Top 10 operations due diligence metrics in contract EMS industry

By Staff

Contract_Electronic_CostThe average OEM project engagement for electronic OEM equipment manufactures seeking guidance from Venture Outsource, when it comes to customizing the right EMS manufacturing KPIs to help OEM equipment manufacturers manage EMS spend, have more control over holding EMS partners accountable and – implementing the right metrics strategy used for guiding EMS manufacturer program performance and execution – can include no less than 50, to as many as 120, individual metrics. (Read more on these types of KPI projects here)

Beyond the initial outreach by providers and the subsequent relationship that begins building between the contract electronic manufacturing (CEM) sales person and the new OEM prospect (customer) which can take place over months (even years), savvy OEMs know due diligence involved with choosing your CEM partner (view CEM checklist) extends beyond a provider’s location(s), technical capabilities and business development conversations that take place during lunches and dinners.

This article lists in detail the ten CEM operational key performance indicators (KPI) good contract electronics executives should be measuring. OEMs can use this list when evaluating their prospective EMS partners and when holding internal management discussion.

For decision makers seeking manufacturing cost models for outsourcing programs to EMS and ODM solution providers and want more informed decision-making to better determine what your landed costs should be, wanting to identify internal EMS and ODM factory costs (by factory, by geography, by production line and by program) to identify hidden provider profits and ways to lower annual spend and positioning during the contract negotiations phase, read more about our manufacturing cost models here.

Tips for better RFQs
Understanding EMS quotes for electro-mechanical assembly services
Using RFQs to manage providers and materials costs
Ways EMS quotes influence should cost analysis

OEMs should try and find out values for each of these and know the provider that is well-managed is indeed measuring each of them, even if only for his own operational performance to help justify further operational investments and/or career advancement.

Total Net Operating Income (percent, %)
(Contribution margin) Look for between 3% and 10%, or more

Days Sales Outstanding (DSO)
30 days is reasonable, depending on economic climate

Customer Ships On-Time (percent, %)
Sometimes difficult to measure, depending on customer frequency of pulling in, or pushing out, orders due to market forces, 95 percent is a reasonable target

Customer DPM Quality Rate (external)
Depending on industry thresholds, this figure can be all over the map but a value of 3,500 keeps him on his toes.

Find electronics design services

In your search results you can further target other Industries and/or Services plus, you can add more geographies to your search.

Customer Process Quality (internal, percent, %)
A reasonable target is 98%. (Read more about process sigma calculations here)

Annualized ‘Value Add’ Revenue/Employee ($)
A coveted figure, common standards exist in every industry, by geography and influence by economic climate, hiring capabilities, ability to retain good employees, etc…

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OEM Checklist for EMS Manufacturing Quotes

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