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Nine key points help OEMs negotiate better contract service agreements with EMS providers

By Steve Linahan

Inside of EMS factory.There is an old saying, you win business on price and lose it on service.

However, service is more often than not an amalgam of several focus areas used to describe anything that does not have clear expectations and deliverables which should be stated in the EMS provider services agreement.

I strongly recommend that when OEM executives are evaluating and searching for EMS providers, a simple statement of contractual business T&C’s be included in the request for quote (RFQ) package.

These should be agreed to at the beginning stages before anyone signs anything – and everyone is still keenly motivated.

SEE ALSO
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Best practices for EMS manufacturing RFQ quotes
EMS Manufacturer internal cost vs OEM quoted fees vs OEM target price

 

Price rates
Surprisingly, this basic element from any customer’s agreements is often omitted or left as TBD. Service providers aren’t going to fill this in later.

Many OEMs believe that they establish a price based on a quote and assume subsequent quotes will follow in the same manner. Wrong. State your cost formula and fill in the rates.

The following is a typical formula:

[(Material + Mark up) + (Labor rate + Mark up)] x SG&A x Profit % rate

An even simpler version:

X% over BOM

RELATED DOCUMENTS
OEM RFQ Terms & Strategy Clauses Presented to EMS Provider
OEM NRE & Purchase Price Variance Template for EMS Manufacturing
OEM Terms & Strategy for Program Transfer to EMS Factory
Contract Agreement for EMS Electronics Manufacturing Services (10 pages)
Contract Agreement for EMS Electronics Design Services (7 pages)

 

Quite often, EMS providers will tell you about their elaborate systems, and EMS cost v. OEM price methods or activity-based costing… I’ve heard them all.

Just fill in a simple table and spell out the simple rates that you will be charged for labor by function, over head rates, SG&A and profit and know what is rolled into each. The only variables should be time and quality yield rates, which should be stated by you.

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