OEM Finance and cost concerns sourcing contract electronics manufacturing
The financial reality of your company plays into any OEM’s outsourcing decision. Concerns tied to cash flow and costs for contract electronics services aren’t just for the CFO and finance team members.
Financial concerns and OEM spend management should be top of mind for any electronics OEM decision maker tasked with selecting EMS and managing electronics services.
Are you a series E startup going to market early with low product volume? Are you a growth company? Is your company a mature, incumbent competitor with product families across multiple market sectors and geographies? Is cash important to you as a company?
Surely cash is important to every company but for some it’s more important than others.
For example, an OEM might negotiate with their EMS provider five-day payment terms in exchange for services rendered and FGI shipped. In this instance cash flow is not a concern for the OEM. However growth is a real concern and the OEM wants to be certain his EMS partners/suppliers he works with have adequate cash flow needed so their rate of growth can meet the OEM’s growth projections.
Looking at OEM cash flow and spend management deeper, is managing operational expenses more important to your financial success than capital expenditures?
You might find your answers are aligned with your company’s (or your industry’s) common financial practices vs. what might be currently considered common practice on Wall Street or in certain investment/financial circles (which also change from time to time).
While external investor groups and industry factors can influence OEM outsourcing decision-making it serves OEMs well to take inventory of the financial realities of the current moment but, ultimately look to see what’s best for your bottom line today and forward on the horizon, then make decisions accordingly.
As you progress forward in EMS partner due diligence and selection there are hundreds of key operating indicators and objectives you and your teams will think of. Gross margin improvements,inventory levels and inventory turns, freight optimization, and so on.
Identify these key objectives deemed most important then rank them. This helps you and your teams stay focused plus it will help you balanced your decision-making as you work your way through evaluating EMS quotes and responding to RFQs if you’re selecting new or alternative EMS solutions, and/or it also helps you manage your current EMS providers.
For international OEMs accepting international market transactions, working closely with your OEM internal finance functional teams cannot be stressed enough. You could find yourself in certain countries, depending where you are either taking ownership of your products and/or where you are building your products, where you are creating different inventory locations. For example, domestic and international locations could require separate transactions or different entry types in your ERP system.
These, and other considerations cannot be overlooked and need to be addressed so ask stakeholders the right questions.
By VentureOutsource.com Staff