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EMS provider ROI can put OEM customers at risk

By VentureOutsource.com Staff

Electronics OEMs often hear EMS sales people say, “We can do it.” On Core Electronics said this to a large European OEM prospect it had no business considering — given the size of the OEM opportunity and the size of On Core, at the time. To put make matters worse On Core had quoted the BOM a multiple well below industry average. On Core won the business but the customer program quickly consumed On Core. (Read more here.)

As On Core lost more and more operational and financial leverage EMS provider Neo Tech stepped in acquiring On Core, and essentially saved the OEM.

You would think this would be a wake up call to other providers except, a CFO with a $20 million EMS provider serving non-traditional markets recently told Venture Outsource they could on-board five (5) $20 million new deals in one year.

What is this person thinking?

A $20 million EMS firm attempting to on-board five programs averaging $20 million each would only result in the EMS firm losing a couple of, if not all of the deals plus, they would likely upset several existing OEM customer programs in the process and maybe lose one or several of those programs as well.

EMS providers today have a tendency to shotgun their marketing and sales strategy – sending out as many feelers and having as many sales people or manufacturing reps with feet on the ground as possible to funnel as many ‘opportunities’ as possible.

The result is more opportunities than they can adequately manage effectively and low new win close ratios and perhaps one reason why most EMS sales people close less than 15% of new business opportunities.

And at what cost?

This type of thinking,‘If I close one deal it will make up for the others I lose’ does nothing to drive better EMS marketing and sales performance. Plus, OEM prospects receive poor service, or none at all because of not enough EMS staff to service all inbound sales queries.

For most EMS providers winning and closing ‘new’ business is an uphill battle they accept needs to be fought and providers do not like quoting ‘new’ business because of the high costs of salaried indirects, overhead and admin support each involved in making the quote come together plus, the uncertainty. RFPs from new OEM prospects force EMS providers into the uncomfortable position of putting costs ahead of sales.

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EMS providers tend to be risk averse, are uncomfortable with anything they cannot immediately understand and, prefer doing things the way they’ve always been done instead of investigating and learning something new. They’d much rather welcome organic business from an existing customer. It also brings a cheaper cost of acquisition cost.

EMS providers seem too focused on ROI when it comes to sales enablement and lead generation. Looking out longer term, the EMS position should focus on the value of any opportunity being equal to the business the EMS provider can do over the lifetime of the relationship. Provided they close the deal.

Let’s look at On Core, again. While revenue should have been important for the EMS provider when determining lead generation success for their sales and marketing activity On Core should also have been focusing on better sales-to-close ratios and increasing average size of deals closed, but within reasonable capabilities to on-boarding new business.

Savvy OEMs sense this EMS ‘can do’ attitude and respond with more discretion today when evaluating what EMS providers say are their capabilities (vs actual capabilities) when choosing EMS partners for deciding to partner with the wrong EMS partner can be costly.

In spite of more intelligent OEM risk decisioning many EMS providers continue to use shotguns and hammers in their marketing and sales approach when they should be using carefully placed scalpels backed by fact-based intelligence.

Selfish marketing doesn’t last

Marketing guru Seth Godin says it best: “If it helps you, not the customer, why should she care?

Sometimes there’s an overlap between your selfish needs and hers, but you can save everyone a lot of time and hassle if you begin and end with a focus on being of service.

In the long run, your selfishness will catch up with you. Day by day, the long run keeps getting shorter.” Read more of Seth’s writings on his blog here.

EMS providers reading this post can request our latest findings on EMS industry sales and marketing best practices with case study info.

As for the $20 million EMS provider, a more reasonable OEM deal for them to bring on-board while serving the OEM’s best interest would be an annualized deal size of $2 million to $5 million, max. At $5 million, there would be more concerns for the OEM but EMS provider properly positioned and with processes that can scale fast could meet OEM scheduled forecasts without too much difficulty.

OEMs can gain more insight into understanding EMS financials and whether or not EMS providers are managing their operations efficiently here.

Venture Outsource remain committed to helping OEMs make better decisions and improving the OEM-EMS business relationship. For OEMs seeking EMS partners meeting your program requirements OEMs can request a list of quality EMS providers here or you can also search our comprehensive, global directory of electronics solutions.




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