Find electronics services: (888) 860-1193

Contract manufacturing risk mitigation and risk management

By Mark Zetter

Contract manufacturing risk mitigation and risk management concerns are on the minds of contract manufacturing executives just as much as these same concerns are on the minds of OEM executives engaging with their contract manufacturing partners.

Contract manufacturing risk mitigation and risk management for the contract manufacturer involves the contract manufacturer distributing the amount of risk he takes on and lowering his cost of doing business.

To help achieve this, it’s in most contract manufacturers’ best interest to take on and manage as many OEM outsourcing product programs as possible.

As contract manufacturing business development wins more OEM programs, the risk of the contract manufacturer not being able to recover his investment decreases because similar outsource product manufacturing programs often have similar startup support requirements.

Outsourcing product program startup support requirements, or investments, for outsource manufacturing programs include NRE expenses (non-recurring engineering) and ENRE expenses (extended non-recurring engineering).

ENRE expenses can include four items, among others:

  • cost of starting a program
  • pipelining materials
  • seeding inventory and distribution channels, and
  • managing component liability

The risk management equation below emphasizes components of the decision process when contract manufacturers assess risk mitigation and risk management, where:

N = Number of products / programs the contract manufacturer wins from the OEM each year

NRE = CNRE = Non-recurring engineering expenses (NRE)

ENRE = CENRE = Extended NREs (ENRE)…contract manufacturer’s ‘cost’ of starting a program; pipelining materials, seeding inventory and distribution channels, and managing component liability

Voli = Product life cycle sales volume i

TP = Transfer price (the amount it ‘costs’ the contract manufacturer to manufacture the OEM product vs. the ‘price’ the contract manufacturer sells the manufactured product to the OEM customer)

CRE = Cost of recurring expenditures (excludes CENRE)



Search electronic manufacturing services

In your search results, you can further target provider services options.

Meanwhile, there are four factors that can jeopardize a contract manufacturer’s profit and also jeopardize the OEM-contract manufacturing relationship. These four factors are:

  • Late time-to-market (TTM)
    Late TTM can be either the contract manufacturer’s fault or the OEM’s fault
  • Limited flexibility
    Limited flexibility can either be contractual or supply chain distribution-based
  • Weak products
    The OEM either does not judge the product market properly or the contract manufacturer produces poor quality products
  • Surprise supply chain stoppages
    Supply chain ‘bubbles’ are created in the pipeline. These pipeline bubbles can be due to the product retailer, channel distributor, the contract manufacturer, the supplier or vendor or, the OEM

The net value on all of this is it is in everyone’s interest to help manage all of the above.

What's on your mind?

Join GlobalNet for free and post in the discussion.  When you log in, you can comment and post your own discussions.

Add your comment


Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

TIP: Anyone can post article comments whether or not you are registered. But, if you register or log in you can attribute your posts to your user profile in GlobalNet Community.

Your email address will not be published. Required fields are marked *



You might also like:

Top 10 Electronics Services Companies Worldwide

About is the leading online destination helping electronics OEM outsourcing decision makers make more informed decisions and reduce risk. We offer educational Webinars, thousands of original articles and helpful tools, a community of influencers who understand the challenges facing your company today, and a comprehensive directory of electronics provider services.

Copyright 2014 Venture Outsource, LLC. All Rights Reserved
The material on this site is for informational purposes only and is not a substitute for legal, financial or professional advice. Distribution and use of this material are governed by our User Terms Agreement and by copyright law. By using our Website you agree to site Terms and Privacy policies. For questions please contact at 1-888-860-1193 or visit