Outsourcing tasks to a contract EMS provider allows original equipment manufacturers (OEMs) to dramatically cut their fixed costs, while freeing up cash to invest in strategic initiatives, such as new product development or marketing. It also allows OEMs to reduce labor costs by shrinking their direct work force. For all of its advantages, outsourcing can be a complicated and time-consuming process. We’ve highlighted several factors that OEMs should consider when evaluating EMS providers.
How the EMS provider prices their services
For an OEM, evaluating bids from multiple EMS providers is difficult because of the age-old problem of “comparing apples to oranges.” EMS providers submit their proposals in various formats and various levels of detail in their cost summaries. Thus, it is important for the OEM to know the basis of the EMS provider’s pricing. Some may build in additional prices for projects that have longer completion times, or that require specialized component parts or specialized testing. Others may provide a discount for high volume orders. A quality EMS provider will provide easily understandable project bids with significant details on pricing so that OEMs understand exactly what is and isn’t included in their proposed agreement.
Forecasting of additional costs to initial project bid
There are many hidden costs associated with outsourcing that OEMs should discuss with prospective EMS providers such as additional costs associated with initial design modifications, engineering change orders, product testing, and other changes. OEMs should request that EMS providers address any and all costs that could possibly be incurred, exclusive of the initial bid price.
Third Party Outsourcing
Outsourcing on the part of contract manufacturers pushes control of the manufacturing process further away from OEMs. Third party outsourcing presents risks of communication problems, delays and poorer quality execution. As an OEM, you should know exactly what services are performed in–house and what, if any, are outsourced.
Value-added services the EMS provider brings to the table
OEMs outsource projects to contract manufacturers in order to gain greater flexibility, improved cost effectiveness, reduced cycle time, reduced time to market, and sustained or higher product quality. EMS providers that can deliver any combination of these benefits adds value to the relationship. Best in class providers offer OEMs dedicated support, such as customer account specialists or program managers.
Some EMS providers can provide vertical integration advantages because they have an ownership or equity interest, or long-standing relationships with component manufacturing companies and/or supply chain contributors. These close relationships can translate into cost savings for OEMs. EMS providers whose employees have extensive experience in the EMS industry often facilitate getting new products to market quickly through their knowledge and connections.
Handling of engineering change orders
Inventory pipeline, quality and schedule risks increase considerably with the incorporation of change orders. An EMS Provider that has an efficient inventory management process and a specific system for handling change orders in an orderly manner will be more adept at meeting an OEM’s needs and project timing than one that does not. Their customer support teams should be knowledgeable enough to advise OEMs on any alternative components that can reduce lead time and costs.
Quality of documentation and reporting infrastructure
Some products require strict reporting requirements, audits, process certification and status tracking across the product life cycle in order to comply with federal mandates or receive specific compliance approval. OEMs will want to be sure they know what an EMS provider’s documentation capabilities are—do they rely on a manual system of spreadsheets and file servers or are do they utilize documentation management software? How efficiently is this process managed?
Equipment & technical capabilities
OEMs operating in complex electronics sectors such as aerospace and defense, industries with restrictive regulations such as the medical device sector, or sectors experiencing rapid change need EMS providers with a robust quality system that can track changes effectively and provide component traceability. They should also have processes in place to enhance production reliability. OEMs should seek out EMS providers that are AS9100 or ISO 13485 certified to ensure that the rigorous demands of these complex business sectors can be met.
Strong outsourcing partnerships with contract manufacturers are founded upon upfront communication, and consistent collaboration. Contracting manufacturers that anticipate the needs of OEM providers often deliver the highest quality servicing, production yields, product quality, and overall value. Beware of EMS providers, who are hesitant or unclear in their description of their manufacturing and supply chain management processes—this could be a telltale sign of risks to come.