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EMS manufacturer disclosure vs. OEM discovery in RFQ quote pricing

We analyzed 3,000+ EMS manufacturing quotes - including highly complex systems builds - for OEM programs across multiple EMS factories and geographies.

EMS manufacturers always try and manage the narrative. EMS suppliers will tell you how good they are and, present quote pricing in ways to make OEMs think they are willfully disclosing internal EMS cost information to you about your program, unit cost per volume

And since OEMs focus on the pricing of EMS fees, its important to note there is no EMS provider or EMS quote software vendor today that is capable of performing the full quote process properly: best price/availability for raw materials, accurate labor estimates, EMS industry business technical savvy. Program quotes created by EMS providers and presented to OEMs are made with the best interest of EMS providers in mind — not OEM buyers of EMS services.

Every quote tool used by EMS manufacturers today generalizes, then applies random variables to cover the EMS provider’s probable losses, as a typical RFQ reply could be materials + 20% (as the laziest reply), all the way to a 20-page response with complete DFM and other well-planned details. The issue with these EMS quote responses to OEM RFPs is they are typically re-used from similar programs and the real costs do not add up when thoroughly reviewed.

And because EMS manufactures don’t really know what their true internal costs are they over-compensate. (See double- and triple-dipping below)

Our tools help OEMs know what to look for after EMS providers are finished ‘estimating’ pricing and quoting your program. You quickly can see how the EMS provider is not being transparent.

We analyzed 3,000+ EMS manufacturing sales quotes for OEM programs ranging from NPI to large-scale manufacturing and this includes highly complex systems builds across multiple factories and geographies.

In every EMS quote we’ve processed to date, the OEM paid considerably more than they should have. The OEM could have negotiated further to cut costs and, the EMS provider could still have made a profit.

SEE ALSO
How OEMs cut costs for EMS services up to 15%
Best practices for EMS manufacturing RFQ quotes

The OEM buy decision based on go vs no-go analysis is flawed in most instances because of the competing nature of EMS industry and, the fact we can prove EMS provider profits are, on average, 12%+ (and considerably higher) than EMS providers claim.

EMS providers have created this artificial environment where the understanding gap between EMS cost disclosure vs OEM price discovery is a non-exact science or, fuzzy-math based. EMS manufacturers manage the RFQ phase narrative with quote processes and tools designed for their benefit. With fuzzy math as a base line in the quote you assume all the risks are baked into that as well. However, you then look at the contract service agreements each EMS manufacturer provided, and you can see a deeper understanding of how each and every possible cost is covered. This leaves all of the risk in the hands of the OEM if large enough and, conversely, can leave smaller OEMs in a bad position later if forecasting is not accurate.

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EMS must be confident that, if they sign a customer OEM program, the program will generate enough profit to satisfy their materials, labor and factory and related costs (which they cannot accurately quantify) so, EMS providers increase fees, double- and triple-dip to increase their confidence they’ll make a profit.

Meanwhile, OEMs need to see the bigger picture with the ability to drill down into each EMS pricing quotes if they want to make informed decisions. Only then can you do thorough contract and fee negotiations with EMS manufacturers and evaluate competitive EMS bids based on actual EMS internal cost analysis.

Add to this, EMS manufacturers are notoriously sloppy at estimating manufacturing labor costs for both direct and indirect labor – which ultimately raises OEM quoted pricing and fees.

OEMs armed with a tool enabling you to thoroughly drill down into EMS manufacturing quoted costs gives OEMs confidence to then obtain more accurate assembly and test costs, and ultimately, lower landed costs, from EMS manufacturers.

But what typically happens is OEMs simply asks the EMS provider to quote the OEM program based on varying volumes against cost per quantity, even though what OEMs need is to be able to see price breaks for EMS services by line-item.

Essentially, OEMs want to do something very complex but EMS providers are using simple math when responding to RFQs.

We show OEMs where EMS manufacturers are charging excessive fees, including double- and triple-dipping of EMS fees, which most OEMs pay.

Partly contributing to today’s challenge for OEM equipment manufacturers is OEM decision makers typically arrive at the OEM-EMS negotiation table knowing why they want something but being unable to quantify what they need and why. In short, being unable to quantify why they should be offered a lower price than what is in the EMS provider’s quote.

Once an OEM is armed with the details of the program – its real costs, you can then be assured you can enter into negotiations without a weakened negotiating posture and, instead, enter into negotiations from position of strength and facts.

We can tell you how much your outsourcing program is costing your EMS manufacturer (the EMS manufacturer internal cost) to produce your product and service your program. We then show you how much room you have to cut costs during negotiations.

If you are interested, please contact Mark Zetter at 888-860-1193 or email insight@ventureoutsource.com




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OEM Checklist for EMS Manufacturing Quotes

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