EMS/ODM manufacturer corporate (org chart) reporting structure impacts sales and services

By Mark Zetter

Despite IPC, industry ISO and other quality certifications, no two contract electronic services providers are the same, EMS/ODM sector pricing is not standardized and neither are EMS/ODM service offerings.

How electronics product design, SMT and, PCB assembly manufacturing and test services are administered by EMS/ODM companies for their OEM customer programs is just as important as how these providers are structured internally.

Organizational (org) charts detailing how functional support groups support one another to bring products to market on-time and at cost target, and their reporting structure, can be help better to define EMS/ODM overall accountability in the eyes of OEM customers.

In addition to EMS/ODM company reporting structure, compensation amount and how employees and third party vendors, like manufacturing reps, are compensated, are also important and can impacts both OEM customer program pricing, and success.

Beyond direct v dotted-line reporting structure

One Japanese OEM aimed to spin-off, and consolidate a large division. They wanted help consolidating five manufacturing plants dedicated to printers and other office equipment, into three factories. This followed creating a new EMS/ODM business model out of the remaining two factories.

This was a particularly challenging project for a variety of reasons beyond often relying on translators when speaking with senior executives and board members for this publicly traded Japanese OEM. Today, I remain pleased with their progress and how they continue to execute and are thriving – winning over a good number of Japanese OEM customers suited to their target markets. (OEMs reading this can can view this outline when finding suitable EMS/ODM partners)

EMS/ODM companies deploy a variety of ways to set up org charts. Some want sales and business development reporting directly to the CEO or MD. Others have this same structure, but with a dotted-line to the COO or factory operations.

(The image above is blurred intentionally.)

Either structure has advantages and disadvantages internally, and for OEM customers of EMS/ODM providers.

How EMS/ODM providers win new customers is a different approach and requires different strengths v how EMS/ODM provider win additional business from existing customers.

Matrix-styled EMS/ODM organizational management structure, with dedicated CapEx and business unit directors and narrowly-focused EMS/ODM program managers offers EMS/ODM providers advantages and disadvantages. But the disadvantages can far outweigh advantages near-term, and long-term.

Understanding the EMS/ODM customer satisfaction survey
OEM feedback on EMS/ODM sales and marketing functions

The EMS/ODM today that are employing this org chart structure and reading this will agree, but would not likely admit so publicly. (The image below is blurred intentionally.)

Focusing on customer programs with laser-like precision, without sharing overhead and amortizing costs can be good. To a point.

More accurate quote costing can be realized, but this does not automatically reflect better/lower quote ‘pricing’ for OEMs.

Additionally, EMS/ODM with the sales function reporting directly to the CEO or MD can also mean the EMS/ODM could have inadequate customer program management support. Or at best, program management for this EMS/ODM is unable to operate freely to do their job for a variety of reasons. This is common among EMS/ODM in all tiers, regardless of size of revenue/sales.

EMS/ODM sales reporting to operations directly (not a dotted line) gives both EMS/ODM firms, and customers, other benefits. Mainly, its easy to hold EMS/ODM customer program management, and EMS/ODM sales and business development, both accountable without inter-department finger pointing when something happens.

Again, this structure varies across all sizes of EMS/ODM providers. Regardless, EMS/ODM program management is impacted. For the better, and/or the alternative.

Many EMS/ODM sales people in industry are really just glorified program managers with a greater degree of freedom to wander in and out of the EMS/ODM factory. The majority of EMS/ODM sales people I’ve interacted with over the years place more emphasis on trying to get additional business out of existing customers. More on this here.

This issue in EMS industry is directly attributable to EMS/ODM organizational structure (org chart setup) and driving support function accountability. Add to this, how EMS/ODM firms allocate compensation to their sales and program management functions is also key to EMS/ODM IDL expenses/costs, and ultimately OEM program pricing.

Several different sized EMS/ODM provider locations, particularly EMS/ODM factories located in the Northeastern United States and serving non-traditional end-markets like industrial, aerospace, avionics, military/defense, automotive and medical are prone to one business model over the other. This holds true for EMS/ODM firms in the Pacific Northwestern part of the US. The same can be said of this model type for EMS/ODM factories comprised of a joint venture EMS/ODM org chart structure, and often regardless of geography.

Electronics product prototyping labs and incubators, plus new product introduction (NPI) services and functional groups, especially those standalone services and departments promising fast turnaround, also have specific org chart structures to motivate staff and drive business development and prospective new customer program wins.

Again, regardless of higher sales, or end-markets and services target, our experience has shown that some EMS/ODM business models dependent on certain org chart structures do better than others.

One takeaway from this article for OEMs reading, is knowing whether your business is a new customer win for the EMS/ODM provider you’re considering or, whether your program is additional business with your current EMS/ODM partner already under contract.

EMS/ODM compensation and bonuses

Another takeaway deals with how EMS/ODM providers compensate and bonus their staff. EVPs, GMs, sales, program management….

EMS/ODM providers bonus employees at the corporate level, division level, factory level, and department level. For some employees, mandates and objectives must be met at all levels to trigger their bonus.

But EMS/ODM industry is not tech savvy, despite claims otherwise. EMS/ODM technology is typically 18 to 24 months behind technology used by OEMs. EMS/ODM providers with multiple locations typically are forced to use a hodgepodge of disparate systems cobbled together from acquisitions. This creates tracking and compensation issues when it comes to bonuses and other forms of compensation tied to your OEM program.

The GM for one EMS/ODM factory where your program arrived does not want to let your program transfer to another factory if that GM has not yet covered their operating costs for your program, which also impacts that GM’s bonus, along with how sales and other departments tied to your program win for that factory.

This conflict of interest has been a long-standing issue in industry.

So, even though your program may be ready (be needing) to be transferred, background infighting among EMS/ODM employees and between factories about bonuses can sometimes take priority over what’s best for your program.

This same issue tied to allocating bonuses and compensation, and other forms of commerce like commissions, applies to the network of other EMS and ODM companies your EMS/ODM company works with.

Reach out to Venture Outsource to learn which which EMS/ODM companies in industry are known for deploying matrix and other, specific org chart types of structure to manage their business. Additionally, OEMs can request a custom list of EMS/ODM providers matching your program needs. Its free. Click the link to get started below. You can also search our global directory of EMS/ODM services here.

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