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Total landed cost considerations for OEM electronics outsourcing

By VentureOutsource.com Staff

Your baseline and electronics outsourcing total landed costs will be different for every program you outsource.

What are your current landed costs?

Determining your baseline is something we’ve seen determined incorrectly a high number of times. Typically, people simply dive into this process and they use EMS provider responses to their RFQs and you end up making your decision in a isolated manner and move forward.

This isn’t necessarily the wrong decision path, but if you don’t understand your baseline, one year later you could find yourself asking, why did I outsource? Did I achieve my objectives? It could be difficult to find the right answers. (See: Should cost analysis)

What’s more important is, polling your stakeholders, especially your finance team and executive management. You want to be certain the right budgets are created. In understanding your baseline, you also need to understand what’s changing.

Maybe something that’s being insourced today gets outsourced tomorrow and all of a sudden, it moves from one finance cost bucket to another bucket and functional teams and senior management won’t understand this if it’s not clearly explained up front.

Understanding your baseline and articulating this internally (what will be happening relative to your baseline) is critically important to understanding if you’re going to be successful and therefore also be able to manage the expectations within your organization.

Stakeholders

Knowing who are your internal stakeholders are and keeping them in the loop is key to your success. The obvious stakeholders are within your own supply operations; your supply chain team, you manufacturing team… But there are numerous other stakeholders as well. Make a list.

Members of your finance team are stakeholders, the engineering team, your R&D product development team, plus others, depending on the size of your company. The engineering team leader is definitely on your list. There are other key hardware stakeholders and you want to have them each enrolled in the decision process.

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You might have trade compliance requirements in your company. You want to get these folks enrolled, and so on. There is a range of people to consider and its important to get them on the list and ask the right people the difficult questions.

Regardless of OEM size its helpful to keep all stakeholders on your list updated and involved and be sure before you make a decision that you do so in full transparency with them.

The alternative is if you don’t keep your stakeholders enrolled you may do something that adversely causes them to raise their hand because they have an issue with it, if only because they feel they were not informed or part of the process.

For these types of concerns, if you proactively communicate such occurrences, they will not likely become issues to your stakeholders. Let your stakeholders be part of the solution.

Wise investments, strengths and weaknesses

Be aware of what your company strengths and weaknesses are. For example, many electronics OEMs correctly do not invest in their supply teams because its not core to their success. The core of the OEM’s success is engineering and developing products and marketing and sales. This is where money should be invested. These are also the areas OEMs invest heavily in which is why OEMs deserve margins considerably larger than their EMS partners.

Few OEMs are interested in building the best-in-class supply chain operations team or supply capabilities. This also supports why the majority of electronics OEMs are not building their own manufacturing infrastructure and capabilities.

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Instead, you rely on the operational strengths of others external to you. The EMS industry must be pro-active in building best-in-class supply teams and be concerned about being the best in the world around this. Identify those EMS providers who meet your requirements and can execute and then leverage their strengths.

People are complex and we all have to deal with people on our teams and, while you want to build the best teams over time, you are always going to have weaknesses in your team.

As your company grows with your EMS provider you will have new weaknesses in your OEM teams that will appear every time (along with your strengths). Leverage these strengths and understand your weaknesses and preferable you select an EMS partner that can cover your weaknesses for you. Seek EMS providers that are excelling in these areas so you can focus on creating synergies with your EMS Partners.

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A helpful tool for this is the Johari Window created in 1955 by psychologists Joseph Luft (1916–2014) and Harrington Ingham (1916–1995). The diagram helps people and organizations better understand their relationship with themselves and others and is used primarily in corporate settings as a heuristic exercise.

To sum it up, the Johari Window has four quadrants:

  • Q1 represents things both parties see
  • Q2 represents things you sees but the other does not see
  • Q3 represents things the other party sees but you do not see
  • Q4 represents things neither party sees

Working through the Johari Window with EMS providers you’re considering or already working can create additional synergies for the relationship.




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