Contract manufacturers use a pricing method called cost plus (for a description of cost plus pricing, click here). This method takes an estimate of costs to build a PCBA and adds an amount for profit.
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Contract manufacturers use a pricing method called cost plus (for a description of cost plus pricing, click here). This method takes an estimate of costs to build a PCBA and adds an amount for profit.
A common industry myth is large EMS companies get the best component prices, a myth proclaimed by...large EMS companies. The truth is much different and is rooted in the actual way semiconductor companies control the the prices of their products. In the end, relying on any EMS company to drive your component costs is a bad idea no top tier OEM embraces.
So what matters most if not the size of your EMS supplier? Three factor dominate: your geographic location, your total spend in a given commodity, and the specific volume being procured. Let's take a look at how the pricing system works in detail.
How Distribution Works
Distributors can be "authorized" or "unauthorized". Unauthorized distributors are what we broadly refer to as brokers, or the gray market. Authorized distributors (Avnet and Arrow for example) have specific contracts in place to represent their suppliers. Two privileges in particular distinguish authorized distribution: stock rotation, and "ship from stock and debit" system or "debit" for short. Stock rotation allows distributors to return inventory that isn't moving. The debit system is the key to understanding component pricing.
There are three types of price for electronic components:
1. Book Price
2. Broken Price
3. Direct Price
Here are 4 reasons why virtually all best-in-class purchasers of electronic contract manufacturing services have moved away from strategic sourcing and now use some version of should cost analysis. There are lots of reasons this approach may not be best for you, but here are factors to consider.
OEM's that employ strategic sourcing techniques often find contract manufacturers are reluctant to supply costed bill's of material. Here are 2 good reasons and 2 bad reasons for this reluctance. Understand the differences then use our 3 secrets to getting the costed BOMs.
Here's a pocket guide to printed circuit board assembly (PCBA) prices in China, Mexico, and the United States. Our pocket guide gives a quick view of expected prices for PCBA's based on region, value, and number of component placements.
New product development builds are more expensive because of the small lot sizes and quick turnarounds. But how much more? Here's the formula:
A common confusion in pricing is the difference between mark-up and margin. Here's a quick explanation of both.
Should cost analysis ("should costing") was developed by the Defense Department to assist procurement officers in determining fair and reasonable pricing and today is embedded in government procurement practices via the Federal Acquisition Regulations (FAR). It was adopted by industry beginning in the 1980's, and today is the dominant technique used by best in class outsourcing companies like Apple and Cisco. Should cost analysis involves determining what a product should cost based on materials, labor, overhead, and profit margin.
In this episode of Outsourcing Things You Should Know you'll learn about:
Three types of price for electronic components
1. Book Price
2. Broken Price
3. Direct Price
Xilinx vs. Flextronics Article: http://blog.optimumdesign.com/xilinx-v-flextronics-insight-to-a-gray-market
Ever wonder how electronic contract manufacturers come up with their prices? Simple: they estimate their costs, then add profit. This method is called “cost plus”; cost plus profit.
