How manufacturing supply chains free up working capital and increase profitability

By Mark Zetter

EMS providers are challenged to properly identify and capture indirect labor (IDL) effectiveness.

But this is necessary if EMS providers are expected to drive efficiencies for OEM cost reductions that are typically measured against MCOGs, only.

This makes it easy for EMS providers to overestimate IDL costs in quotes given to OEM prospects and existing customers.

To emphasize the importance of this, EMS IDL who are slow to act, use poor judgement and/or fail to execute interacting with vendors/suppliers in your supply chain and/or with internal EMS functional teams supporting your program(s) can tie up tens of thousands, or millions (even billions) of dollars of EMS working capital (depending on your program size). Each month. Every year.

This results in higher OEM customer costs (and pricing), plus lost opportunity cost incurred by both OEMs and their EMS partners.

OEMs and electronics manufacturing services (EMS) providers talk about Six Sigma, 5S methodology, kanbans, and lean but these only impact direct labor (on the production floor) but your supply chain’s second highest cost is S,G&A and none of these measure or drive real savings of costly EMS indirect labor.

Organizations with supply chain, departmental, and employee workflow that is more accurate and on time drive higer productivity and improved profitability.

Freeing up working capital driven by efficient employees who are effective at their work allows companies and supply chains to truly transform.


How corporate materials commodities strategy differentiates and transforms manufacturing

Electronics OEM decision makers who are tasked with identifying and selecting contract electronics solutions providers face the truth that contract electronics solutions providers are not good at holding their costly indirect labor accountable (S,G&A).

You want your contract electronics solutions partners proactively driving workflow accuracy, timeliness, and productivity efficiency. Your organization then improves your ROE and ROA, and OEM customers working with EMS providers who manage accurate, timely, and productive indirect labor and related workflows can expect higher quality and demand more cost savings for higher shareholder value.

Quality EMS providers drive shareholder value

Some areas OEMs must make sure your EMS partners stay focused on include data collection and BOM management. What measures are in place for the EMS manufacturer to ‘act’ on the files they receive on time and rationalize different file formats, and cross check part numbers, identify missing or incorrect components and find alternative sources for same specs?

EMS providers typically go to their distributors but distributors have a markup and favor semiconductor firms who pay premiums for preferred status even though suitable alternative parts are available and cheaper. The latter is the same with today’s semiconductor search engines and platforms now owned by distributors.

Artificial intelligence provides transcendence for electronics manufacturing expansion
Artificial intelligence exceeding EMS manufacturing industry expectations

Right from the start OEMs are at a disadvantage at BOM scrub. Optimal pricing should mean optimal pricing. But this gets unnecessarily even more complicated because the majority of EMS provider procurement purchases have a conservative risk buy insulation level of 15% and OEMs are paying for it.

Double-ordering is also a problem among many EMS providers because ERP/MRP systems are inadequate and EMS buyers need to cover for built-in improper EMS decision-making and poor planning.

All of this impacts material lead-times, customer programs forecasts and work orders in ways that cost your supply chain valuable time, lost opportunity costs, and money.

Get our supplier questionnaire

EMS providers also incorporate scrap into your BOM. You can manage against this while driving EMS partners to make sure ERP has complete pricing that is not outdated. Venture Outsource has designed ways to help you figure this out and manage against it with a questionnaire you can get here.

OEMs, you also want your EMS partners to pay careful attention driving accurate inventory management and availability so EMS sales and operations planning (S&OP) is properly tied to your customer program and your POs and related work orders are implemented accurately, and on time, materials are available, and kitting is confirmed done, and on time.

OEM RFQ best practices for EMS manufacturing
Measuring EMS WIP (% raw materials)

Engineering change orders, factory and production technologies like MES/MOM/PLM, and artificial intelligence and machine learning, are key opportunities for OEMs – when competing in your marketplace with your supply chain – where your EMS partners should be more tech savvy, especially in understanding, implementing, and managing AI and ML because your benefits with these technologies implemented across your supply chain are more than just noteworthy.

Expect more from your manufacturing supply chain

Venture Outsource has created a helpful questionnaire readers can get here. OEMs can use it to ask EMS partners, and other manufacturing vendors and suppliers, to fill in to help you make more informed decisions in transforming your organization and manufacturing supply chain. EMS/ODM providers and vendors and suppliers are also encouraged to use the questionnaire as a guide to better serve your customers and supply chains.

Organizations can achieve greater fiscal reliability for shareholders, and find opportunities for improving MCOGs:

  • Eliminate moving targets on BOMs for identifying and complying with non-tariff duties like anti-dumping and countervailing duties, in addition to normal duty
  • Identify materials constraints and work to solve issues with BOMs, AVLs, procurement, kitting, WIP and FGI months before real impact
  • Access full materials inventory and alternates by spec and automatically feed these directly into product design
  • Drive indirect labor efficiencies, and savings, and boost your second largest cost SG&A
  • Identify and solve materials purchasing product compliance constraints through automated change management with full chain-of-custody
  • Effectively and accurately track AD/CV duties and a host of others, and mitigate prevailing fines for violations and delays imposed at customs

Private message OEM peers. Access all content.

For electronic OEM professionals working in OEM companies. Connect with OEM peers and access exclusive content.

You might also like:

OEM Checklist for EMS Manufacturing Quotes

Provider spotlight

About is the leading online destination helping electronics OEM 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 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