BY MATT VINCENT
As part of its Quarterly Forum for Electronics Manufacturing Outsourcing and Supply Chain event, Technology Forecasters Inc. (TFI; www.techforecasters.com) recently presented version 10 of its Global Pricing workshop. The company says the workshop provides OEMs, EMS providers, and suppliers to the EMS/ODM industry with a range of tools, techniques, and methodologies for mitigating the risks of global outsourcing.
“The version 10 workshop is an evolution of a workshop that we’ve been doing since 2003,” says Charlie Barnhart, senior consultant at TFI and director of the workshop. “Actually, we’re in the process of changing the name of the ‘Global Pricing’ workshop to the ‘True Cost of Outsourcing’ workshop. It really evolved out of the pricing methodology.”
According to Barnhart, the workshop’s first “module”-termed the Global Pricing Methodology (GPM)-is a “way for OEMs to look at what their EMS or ODM pricing should be, to estimate that and/or to analyze what they’re paying for EMS or ODM services, and to see whether it’s a reasonable number in over 20 geographies around the world.”
Barnhart continues, “The methodology is a simplified system that’s based in the underlying cost of a particular industry, how those costs are accrued and factored and charged, and then how the industry applies margin-or mark-up to achieve margin-around that cost structure.”
Barnhart says he created the GPM to address a “phenomenon” he observed in the global EMS/ODM industry relative to discontent over pricing: “We saw the service industry massively improve their footprint globally, integrate large scale capabilities in low-cost manufacturing regions-and at the same time, their margins were shrinking. Here we have a user group who’s dissatisfied, a provider group who’s gone through a very large capabilities and expansion and cost-reduction cycle-and the parties were still disconnected.”
Barnhart continues, “Neither party was very happy with the other [because] they all used their own language, they all had their own sets of expectations. There was just all this contention in the industry. The situation had become so confused, there was the whole issue of quotations and OEMs trying to granulize quotations to get down to very small levels of minutiae to understand cost and pricing details, and how that varied from contractor to contractor. So, we tried to come up with a way to try to address this. We’re trying to evangelize common sense on this topic.”
TFI’s one-day Global Pricing workshop incorporates presentations and activities investigating topics of pricing via Barnhart’s GPM methodology, as well as a summary overview of landed cost and logistics, and an analysis of internal OEM costs in relation to outsourcing strategies using the firm’s industry-standard “total cost of ownership (TCO)” module.
“The TCO model is the best tool available for small and medium-sized EMS to objectively counter their customers’ desire to offshore their manufacturing,” maintains Dr. Eric Miscoll, TFI’s Quarterly Forum director and COO.
“Attendees who work through the calculations come to this almost inescapable conclusion: with a few rare exceptions, if an OEM is not outsourcing more than $50 million, they shouldn’t take it to low labor cost areas,” adds Miscoll.
“In virtually every EMS industry survey we have conducted over the past 10 years, ‘pricing’ has been listed as one of the top five concerns of OEMs,” adds Pamela Gordon, president of TFI. “Hundreds of our clients have found Charlie Barnhart’s Global Pricing workshop to be tremendously helpful, saving months of research and often preventing serious missteps. Those who have attended previous iterations of the workshop will that find most of the material is new.”
Barnhart explains, “I give them a series of tables, charts, graphs-all kinds of data-so that they can go in and actually estimate and analyze what their TCO is. Are they doing better than the industry, are they doing worse than the industry, how are they doing in this area, how are they doing in another area? They can also test different geographies to see what their TCO would be, because it does vary by geography.”
Barnhart continues, “Everything sounds like common sense when you say it in reverse-closer is cheaper and farther away costs more money, obviously. But what does that all mean from a monetizing perspective?”
To determine this, the workshop also provides attendees with access to TFI’s Global Outsourcing (GO) tool, a formula which, according to Barnhart, “basically says (if you say it out loud) that the level of risk in any outsourcing project is equal to the level of resources available to the OEM in support of their expectations, applied over the supplied solutions’ capabilities, when factored by the attributes of the geographies selected.”
“The GO Tool will work for virtually any outsourcing scenario, but it’s not one size fits all, so I give the OEMs the tools to transform the tool to meet their exact requirements,” explains Barhhart.
“Once they’ve adjusted some resources and expectations tables to meet their model,” he continues, “they adjust a capabilities table to align it to a supplier they’re thinking about using within a certain geography. Then, they do the arithmetic and you get a number-a risk factor-to apply to your TCO, and the tool then gives you a factor [whereby] you can say, OK, there’s a 3 percent add or a 1.6 percent add or a 4 percent add, or whatever it is on those underlying costs, based on the data set and historical precedences [derived from] the data set.”
By way of example, Barnhart concludes, “Using the GO Tool, manufacturers can determine what such costs would be in the U.S. and then do the same thing for China. And is China really cheaper? Well, in a lot of cases, it is. In some cases, it isn’t.”
