News, Insights and Best Practices for Manufacturing in Mexico

Selecting the Right EMS Provider

04 Jan 2012

Category: Manufacturing in Mexico


EE Technologies, Inc.

by Karla Osorno

For Original Equipment Manufacturers (OEMs), selecting an Electronics Manufacturing Services (EMS) provider in Mexico is a critical activity. Choosing the right EMS provider can make the difference betweem achieving long-term success, or not.

All Original Equipment Manufacturers are looking for significant value-add, and must manage costs, quality and ensure delivery. However, the process of selecting a EMS manufacturing services provider in Mexico must be approached methodically.

The Top 10 Questions that those seeking Electronics Manufacturing Services in Mexico should ask potential providers are:

1. What are the potential EMS suppliers capabilities?

It is essential that you ask EMS providers in Mexico what their specific capabilities are. Although many companies say they provide Electronics Manufacturing Services to those with whom they contract, the term (EMS) is not a homogenous one. There are various classes of EMS providers in Mexico, and in the market place as a whole.

Tier 1 electronics manufacturing service suppliers have purchasing power, a full range of supply chain services and a global presence. Tier 2 EMS suppliers have solid capabilities and strengths, but are unable to provide the same services, on the same scale, as a Tier 1 electronics manufacturing supplier. Furthermore, there are smaller suppliers offer specialized services and flexibility that is needed by many OEMs.

In addition to identifying the class of EMS provider in Mexico, it is critical to ask about their specific capabilities and specialized services. Some providers are logically more adept at some processes than others may be. Buers must determine if a companies specific capabilities meet their particular and unique needs. Finally, it makes sense to observe the processes in action rather than relying on a slide show, or a brochure, to understand capabilities. Confirming results with other customers, by checking references, provides further evidence of a provider’s capabilities.

2. What are your potential suppliers certifications & standards?

Most electronics manufacturing services companies in Mexico, and in other venues, will publish their certifications and standards on their website and/or informational literature. This is easy information to obtain. However, understanding the length of time, experience, and certifying body related to important certifications is key. Also, determining if the certifications are specific to products that you require is important. Having a long list of certifications is irrelevant if the certifications are related to an industry other than the one that you are in. Questions related to the processes the EMS provider in Mexico uses to identify standards to obtain and to maintain relevant ones to ask. Keep in mind that your preferred supplier’s standards and certifications may have an impact on compliance with your certifications, as well. Additionally, it is important to verify that the EMS provider’s current certifications and standards will be ongoing and not discontinued.

Standards related to products and processes provide confidence and external credibility. Once you know which standards are common in your industry you can match them up to the potential provider’s standards. Often, the EMS provider in Mexico will also have training records. These identify the employees who are trained to the standard. They may also provide certificates of compliance with shipped goods as further evidence of compliance with industry standards. Before making a final choice on a supplier is the time to understand the potential provider’s existing processes related to certifications and standards.

3. Where are potential EMS supplier's manufacturing locations?

Location, Location, Location! We have all heard this phrase used many times. What, however, does it mean in the context of manufacturing? A lot! Knowing where the current manufacturing locations are and where any future locations are planned to be can be an important factor in your analysis. Location impacts logistics, costs, communication and overall results. Understanding EMS product mix and stage of development will have an impact on this decision too. In the early design stages, it may be important for engineering teams to collaborate in person. If this is the case, the location of the EMS provider should be close to the OEM. Setting up an electronics manufacturing services plant in Mexico is a good low cost option. Proximity to other partners in the supply chain can have a significant impact on logistics, costs, and delivery times also.

Labor, overhead and component costs can vary greatly by geography too. Weighing the differences between direct costs and indirect costs of doing business in differing locations is a significant factor. So ask comprehensive questions about manufacturing locations and consider the benefits to the OEM of multiple and international locations. In addition to facilitating interaction between domestic and foreign staff, locating an electronics manufacturing services facility in Mexico can serve to lower freight and shipping costs, when compared to those related to other global sites.

4. Is the EMS company financially stable?

For most suppliers the answer to this question will quite probably be ‘yes’. This should prompt the asking follow-up questions in order to understand the source of stability. Make sure that there is management strength to maintain financial stability. The term "financial stability" means different things to different people. Is this based on a cash position? Based on assets? Or based on ratios? Are the EMS service provider's financial statements public and/or audited by a certified public accountant? OEMs will want to define financially stable for themselves, and then compare the EMS provider’s results to the standard defined by the OEM.

The size of the EMS provider, and business type, may also affect this information. If the supplier is publicly traded the answers will be public information and available for analysis. If the EMS supplier is smaller, then another credible source (such as Dun & Bradstreet) must be used to obtain the information. There is a chance that the supplier will not publish or volunteer the information. A careful analysis will provide confidence that the relationship will not be short-term in nature due to negative financial issues.

