Choosing Your Global Electronic Manufacturing Services Partner

Understanding the Relevant EMS Sourcing Factors & How to Avoid the Unit Pricing Trap

There are many important factors to consider when choosing an EMS partner. We’re going to discuss in detail EMS global sourcing and the pitfalls of using unit pricing at “face value” vs. total cost, true overall value, and synergy as the basis for EMS sourcing decisions.

Electronic manufacturing service (EMS) providers continue to be confronted by an abundance of difficult challenges:

• Persistent margin erosion
• Post-pandemic global supply chain obstacles, materials and workforce shortages
• Inflation
• Required conformance to arduous regulatory initiatives
• Rising fuel/transit costs
• Tariffs
• Geo-political discord around the world
• Ideological shifts specific to sustainability and social responsibility
  

Despite these complex global manufacturing and sourcing challenges—and the many potential risks they represent if not closely and effectively managed—OEM supply chain managers and purchasing agents often continue to use “unit price” benchmarking instead of “total cost, true overall value, and synergy” to drive sourcing decisions for cable assemblies, wire harnesses, electro-mechanical assemblies, and box-builds.  

In such a complex and challenge-rich global environment, although a convenient metric to benchmark, a sourcing approach that is focused solely on unit pricing does not tell the whole story and opens the door to missed goals and other unintended tangible and intangible consequences (especially in the technology value-add sector).

Cost-Contributors that Impact Your Bottom Line

There are many cost-contributors that blur the lines and can be difficult to quantify, but you can be sure of one thing—they negatively impact your bottom line. These cost-contributors include:

• Long product lead-times and reactive remediation of problematic component procurement
• Recovery from missed commitments and poor quality, and the increased demand on your internal resources to remedy these problems
• Lack of reasonable supply chain flexibility
• Possible resulting negative impact to company/brand reputation and lost business

Common Oversights

Cost of freight, tariffs, and volume inflexibility are a few common oversights when using a global benchmarking model based solely on unit pricing.

The following important strategic supplier alignment considerations are also commonly under-valued when OEMs use primarily unit-pricing benchmarking to drive global sourcing decisions, which can prove particularly problematic, limiting, and costly over time on several levels:

• Overall synergy
• Range of capabilities and services
• Tooling, equipment & automation
• Capacity & scalability
• Certifications
• Commitment to quality & robustness of QMS
• Design-for-manufacturability (DFM) support
• New product introduction (NPI) proficiency
• Commitment to process-driven total-cost optimization
• Ability to accelerate time-to-market
• Commitment to sustainability

Additionally, negotiated agreements that seek to reduce unit pricing year over year are often ineffective, and ultimately, unsustainable. The supplier may have simply front-loaded their GPM to compensate for the negotiated yearly cost reductions in an effort to offset inflation and to avoid margin erosion, which can actually result in an overall increased cost to the OEM over time, rather than the intended cost reduction. 

Although each product is unique, at first glance, a given product manufactured in a low-cost region may appear to be significantly more competitive than, say, Mexico manufacture when solely comparing unit pricing; but depending on how the following variables and associated costs are controlled and captured, and how transparent the supplier is with you regarding these variables, it may be a much closer total-cost comparison than you first thought. In fact, if these variables are not being closely analyzed, controlled, optimized, and communicated by your chosen EMS partner, you may actually be adding inefficiency, cost, pain, and noise to your organization.

Depending on volume and other considerations, any of the following variables, or any combination thereof, has the potential to wipe out a whole year’s worth of projected low-cost region manufacture savings if your EMS provider is not proactively managing them on your behalf.

That being said, off-shore manufacturing remains a vital, very strategic, and highly effective and competitive option, providing that your EMS partner has the needed experience, expertise, and automation; with the right capabilities in the right regions, possessing the right certifications; and manages/coordinates/sweats all of the details and important aspects critical to successful off-shore transitioning and manufacturing on an ongoing basis.

Agility Tech is a trusted advisor and EMS solutions partner. We fully understand these variables, and are uniquely positioned to execute your manufacturing objectives. It is by no happenstance that impressive off-shore manufacturing capabilities complement our vast EMS portfolio. Rather, we have spent decades carefully developing trusted high-value off-shore relationships/partners and cultivating/fostering these synergistic vertically integrated capabilities. We can make your manufacturing objectives a reality—let us sweat the details for you.

12 Variables to Consider When Making Sourcing Decisions

1. Inventory pipeline and tolerance to longer ocean freight lead-time and the unexpected cost of occasional or frequent air freight that is often required to compensate for the unanticipated lead-time gap and emergencies
2. Point-of-entry vs. point-of-consumption (cost of local freight and impact to lead time)
3. Frequently overlooked fees: entry, duty, brokerage, post-9/11 security, tariffs, etc.
4. Cost of insurance on goods shipped
5. Shipping terms: landed freight vs. FOB point vs. ExWorks, etc.
6. Packaging costs
7. Costs and risk associated with identifying, qualifying, and maintaining a direct off-shore supply partner vs. working with a highly capable local EMS partner and trusted advisor with extensive off-shore capabilities and a comprehensive support model in place
8. Volume inflexibility—cost of excess goods with high MOQs that exceed demand
9. Cost of increased internal resources to manage logistics if your chosen EMS partner does not support these activities
10. Complications and associated shipping costs resulting from customer-furnished materials and tooling
11. Fluctuation of currency exchange rates
12. Cost of missed commitments, poor quality, and recovery (monetary and reputation)

Bridging These Gaps

To successfully navigate all of these critical factors, you need an EMS solutions partner that is proficient in the following key areas, which is collectively the true validation of your EMS sourcing strategy:

• Possesses deep global manufacturing knowledge and know-how
• Provides DFM & DFx, NPI, and quick-turn support
• Commitment to automation and process excellence
• Focuses on, sweats, and communicates the details
• Provides the needed global manufacturing options
• Assesses your needs and objectives on a continual basis
• Recommends the most effective manufacturing model to meet expectations
• Places emphasis on optimizing your total-cost, quality, and lead time, while ensuring the required scalability
• Global supply chain excellence

Full-Service EMS Solutions Partner

Agility Tech is a full-service electronic manufacturing solutions partner with highly capable domestic, Mexico, and off-shore models. The close collaborations we establish with our clients are built on a foundation of experience, ingenuity, know-how, commitment, trust, and execution—ours and that of our highly capable global manufacturing partners. These core elements guide us and are fundamental to our enduring strategic customer collaborations and to our mutual success.

We have a deep understanding of global manufacturing and can help you achieve your total-cost and time-to-market objectives through:

• Design for manufacturability (DFM) support
• Optimized sub-assembly structure
• Intelligent automation-focused processing
• Improved efficiency
• Advanced testing methodology
• Effective inventory management
• Global supply chain, logistics and fulfillment support   

We’d love to hear from you regarding any electronic manufacturing services (EMS) or IoT technology needs you have. Our capabilities are vast and cover a wide range—including:

• Electromechanical assembly, unit & box build
• Custom cable assemblies & wire harnesses
• Molded cables
• RF/coaxial cables
• Ribbon cables & coil cords
• Fiber optic assemblies
• Bare PCB, flex, semi-flex & rigid-flex
• Printed circuit board assembly (PCBA)
• IIoT (industrial internet of things) devices, cloud & mobile platforms
• Power supplies
• Low pressure molding
• Injection molded plastic parts 
• Precision metal fabrication, complex frame weldments & machining

Serving numerous industries, we offer highly capable and scalable global manufacturing services; DFM, NPI and quick-turn support; synergistic vertical integration; and world-class automation. Contact us now to explore the possibilities for your next project.