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Top 10 operations due diligence metrics in contract EMS industry

By VentureOutsource.com Staff

Contract_Electronic_CostBeyond 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..

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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