The True Cost of Labor: An Insider's Insight

2013-02-07 00:55:00


When we talk to OEMs about the fully burdened cost of labor in geographies around the world they often are in disbelief of the numbers we present. This is true whether we are talking to OEMs in North America, Europe, the Middle East, or Asia. “That’s not what I pay.” Well, on average, actually it is! How can we so certain?

Two reasons:

1. We have an unprecedented level of insight into this calculation from running and advising EMS companies (both large and small) for over a third of a century.

2. Our client list and therefore our data base is one of the largest in the industry thus providing us with a constant and reliable stream of industry comparables during both good times and bad.

Admittedly, the labor rate that appears on EMS/ODM quotes (or is provided to OEMs in discussion) can have very little relation to what’s actually included in a contractor’s quotation as the quoting process is as much an art as it is a science. This is true because there isn’t any accounting “rule” related to quotations and a contractor can present whatever number they wish for whatever question asked as long as they report their actual internal numbers in compliance with local taxing and securities regulations. Which begs the question: do you as an OEM share your internal cost-accounting data with your customers?

Never forget that both EMS and ODM companies are for-profit enterprises and therefore have to:

1. Fully recover all their costs,

2. Include sufficient margin in their price to produce a profit. And if they don’t they will go out of business. For an EMS or ODM the simple truth is that the more they tell an OEM about their internal numbers the more the OEM will pick-away at their price. It’s just the way business works. We get what we negotiate, so handing the person you are “negotiating” with a loaded gun is a really, really bad idea. So why does CBA calculate and publish the Fully Burdened

Cost of Labor for over 20 international geographies for its Outsourcing Navigator Council (ONC) members quarterly? Because, as it says on our website: “Myths, misconceptions and financial gamesmanship have made rational decision-making relative to the Electronics Manufacturing Services industry virtually impossible. Our data reveals just how dissatisfied the OEM community has become with outsourcing. The level of mistrust between the parties is astounding, and wholly unique to this industry.

Therefore we have constructed the Outsourcing Navigator Council as a venue where Outsourcing Professionals can get real data-based answers to their questions.” Reliable, current data is particularly important today for both communities as capacity utilization rates, especially in key regions such as Mexico, S.E. Asia and the non-Euro regions of Eastern Europe, continue to rise while in geographies such as China labor costs are going up far faster than anyone predicted (remember when people were saying that China would never have a labor shortage?

That was another myth about China that has proven false. See Industry Week Article) Bottom-line, you can trust our data even when the numbers sound strange to your ear.

To gain access to our Outsourcing Navigator Council (ONC) data, contact Eric Miscoll (eric@charliebarnhart.com) or Jeff Tomassoni (jeff@charliebarnhart.com)


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