5 Tips on Identifying an OEM Project That Is Right for You
When it comes to the OEM and EMS provider partnering, the general perception is that it’s the OEM that decides which EMS provider it should partner with. However, EMS providers also consider several factors before signing the contract.
The EMS market is expected to grow by 8.64% each year and reach $651bn by 2025 (from $396bn in 2019). This growth, coupled with the increasing practice of OEM outsourcing to EMS providers, means that EMS providers might have many OEM options available.
In such a scenario, how should EMS providers decide whether an OEM project is right for them? All in all, identifying the right project is all about seeing whether your EMS operation is compatible with the OEM. So, here are some tips that can help EMS providers identify the right OEM project for their company.
1. What Are OEM’s Company Type and Life Cycle?
Not all OEMs are made the same; they come in different shapes and sizes. We’re not just talking about how big the company is, even though that’s one important consideration. Depending on your operation size, this can rule out an OEM at the very beginning.
You should also see whether the OEM is a startup or a mature company. Why is this important? Because the electronic supplier qualification process isn’t the same for startups as compared to large OEMs. In other words, working with a startup OEM is easier, whereas the qualification process for large OEMs can take as long as 18 months.
You also need to consider whether the OEM is primarily software-driven or hardware-driven, which again can influence the partnership compatibility. Lastly, you need to assess whether the company is operating on a high gross margin or low gross margin, as this can directly affect when and how you’re paid for your services.
2. What Are OEM’s Outsourcing Culture and Priorities?
OEMs outsource for different reasons. Most companies outsource to save money, sure. But, others do it simply to focus their resources on designing, marketing, and sales. Some companies do it merely because the EMS provider delivers unmatchable production quality.
For instance, when you consider why Apple outsources its manufacturing to China, the most obvious reason that comes to mind is cheap labor. However, according to Tim Cook, the primary motivation for Apple to outsource to China is because of the extraordinary skills of people, citing almost two million app developers in China who develop for the App Store.
While cost-saving is the obvious benefit, there’s often a particular nuance to why companies choose to outsource. Understanding the outsourcing priority of an OEM will make the decision-making process easier for you.
3. How Does the OEM Make Selection Decision?
As you’re making the decision, how the OEM makes the selection decision is essential too. It’s entirely possible that the OEM is working with multiple EMS providers to meet product demand. It’s also possible that the OEM is looking to replace its existing EMS provider.
Is the selection driven by the board of directors or a new product introduction? Is the OEM looking to expand the current production line? Or is it simply a cost-driven decision? These questions can help you better understand what the OEM wants and whether it aligns with your own strategy.
4. What is the OEM’s Product Portfolio?
The product portfolio varies due to several factors such as low-high tech, complexity, cost, and volume. These factors need to align with your own EMS capabilities before you take on an OEM project.
5. Where is the OEM Based?
A recent report highlights how OEMs are increasingly picking EMS providers closer to home. Therefore, geography is becoming an increasingly important factor when it comes to OEM and EMS provider partnerships.
In conclusion, finding the right OEM project is not as easy as it seems. Several decisive factors influence the decision-making. However, Find an EMS makes connecting OEMs and EMS providers much more convenient and easier. Register now, or get in touch with us to learn more.