Reducing cost is the name of the game for electronics companies. It's the reason why so many OEMs have outsourced manufacturing to electronics manufacturing service (EMS) providers. It is also the reason why many EMS providers have transitioned manufacturing from North America to Asia.
So. it should come as no surprise that many electronics OEMs and EMS providers are using a total cost of ownership (TCO) model to evaluate suppliers. While TCO is not new. many providers are embracing it because the potential cost savings is huge. While a buyer may be able to negotiate a 5-10% price decrease for a part. measuring a supplier's performance based on TCO can identify much larger savings.
However. measuring TCO can be an inexact science and some would say it is an art. While measuring on-time delivery and parts per million (ppm) defect levels of parts can be objective. determining the dollar impacts of late deliveries or defective parts can be subject to interpretation.
Nevertheless. many companies are using TCO to measure suppliers and many suppliers think it's a good idea because it shows suppliers' true value to OEMs and EMS providers.
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