OEM cost (spend) and EMS product pricing models

By Mark Zetter

Product pricing models are sometimes incorporated into electronics contract manufacturing service agreements 

In this particular example of a product pricing model, the contract manufacturer has line-itemed relative costs for each component or pricing driver relative to the overall product program cost to the OEM customer. 

Effective price dates are typically clearly spelled out as well as in which of the contract manufacturer’s facilities the pre-production program build(s) take place.

The pricing model below is an ‘all inclusive’ manufacturing price model and is typically in lieu of any ‘per hour’ or ‘ala carte’ service charges.

(All inclusive might include printed circuit board assembly, In-Circuit Test (not ICT development), Flying probe test (not test development), x-ray inspection, functional test (up to 1 hour average per board, including de-bug is typical), and burn-in (ESS)).

In such pricing models, customers define lot size and can usually request turn-around times (three days for printed circuit board (PCB) assemblies – excluding test – is reasonable). Additional per hour charges usually apply for ‘non-manufacturing’ related activities such as PCB layout, test development, or other services not directly related to the manufacture of product.

The following is also usually not included in this type of pricing model:

• work performed at customer location
• customer requested rework
• ECO implementation
• non-recurring engineering charges
• tooling
• test development
• any product-specific equipment

This type of framework is usually easier for both parties to administer the relationship while also making it easier for the contract manufacturer to track and manage internal costs.

Product pricing model
Prices effective ‘XXXX’ through ‘XXXX’

Product Pricing Description	Pricing Methodology
Consigned material	No cost for consigned material
Mark-up on consigned material	X% for material w/ unit cost < $X
	X% for material w/ unit cost > $X
Turnkey material	Per unit price quoted by contract manufacturer
Mark-up on turnkey material	X% for material w/ unit cost < $X
	X% for material w/ unit cost between $X and $X
	X% for material w/ unit cost > $X
Manufacturing overhead	X% of total material cost (material + mark-up)
Manufacturing labor	X% of total material cost (material + mark-up)
Profit and SG&A	X% of total material cost + mfg. OH + mfg. labor
Non-warranty returns labor rate	$X per shop hour
Assembly labor rate	$X per shop hour
NRE	Stencils @ $X per
	Wave solder fixtures @ $X per (quantity < X)
	$X per (quantity X+)
SMT program	$X
Testing	Flying probe, X-ray, and ICT testing incl.
	(Development of test not incl.)