New product introduction (NPI) quoting and the OEM

OEM companies engaged in quoting exercises for new product introduction (NPI) business services with contract manufacturers can expect the capable contract manufacturer to carefully lead the OEM through an established and itemized list of NPI product requirements and processes. Prior to the contract manufacturer generating a quote for the OEM, it is usually the responsibility of a quote coordinator (internal the contract manufacturer) to obtain the required OEM NPI program information from the assigned contract manufacturing program manager. This information can include:

• OEM product program family
• Product assembly part number
• Lot size
• Service levels: turn time, test requirements and other services involved

Below is a general overview of related steps and procedures covering printed circuit board assembly (PCBA), test services, box build or system integration, and materials sales for NPI business services that most OEMs can expect from their contract manufacturing partner. NPI turnaround Most standard NPI business models contain four turn time variations. These include the standard five-day turn, a three-day turn, a 48-hour turn, and the increasingly-popular 24-hour turn. OEM product lot size requirements, in addition to other product business or service requirements, can each impact which turn schedule fits best. Standard NPI quote There are typically three sections, or rates, for the standard contract manufacturing NPI quote. These sections include labor rates, materials rates, and non-recurring engineering (NRE) rates. I. Determining NPI labor charges There are typically two different labor rates involved in the NPI quote. One set of labor rates involves assembly labor while the other set of labor rates involves labor for test. OEMs can usually expect there to be a minimum lot rate based on different NPI service turn times where the actual, or minimum, labor rate is generally defined in the NPI quote model, or outsourcing contract, presented to the OEM. (See sample manufacturing outsourcing contract) Assembly labor Assembly labor rates are based on the turn time for the NPI service; assembly component count, and current labor rates wherever specified by the contract manufacturer. Box build, or system integration, and NPI product rework rates are based on required skill level of the labor; the amount of time required to perform the work, and the labor rate for the work specified. Test labor Test labor can usually be segmented into four different types. These four test types can include laminolography, flying probe, in-circuit test (ICT), and functional test. Regardless of the type of product test, most contract manufacturers take into consideration test yield and product debug time when determining product NPI quotes for test labor rates. OEMs should consult with product test engineering to help determine reasonable fees in this area. Two test areas to expand on further include laminolography testing and functional testing.

Laminolography testing There are two types of test services for laminolography. One type of testing involves full-scope programming for every joint. The other is selective screen testing, only. Programming charges for laminolography is typically an NRE item and is based on the time required for programming and the test rate.

Test charge per OEM product unit is usually defined as the test time, estimated product yield, debug time and the required skill or, test machine rate.

Selective screen testing is typically broken-down into two sections with the rate, or charge, being based on the images required. Pricing presented to OEMs can usually be expected to be separated into two categories: one rate per image for external, or new, OEM customers and a slightly lower rate per image for internal, or existing, OEM customers.

Functional testing Functional testing rates are usually based on the amount of time required to perform the service and the assigned labor rate. Cost of capital equipment must also be considered where applicable.

II. Determining NPI materials charges Materials cost for NPI quotes may sometimes be divided into two different charges. Cost for materials managed by the contract manufacturer and cost for materials managed by the OEM or, in some instances, the distributor. (Distributors may apply where the OEM has a long-standing relationship with the contract manufacturer and NPI projects programs are regularly underway) In either situation, material mark-up for each category can vary. Product pricing for material managed by the contract manufacturer generally involves input from the NPI planner or buyer internal the contract manufacturer. Pricing for material managed by the OEM (or distributor) must be provided to the quote coordinator internal the contract manufacturer. Where OEM-consigned material pricing is not readily available, it is reasonable for OEMs to expect a handling fee per item to be applied by the contract manufacturer (as NRE) to the OEM's NPI program pricing. Additionally, material attrition must also be accounted. With the exception of printed circuit boards, OEMs can expect the contract manufacturer to calculate in a NPI material attrition factor of 10% when considering total material usage per NPI product program. III. Determining NPI non-recurring engineering (NRE) charges One-time NPI product program NRE charges may fall into one of the categories, below:

a. fixtures, tools (stencils, wave fixtures, other special tooling) b. equipment programming (SMT, flying probe, laminolography) c. materials re-packaging, vendor NRE charges during material procurement d. NPI product program documentation

Material piece part sale or material reconciliation must also be considered. At the product end of life (EOL), all materials need to be collected. The charge for this is determined by the contract manufacturing NPI program manager who then submits the invoice to the OEM. In instances where resale occurs, it is not atypical for OEMs to be presented with a mark-up rate of 30%.