EMS manufacturing direct labor checklist in OEM program costs and pricing EMS supplier quotes

Electronics OEM equipment manufacturers always leave money on the table when mapping contract manufacturing value streams.

By Mark Zetter

Electronics contract EMS manufacturers will incorrectly price direct labor (DL) cost into quoted pricing during RFQ phase when quoting OEM programs. This has more to do with not knowing how to quote DL cost properly vs doing so intentionally.

Many electronics OEM equipment manufacturers recognize DL costs tied to MCOGs in EMS quotes. But, what many OEMs do not often do properly is map DL costs per EMS factory activities on the production floor, namely, identifying the following, to name a few:

  • Activity station
  • Process phase or activity
  • Task, with timing (takt)
  • Headcount, operators
  • Optimal units per shift
  • Production line (or cell) vs location variables
  • Value add coefficient

The above is only a partial list for OEMs when drilling down to try to understand, and justify, DL costs when managing DL assigned your OEM outsourcing program presented in the EMS manufacturer’s quoted pricing. (Contact Venture Outsource: We have detailed costs per EMS factory, per geography for S,G&A, F(factory)G&A, direct labor, indirect labor and more)

OEMs also need to quantify costs as they measure appropriate EMS key performance metrics.

How to drive cost out of your manufacturing product portfolio
Best practices for EMS manufacturing RFQ quotes
EMS Manufacturer internal cost vs OEM quoted fees vs OEM target price
How to properly cost DL labor in EMS manufacturing quotes

Its common for EMS suppliers to get away with excessive fees (profit) if OEMs fail to exhibit best practices during the EMS request-for-quote (RFQ) phase and subsequent negotiations of the EMS contract service agreement.

In nearly every instance of the OEM program engagement, the EMS/ODM supplier wants to maintain a minimum, visible posture related to pricing, and negotiations, presented to OEM prospects (and existing OEM customers) — all based on EMS/ODM markups (profit).

More on this is detailed in this article, Ten (10) Factors impacting EMS quote pricing of OEM contract manufacturing programs.

For insight into identifying costly indirect labor (IDL) internal EMS factories, which is second to your OEM program MCOGs, take a look at this list representing a high number of expensive IDL supporting manufacturing productions inside the EMS factory.

As OEM decision makers consider other aspects of contract manufacturing value stream mapping as it relates to OEM-EMS business relationship costs internal EMS factories quoted into outsourcing programs, and OEM quote pricing vs OEM cost reduction benefit, we also recommend this article on EMS contract manufacturer (internal) costs vs OEM quoted pricing vs OEM ideal target costs.

Readers can follow Mark Zetter on Linkedin, here.

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