5. What are your potential EMS supplier's quality metrics?

Quality is non-negotiable when selecting an EMS provider in Mexico, or in any other locale. One hundred percent of your potential suppliers will tell you they believe in quality. Quality metrics themselves, in black and white, will tell you if there assertions are true. Types of metrics, frequency of reporting, and corrective actions taken in response to quality metrics all communicate the value placed on quality by the supplier. Historical trends will also indicate the priority placed on continuous improvement programs.

All organizations will have periodic quality or process issues. Assessing the quality metrics of the supplier will give you a great indication of how issues are addressed, and how preventative measures taken to ensure ongoing and consistently good performance. It is also a good idea to select a supplier that measures quality in a way that is consistent with your own organization. Choosing a company that uses similar metrics, and that gathers sufficient detail to understand and resolve issues is vital for long-term success in a relationship.

6. How does the supplier manage itscosts?

The primary reasons for outsourcing manufacturing to another company located in Mexico, or anywhere else, are to save money, gain efficiencies, and to allow the OEM to focus on its product development and marketing. A key piece of the objective is to choose a EMS supplier that manages costs, so that money is, in fact, saved. A significant part of making a good EMS supplier choice will be related to understanding how the company manages costs, and shares their savings with the OEM.

First: It is necessary understand what cost methodology is used in quoting and pricing products. Are buys aggregated by customer or by product line or at all? Does the supplier use the bill of materials provided to obtain the best prices available in the marketplace, and to pass a portion of the cost savings to the OEM, or are historical costs used? Are time studies completed for, or are historical assumptions used to calculate the time to complete? How do test fixtures and other one-time charges get assigned?

Second: Ascertain how the supplier will be reducing costs from first prototype run to future production runs. Determine answers to questions like: What are the buying strategies employed? How much purchasing power exists? When are costs savings passed along? How are improvements made to routed hours for a job? How often are work center and overhead rates calculated?

Third: Determine how the EMS supplier in Mexico, or another location, maintains profitability and, therefore, long-term viability. What are target margins? Is the customer reviewed by product margin or total margin? When and why does the EMS provider decide to end the relationship? The costs of changing suppliers are significant so keeping your key suppliers in business is critical to managing overall EMS supplier costs for the long-term.

7. What is the potential EMS supplier's intellectual property (IP) security?

OEMs have appropriate concerns about securing their designs and other intellectual property, especially when multiple domestic and international locations are involved in manufacturing their products. They want to make sure that their designs are secure and not shared intentionally, or accidentally with their competitors.

Processes for transferring files, network security, confidentiality policies and employee hiring practices are all topics for discussion. Depending on the sensitivity of the information, additional topics of discussion might be guest access to production areas, use of cameras onsite, and use of pictures, logos, and customer information for EMS advertising purposes. EMS service providers are protected by intellectual property laws in Mexico that are akin to those in force in the United States.

8. Do the EMS supplier support New Product Introductions (NPI)?

Determining the processes established for new product introduction tells the OEM a lot about the processes and controls of the supplier. It is one thing to say we can handle NPIs. It is another thing, however, to successfully complete (timely execution with good results) NPI projects. The outcome of the prototype run is important, but equally important is the gathering of information for use in future production runs. Discussion points in this area should include processes used, information gathered, team expertise, and demonstrated evidence of success.

9. What post production support does the EMS company provide?

For many organizations there is a lot of focus on the beginning stages of design, manufacturing, and shipment. Unfortunately, sometimes, after the product leaves the dock, there is little or no attention paid to follow through, and the organization has moved on to the next product or customer. Depending on the product there may be additional services required. If there are quality concerns or issues, additional attention is absolutely necessary.

Learning about liability policies, warranty policies and post production repair services almost seems like jinxing the outcome, but you want to have assurance that there are solid policies and procedures in place to handle these issues (should they arise). Viewing metrics, as discussed above, can to your understanding of the expertise of the EMS provider. Checking on references speaks to these important issues, as well.

10. Why should we choose you?

As potential EMS suppliers in Mexico, or in other geographies, are responding to your thorough questioning, observe not only what they say, but how they say it. Pay strict attention to how they back up their claims. Regarding this question, specifically, make a note of whether the answer’s focus is on meeting the OEM’s needs, or selling their services. It is no surprise that the supplier will know their capabilities well. You also want to know that they know what the OEM (you) values, and why this would be a good partnership for not only the EMS provider but also the OEM. The answer to this question also provides insight into the priorities, and that confidence that the EMS provider has in its ability to meet your ongoing needs.

More important than the answers to these questions is what is learned by the OEM in the process of asking the questions. The provider’s responsiveness, flexibility, knowledge and professionalism will all be observed in the interview process, and can factor into the decision about which EMS provider to select. Ultimately, all EMS suppliers in Mexico, or in other countries, have strengths and weaknesses, but you want the supplier that you can trust to be managed minimally from a distance. The selection process is about quickly gathering information, but also about clarifying expectations and establishing a partner relationship. The dialogue that occurs when these ten questions are asked and answered is invaluable in the process of selecting the right EMS provider.

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