly Salary of $150,000 x .10 = $15,000
(Contact us for attributed percent info per positions below)
Manufacturing Indirect Overhead Costs
General Manager**
Business Unit Manager
Operations Manager
Manufacturing Manager
Manufacturing Supervisor
Manufacturing Clerk
Process Engineering Manager
Process/Maintenance Engineer
Maintenance Technician
Process Engineering Technician
Engineering Clerk
Test Engineer
Test Engineering Tech.
Quality Manager
Supplier Quality Engineer
Quality Engineer
Manufacturing Quality Auditor
Documentation Specialist
Documentation Clerk
Manager, Management of Programs
Program Manager
Associate Program Manager
Director of Materials
Purchasing Manager
Buyer
Purchasing Administration Clerk
Production Control Manager
Master Scheduler/Planner
Production Planner
Manufacturing Material Handler
Warehouse Personnel
Shipping
Shipping Clerk
Receiving
Receiving Inspection
Commodity Manager
Logistics Manager
Warehouse
Worldwide Strategic Programs (location specific)
Employment Burden (employee benefits)
Manufacturing Expenses
Miscellaneous Manufacturing expenses (% of sales)
Miscellaneous Office Expenses ($/indirect)
OEM Program Product Sq. Ft. Required
Expensed Equipment
Interest on Capital Equipment
Capitalized Equipment
Materials Cost of Goods Sold (MCOGs)
Includes Other Materials Costs*
$7,941,685 (against materials costs of $7,500,000)
Gross Margin
$1,433,920
S,G&A Overhead
Human Resources Manager
Human Resources Professional
Training
Miscellaneous HR/nurses/etc…
Administrative Assistant
Administrative Clerk/Receptionist
Finance Controller
General Accounting Manager
Financial Analyst
Cost Accountant
Payroll
Accounting Clerk
MIS Support Person
Accounts Receivable Clerk
Lawyer/Accounting Reserve ($5,000/month)
MIS System Expense
Employment Burden
Corporate overhead (% of sales)
Miscellaneous office expenses
Profit
$1,323,920
Gross Margin
$1,433,315
ROE, ROA, Mark-Up
This program yielded the electronics services provider a return-on-equity of 57 percent, return-on-assets of 38 percent, all with a mark-up of nearly 18 percent.
Providers with good program management can generate even better margins. Additionally, read more on alternative ways OEMs can drive down costs of electronics services.
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