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EMS Provider manufacturing service level agreement for outsourcing OEM hardware programs

The following is a reasonable representation of a manufacturing service level agreement an electronics contract manufacturer would present to a technology OEM for the purpose of building a robust outsourcing hardware product program. (See, Top 10 EMS / ODM company rankings)

While some of the accompanying documents are not presented, readers should be able to develop a fairly good understanding of the effort that goes into framing a hardware outsourcing contract manufacturing service level agreement that can ultimately lead to helping executives save on cost and protect profits.

WHEREAS, Customer desires to purchase, and CONTRACT MANUFACTURER desires to manufacture and sell products as specified in this Agreement.

WHEREAS, CONTRACT MANUFACTURER has developed processes and practices for manufacturing products for different electronic applications and at Customer’s request desires to manufacture Customer’s products in accordance with Customer’s specifications.

NOW THEREFORE, IN CONSIDERATION OF the mutual promises and covenants set forth in this Agreement, the parties agree as follows:

1 WORK, LICENSE

It is the intent of the parties that this Agreement and any attached Exhibits shall prevail over the terms and conditions of any Purchase Order or additional materials. In the event of a conflict between the terms of this Agreement and the terms contained in any such Purchase Order or additional materials, terms of this Agreement shall be controlling.

CONTRACT MANUFACTURER agrees to use best commercially reasonable efforts to perform the Work pursuant to Purchase Orders (as defined below) or changes thereto issued by Customer and accepted by PROVIDER. “Work” shall mean CONTRACT MANUFACTURER obligations to procure components, materials, equipment and other supplies and to manufacture, assemble, and test, Customer’s products (hereinafter “Products”) pursuant to Customer’s specifications set forth in Exhibit D (“Specifications”).

Subject to the terms and conditions of this Agreement, Customer hereby grants CONTRACT MANUFACTURER a non-exclusive, non-sublicensable, non-transferable limited license to internally use, at PROVIDER’S place of business, all of Customer’s patents, trade secrets and other intellectual property solely to perform the Work.

2.0 FORECASTS, ORDERS, MATERIAL PROCUREMENT

2.1 Forecast

Customer shall provide PROVIDER, on a monthly basis, a non-binding, except as set forth in Section 2.3b and 3.4, rolling twelve (12) month Product order Forecast (“Forecast”). CONTRACT MANUFACTURER shall view all such Forecasts as Confidential Information (as defined in Section 11). Forecast will indicate which products are released to production and have upside flexibility as defined in Section 3.3.

2.2 Purchase Orders

Customer will issue orders for the Products in accordance with the order forms (“Purchase Orders”) set forth in Exhibit E. Purchase Orders shall be deemed accepted by CONTRACT MANUFACTURER upon receipt, provided however that CONTRACT MANUFACTURER may reject any order that represents a 60% or more volume deviation from Customer’s product Forecast delivered pursuant to CONTRACT MANUFACTURER pursuant to Section 2.1, for such month on the fourth month proceeding such forecasted month, shipment dates, or any Purchase Order that is modified outside the guidelines established in Section 3.2b. CONTRACT MANUFACTURER shall notify Customer of rejection of any Purchase Order within two (2) working days of receipt of such order.

The parties agree that the terms and conditions contained in this Agreement shall prevail over any terms and conditions of any Purchase Order, acknowledgment form or other instrument.

2.3a. Material Procurement

Subject to the notices set forth in Section 2.4, CONTRACT MANUFACTURER agrees to purchase any components and parts (“Materials”) for the manufacture of the Products in accordance with Customer’s approved manufacturer’s list (“AML”) set forth in Exhibit F. To use other vendors of Materials, CONTRACT MANUFACTURER must obtain Customer’s prior written consent, which consent shall normally be provided within fourteen (14) days and, in any event, shall not be unreasonably withheld or delayed.

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