Asking questions about cost, quality, strategic fit and risk is only part of OEM best practices for EMS provider due diligence. Reliance on a single point of contact can be a sign of lack of depth, or simply due to lack of breadth in terms of interpersonal skills. OEMs must also shoulder some responsibility.
OEM relationships with electronics manufacturing services (EMS) providers often fail to achieve their potential for a variety of reasons. Some reasons are the OEM’s fault. Some are due to the EMS provider.
Whatever the case, many OEM-EMS relationships are doomed from the start simply because of a poor fit. (See: 10 Reasons why OEM-EMS relationships fail)
Investing extra time and resources in an extended engagement focused not just on financial, but tactical and strategic due diligence as well will pay off for both parties long term.
Taking into consideration years of experience of what works and what doesn’t, I’ve laid out below some best practices and questions OEMs should ask, when evaluating EMS providers, that are grouped into categories that align with dimensions for most of the important needs of the OEM’s EMS relationship.
I then follow this by detailing points of interest EMS providers are likely to discuss with OEMs and, therefore, questions and topics of discussion OEMs need to ask themselves and have internal discourse on prior to beginning any EMS relationship.
Questions OEMs should ask EMS providers
From the OEM perspective, in order to have a successful long-term relationship, OEMs need to understand what they want out of the engagement and then ask the hard questions to determine if the EMS provider can deliver the goods.
How will you reduce our cost? What strategies and tactics do you employ to manage costs, keep them going down, prevent increases and, manage risks in the supply chain?
EMS providers that employ strategies to leverage their ‘buy’ through some level of centralized strategic procurement will outperform those who rely on buyers to pickup nickels, dimes and pennies as they process MRP-generated ‘spot buys’ on an ongoing basis.
Total reliance on a tactical decentralized model is a signal the EMS provider does not have a good process for keeping on top of critical parts and managing supply risks. If they don’t have it, you better keep an eye on it.
How will you support us? Do you have a single point of contact that I will have to go through, or will we employ a cross-functional matrix?
Reliance on a single point of contact can be a sign of lack of depth, or simply due to lack of breadth in terms of interpersonal skills.
The former is a sign of weakness, the latter is neutral-to-positive in that the EMS provider is managing based on realities instead of hope or denial.
If you need quick responses, OEMs need to design single point of contact out of your supply chain and instead focus on an integrated cross functional team model that joins the EMS provider’s operation into your value stream.
This won’t work if it’s simply your idea and the EMS provider does not apply this model across all customers.
How well do you drive quality? What are your biggest issues? What are the trends and what are your plans to drive them down?
Everyone has problems. Some are generated internally. Some problems come down from EMS providers / suppliers and some are designed in by the OEM customer.
How are these issues root caused, tracked, and ultimately eliminated? (See: Manufacturing problems and alerts)
The best EMS providers will have data / metrics posted on walls near floor operations.
If data isn’t there, you can assume they either don’t track it, or they don’t want you to see it.
Look for workstations with people staring at printed circuit boards. Count the number of stations with soldering irons right after wave solder. Compare the amount of work-in-progress (WIP) material in front of inspection and / or rework stations to the amount of WIP in front of the proceeding process step and you’ll have a good idea of how much quality depends on inspection and maybe even a clue as to first-time throughputs. Is there a broad mix of product in inspection, or is it all one customer?
Ask the EMS provider; what are your retention statistics? How do they compare to other companies and what key strategies to you employ to keep them up? How does your industry salary structure compare in terms function and region?
No matter how good your program’s documentation is for your product, the EMS provider’s value to you will be largely bound by how well their people come up to speed on your business, and stay there.
If the EMS provider is losing any key supervisory or management talent, be careful. This is one area you very likely will have trouble getting EMS providers to openly admit and you may need to leverage your industry network to get the real story.
What does your ‘ideal customer’ look like in terms of industry, revenue, technology and mix? What other attributes do you look for or measure in your OEM customers? How do we fit against this template? Has this template changed over time, or do you expect this template to change over time and why?
