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EMS Provider perspective: Managing end-of-life (EOL) product lifecycle management (PLM)

By VentureOutsource.com Staff

product_lifecycle_management_plmEMS providers complain often about thin operating margins – their fall back position when OEMs ask for ongoing cost reductions. The truth is EMS firms large and small have lots of excess cash tied up in supply chain operations because they’re not good at being money managers and efficiently managing EMS direct and indirect labor productivity. Add to this OEMs who outsource have little motivation to manage every dime paid to EMS providers because by eliminating their factories, related assets and manufacturing employee overhead, the money OEMs save by outsourcing far exceeds any total fees paid to EMS providers for contract electronics services.

EMS provider ‘group think’ eclipses savvy EMS financial restraint resulting in EMS providers coming up with more ways to justify charging customers. The above does not necessarily mean EMS providers can’t manage their business properly or, OEMs don’t care what fees they are charged for outsourcing services.

What this does emphasize is that EMS program management must work hard with internal EMS departments to identify and line-item OEM program pricing, engineering change orders (ECO) and non-recurring engineering / expenses (NRE) for eventual OEM reimbursement.

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Below is an EMS provider’s approach to contract management of an actual OEM’s end-of-life (EOL) program. Details that follow highlight EMS group think, how different EMS functional teams pull together and see opportunities for charging OEM fees to drive more EMS revenue.

EMS provider assumptions and concerns per EMS functional group

In the best case scenario, all conceivable EMS services and related capabilities / items here would be included in the MOU or service level contract agreement provided to the OEM. In this actual scenario the EMS provide winning this program is also taking on work from an existing EMS provider unable to fulfill its EOL responsibilities previously contracted with the OEM.

Process engineering

  1. OEM agrees to propose and support the implementation costs of the optimum production line layout; including, but not limited to, power requirements, equipment layout, dry-box installation, solder stations, lifting boom devices, and in-process product storage and handling.
  2. OEM agrees to surplus for EMS provider’s disposition all equipment such as benches, floor matting, ESD materials, solder stations, chairs, and lighting and wiring devices furnished in support of this task. EMS Provider to retain all previously-owned OEM equipment, except for test stations, in support of the business, following project completion.
  3. OEM to provide daily ‘on-call’ process engineering support, 7a – 4p…first 14 calendar days of EACH program transition into EMS provider, following completion of EMS provider box build set up.
  4. OEM agrees to transfer, procure, or authorize EMS provider to procure all necessary test equipment, box build plus related equipment, tooling, fixtures, bins, boxes, pallets, storage cabinets, and other handling equipment to accomplish the tasks assigned.

Quality assurance

  1. OEM agrees to support the participation of a EMS provider quality assurance representative at the OEM material procurement function for the purpose of reviewing methods for the application of the approved vendors list (AVL) and other required quality assurance processes.
  2. OEM and EMS provider agree the bill of materials (BOM) provided will be used to verify the individual SKU builds.
  3. OEM and EMS provider agree to establish a mutually acceptable process for handling non-conforming material and furthermore, to support material review board (MRB) activities developed to disposition, report, and record non-conforming piece parts, equipment, in-process assemblies, and final assemblies to the EMS provider’s satisfactory conclusion.
  4. OEM to provide, on-site EMS provider, first article support / validation – for first time assembly runs. EMS provider agrees to build to IPC 610 standards; including, but not limited to, product quality, AVL maintenance, BOM development, audit requirements, Gerber, packaging requirements, and testing.

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Program management

  1. EMS provider agrees to dedicate program management to coordinate the level of effort on this task.
  2. OEM acknowledges EMS provider shall be tasked to perform all activities associated with SKU level kitting on-site EMS provider.
  3. OEM acknowledges OEM to perform all activities associated with providing kit materials (components, piece parts, and hardware) to EMS provider in a schedule specified by OEM and managed by EMS provider. The method of delivering standard components is reels.
  4. Where appropriate, OEM agrees to provide confirmed quantities per SKU, shipping schedules, and a confirming purchase order by [date herein] for OEM Program A, OEM Program B, OEM Program C, OEM Program D listed in Exhibit A. Deadlines to be determined by EMS provider / OEM for all other assemblies in Exhibit A.
  5. Where appropriate, EMS provider and OEM agree to establish, at a minimum, weekly program management status meetings at mutually acceptable times and days.

