Is your EMS provider pricing model right?

EMS providers want to charge as much as possible while convincing the OEM to sign the contract. OEMs want to pay less without the provider walking out on the deal. Both parties want something neither can have simultaneously.

By Mark Zetter

The electronics contract manufacturing service agreement is the most important part of the relationship between the electronics manufacturing services (EMS) provider and the original equipment manufacturer (OEM).

Whether work is being done locally or offshoring to EMS factories in various countries…it is not just an agreement between two parties. Outsourcing service agreements outline what one party will ‘give’ in exchange for some sort of remittance provided by the receiving party.

The EMS provider is expected to provide goods or services to the OEM, in exchange for some sort of compensation provided in return by the OEM. Sprinkled in are rules of engagement that detail who; what, where, when, and how much.

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EMS providers are motivated to pursue formal contracts with customers because this re-assigns the risk to the customer (OEM) rather than the provider. Without a contract the customer is not held liable for its forecast, so all purchasing or other spending that is done by the EMS provider is at the risk of the provider, with limited reward.

This is the primary reason why the EMS provider pursues the contract more aggressively than most OEMs – because of the transfer of risk in the relationship that comes with the contract. Meanwhile, the OEM is interested in mitigating OEM supply chain exposure and risk.

EMS providers are quick to establish and maintain contractual advantages

EMS providers contribute significant internal forethought and discipline, focused on determining the actual and anticipated ‘costs’ of doing business with a potential OEM client program, well in advance of placing a contract service agreement in front of potential OEM customers for signature.

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