How OEM equipment manufacturers can negotiate contract manufacturing to find hidden profits and reduce annual spend

By Staff

Electronics contract manufacturers typically follow Incoterms (International Commercial Terms) in their service level agreements. These are commercial terms that are pre-defined and released by the International Chamber of Commerce (ICC) that related to international commercial law.

Contract services  agreement signed between contract manufacturers and OEM customers dive deeper into specific statements of work (SOW), schedules, and exhibits that more clearly define who is responsible for what, under what circumstance, transaction details, and so on.

Electronics OEM equipment manufacturers want to know how to engage contract manufacturers during phase I of contract negotiations after the contract manufacturer responds with a quote following the OEM’s RFP/RFQ.

What types of manufacturing costing tools are available? How can we determine what is fair pricing for us to pay our CM?

OEM prospective customer strategy is important for establishing the proper setting and tone between the two parties before selecting a contract manufacturing partner.

Top 10 impacts to EMS/ODM quote pricing OEM programs

Important to OEM customers is what values or costs were added on top of the costed bill of materials (BOM? How do we identify variances to then chip away at PPV to drive down our landed costs (MCOGs).

Knowing where contract manufacurers mark up profit in materials and the factory (MCOGs, S,G&A and F(Factory)G,&A is key.

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Discovery vs disclosure

How OEMs posture during first meeting with contract manufacturers reveals a lot to the contract manufacturer how they (CMs) will approach their side of the contract negotiations phase.

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