Ever wonder how electronic contract manufacturers come up with their prices? Simple: they estimate their costs, then add...
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Is Bigger Always Better in Contract Manufacturing?
Bigger is always better, right? So, from an outsourcing perspective it should always make sense to work with tier one electronic manufacturing service providers. However, that isn’t always the case. Let’s look at three common myths that create vendor selection mistakes
Myth 1: Larger Contract Manufacturers Get Better Materials Pricing
This very common myth stems from a basic misunderstanding of how electronic components are priced. Component suppliers price their products based on the OEM, not the EMS supplier. In effect, all savvy EMS companies receive very similar pricing for any given OEM, and pricing is good only for that OEM. If an EMS company uses prices for one OEM to support a different OEM, the component suppliers step in, as is the case in Xilinx v. Flextronics, a pending lawsuit. There are examples of EMS suppliers s who buy the largest quantities of materials receiving better pricing, usually low-value commodity items. The bigger question is whether or not that pricing will be shared with your project. Large customers at large EMS providers may see the benefits of such clout, but smaller customers, particularly those with higher mix product, are unlikely to see those benefits. Scrubbing a costed bill of materials with a contractor right-sized for your project is likely to deliver equal or better pricing.
Myth 2: A Contract Manufacturer with a Global Network of Facilities Is a Better Choice in the Long Run
The common thinking behind this myth is that NPI can be conducted in one plant (usually close to R&D) and be "seamlessly" sent to a different plant for volume production (usually offshore). This myth stems from a basic misconception about how EMS companies are structured. They are not one big happy family, they are a collection of individual plants with individual capabilities and priorities that are under common ownership. In order for this strategy to work the OEM must be an important priority for each individual plant that is serving it. With few exceptions, the best vendor selection strategy is to select the best plant for long tern production and work with it in the NPI stage. Provided this plant has the capabilities you need and is the correct size/scale for your spend, it doesn't matter if it is owned by a large conglomerate or operates independently.
Myth 3: My Large Contractor Is Equally Good at High-Volume and High-Mix, Lower-Volume Production
When a large EMS provider has excess capacity, it is not unusual for their sales team to proclaim they are good at manufacturing all types of product, including high mix. The reality is that their definition of best-fit projects is likely to narrow significantly as capacity gets filled. And, if your project becomes a bad fit, expect prices to rise and deliveries to slip. Don't rely on sales teams to determine best fit, use these.
Further Reading: 5 Rules For Finding The Right Sized Contract Manufacturer.
This post originally appeared on the DigiSource Blog