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OEM trust in purchase price variance (PPV) and open-book pricing

By Mark Zetter

What should electronics solutions cost me? Whether you’re an electronic OEM category manager, in manufacturing finance costing, director of new product launch or, you participate in corporate strategy decision-making evaluating electronic solutions partners, you want to know your OEM company is getting a reasonable deal when it comes to EMS pricing.

You’re not alone but to compound this there is no standardized costing for electronics solutions. So, how do you know your electronics solutions provider is not laughing all the way to the bank?

The truth is you won’t know, but some solutions providers are known to be more flexible than others with pricing and are willing to take steps like sharing supplier invoices, access to accounting team members and more to build your confidence they are managing your program with open-book costing.

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In the EMS buyer / seller dance EMS and ODM providers want to charge you as much as possible for their services without you refusing to sign their service level agreement.

And you want your electronic solutions partner to give you a comprehensive solution at the best possible price.

To get to this level of comfort with your decision-making you source different quotes from various EMS providers and compare pricing.

But operating costs and manufacturing and headcount efficiencies differ from EMS provider to EMS provider (and from factory to factory within the same solutions provider).

What may be the lowest quote you get can still have room for further price reductions while still giving that provider with the lowest quote a reasonable margin.

 

Search EMS and ODM firms

 

EMS providers claim thin margins but this is because they fail to drive and manage real efficiencies in processes at every employee level, across functional groups and the broader organization.

An underlying issue in OEM-EMS relationships is most EMS providers are unwilling to share real open-book pricing because it exposes them to realizing they don’t fully understand and capture their true internal costs. A lot of EMS working capital is tied up due to poor internal EMS decision-making.

Padding profits into their quotes using common industry practices for EMS finance and operating metrics offers some protection.

Solutions providers willing to be more vulnerable with sharing how EMS pricing drivers are determined will different themselves among their EMS competitors. These EMS provider will OEMs customers more willing to share deeper insight into their product roadmaps, which helps EMS providers for planning investments in technology, equipment and headcount, while improving the OEM-EMS relationship.

Throughout this journey its important OEMs allow their solutions providers to make a profit and it’s the solutions providers’ responsibility to drive better margin through more efficient EMS management practices regardless of scale and place less emphasis on greed.




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