Test engineering

  1. Where appropriate across each EOL build transition into EMS provider, OEM agrees to provide on-site calibration of all necessary test equipment at the commencement and the completion of the tasks assigned.
  2. Test engineering support:

a.) OEM agrees to support on-site participation and familiarization visits of EMS provider test engineering – to the ‘other’ build facilities (other CEMs, OEM, etc…) – within 10 days prior to movement of programs to EMS provider.

b.) EMS provider agrees to support on-site participation of a OEM test engineer at the EMS Provider site for as long as needed, for each OEM EOL program.

c.) OEM agrees to provide test support at the EMS provider site for the first 14 calendar days of each build transition into EMS provider, and on an as-needed basis thereafter.


A. Purchasing

  1. OEM agrees to provide SKU bills of material for verification and validation purposes, across all assemblies in Exhibit A for OEM Program A, OEM Program B, OEM Program C, OEM Program D, no later than [date herein]. Deadlines for all other assemblies in Exhibit A to be determined.
  2. EMS provider and OEM shall agree on a procedure to transmit, record, report, ship and return purchased material.
  3. OEM agrees to provide a [x] % (percent) overage of components and PCBs to account for damage, attrition, or loss. All excess inventory to be compensated to EMS provider, by OEM.
  4. OEM agrees to review the established vendor, supplier, or manufacturer approval procedure with EMS provider.
  5. EMS provider and OEM agree to assign dedicated materials personnel across all project builds.
  6. EMS provider agrees to supplement procurement effort, of OEM, for high-risk, or allocated product at OEM discretion.
  7. OEM agrees to pay EMS Provider a [x] % (percent) “carrying charge” on value of any materials, carried by EMS Provider, over [x] days from receipt.

B. Planning

  1. OEM agrees to provide all material requirements, where appropriate, to EMS provider.
  2. OEM shall supply material, with respect to OEM part numbers, with a mutually-agreed-to schedule and quantities in accordance to standard industry practices and packaging requirements. OEM will advise EMS provider, in advance, as to all needs for ‘special’ freight handling equipment.
  3. EMS provider shall, at will, audit all material prepared for shipment to EMS Provider by OEM.
  4. At a minimum, OEM agrees to provide weekly SKU build plans throughout the life of the project.
  5. OEM agrees to procure from EMS provider all scrapped and excess materials associated with this project and payable at Net plus [x] % (percent). Tasks associated with the disposition of non-conforming material shall be accomplished weekly.
  6. Excess material destined for OEM, or OEM customer(s), shall be specified in advance and packaged accordingly.
  7. OEM agrees to provide all orders for OEM Program A, OEM Program B, OEM Program C, OEM Program D listed in Exhibit A no later than [date herein]. Orders shall be scheduled in accordance with priorities set by OEM. Deadlines to be determined by EMS provider / OEM for all other assemblies in Exhibit A.

C. Logistics

  1. OEM agrees to provide specific instructions for the packaging, marking, labeling, and shipping of finished products.
  2. Unless impractical, EMS provider vehicles or a third-party logistics provider at discretion of EMS provider, will be utilized for delivery of in-process products, equipment, or materials to, or from, OEM and for transport of finished and packaged products to OEM or OEM customer(s).
  3. OEM agrees to provide EMS provider, or reimburse purchase price, for [x] fiberglass pallets.
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Contract electronics EMS provider administrative, management, and funding


  1. OEM agrees to pay for all required procedural / process changes to the Approved Vendor List (AVL).
  2. OEM agrees to fund all MRO (material returned obsolete) at ‘mark up’ rate of [x] % (percent).
  3. OEM agrees to fund the handling of scrap / discrepant material at [x] % (percent).
  4. All freight charges incurred by EMS provider, on behalf of OEM project efforts, will be billed to OEM accordingly.
  5. EMS provider agrees to issue purchase orders to OEM for all part numbers.
  6. EMS provider shall be offered pay terms of Net [x] days, from receipt of invoice.
  7. Points of Contact – EMS provider has established program management as the single point of contact for this project. The coordination of all issues shall be through EMS program management.


  1. OEM agrees that periodic adjustments to the quoted material, NRE, labor, G&A costs, and schedule may be necessary as requirements become more definitive. (More: OEM RFQ/RFP procedures and best practices)
  2. Organizational chain-of-command: EMS provider assumes OEM shall take the lead on all program related directives. Additionally, upon program award, directions related to operation of the program shall flow from OEM to EMS provider and then to EMS subcontractors, and all other vendors.

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