How many customers do you have? What level of revenue will it take to get into the top tier of your customers? In other words, what is the lowest revenue in the current group?
The answers to these questions will tell you most of what you need to know about the strategic fit between your company and the EMS provider.
If there is a fit, then it’s more likely you will get the ‘A’ team on your program and you’ll get regular attention from senior management. And I mean real attention in between the regularly scheduled dinners surrounding the business review meetings.
It all boils down to revenue and to a lesser degree how well your business fits what the EMS provider does well.
When you aren’t a key EMS customer, don’t expect the extra mile all the time in terms of indirect support. When it comes to fixing your bill of materials (BOM), squeezing out cost, or covering spikes in demand, you’ll need to shoulder more of that responsibility or at least keep it on a tight leash. (See: Industry terms and definitions)
Internal OEM discussion topics
Additionally, the following are questions and some points of discussion OEMs should hold internally to better understand your own motives that address the softer side of the OEM-EMS relationship and how costs, risks and events surface and transform as the OEM-EMS relationship evolves.
I’ve segmented the questions just like above into key category dimensions that should be important to each OEM-EMS engagement in some way.
Are we doing similar work in-house? If you are engaging EMS providers to cover your peaks and valleys, that’s okay, just don’t expect ‘extra mile’ service and other OEM customers being moved aside at the drop of a hat to make way for your product when you have one foot out the door.
Are you doing the best-of-three-quotes-drill because you don’t trust EMS providers, or because it’s the only good way you know to drive cost? (See: Defining a new value proposition for EMS)
Market tests are healthy for both sides, but grabbing the lowest price will get you into trouble if you don’t understand what’s behind the curtain.
Are tough goals set through a collaborative process and based on a combination of OEM customer business needs, supply chain benchmarking and economic realities?
Dictating targets based solely on your OEM program or corporate needs will get you success but only in the short run.
In the long run, if your targets don’t adjust to realities your business becomes the loss leader in the EMS provider’s plant.
The first warning sign is when the program manager everyone loved is moved to another customer. (See: Program management responsibilities and activities)
You will soon be spending a lot of time with the ‘B’ team until you finally move your business to another EMS provider.
You are going to ask your EMS provider to jump through hoops for you – as well you should. Are you ready to do the same when he needs your help?
The biggest cost reductions for electronics product involve changing designs to take advantage of new technology, improve quality or throughput.
Product design changes are not always easy to do and do so is not always for the right reasons.
Do you have the right OEM resources in place to respond to this quickly and are your internal incentives aligned with the bottom line or to justify internal costs?
Are you serious about doing anything and everything to reduce cost? Are you looking at, and effectively managing, all of the components of cost not just material and labor, but transportation and all of the hidden cost areas?
On this point, value stream mapping is a good tool to use prior to the engagement. (See: Lean manufacturing outsourcing and value stream mapping)
Updating your value stream map as a part of your product launch process is a great way to set a solid foundation for managing the relationship moving forward and to make sure you are watching all of the ‘puddles’ of inventory and cost.
Who holds the risk in the relationship? Is it balanced and based on who is responsible for creating or removing the risk? How good are your forecasts? Will you take responsibility for expediting costs incurred to meet unexpected peaks in demand?
The only good way to protect for peaks in demand is to buffer process constraints with the right levels of inventory to better manage delivery schedules. (See: Supply chain contract delivery schedules, schedule changes, liability)
Are you prepared to reward the EMS provider for doing so on an ongoing basis, or will you ‘fly speck’ every item?
A well-done value stream map makes everything transparent and if you’ve done it right will lead you into a good process for managing risks when things change.
How much data do you need from your EMS provider on a regular basis to manage the relationship? If you’ve picked the right providers, then you need to trust them to do the job.
EMS providers should be managed in the same way a smart senior leader treats a highly specialized technical employee. Put the right metrics in place and keep an eye on them, but otherwise stays out of the way.
Don’t ask for reports you don’t really understand or won’t use. No activity for activity’s sake. It’s waste and cost that should be removed.