Breaking Down the Long, Complex Sales Cycle in the EMS Industry

Estimated reading time: 7 minutes

The EMS industry is still considered a young industry, with roots based in the early contract manufacturing days of small harness and PCBA shops. Some folks credit Huntsville, Alabama, as the “birth of EMS” when IBM began outsourcing in earnest while others have differing opinions of when this industry really took root. The intent of this article is not to argue the anthology of the industry but since its birth around 30 or so years ago, discuss how the demand creation process has morphed into what we might consider as typical today.

Even the statement "typical today" is a bit misleading as no two new business engagements follow the exact same path and timeline. So please excuse the generalizing when we "new business development" (NBD) professionals have countless examples where this is not exactly how the process flowed. Since both the OEM and EMS should have the same desired outcome, awarding or winning the outsourced available market to a company where the relationship has a good possibility of lasting for many years going forward, the elements of the process should be followed to minimize decisions that both the OEM and EMS may regret. I have broken down the sales process into both phases as well as time frames for each phase, for a better appreciation of the path these deals tend to travel.

Discovery Phase

This is an on-going phase with no end for the NBD professional. The beginning of any sales funnel must have an appropriate investment of time and all aspects of the individual’s network must be utilized. Lead generation is critical for anyone making their livelihood in any sales profession; the EMS industry is no different. New prospects, or leads, can come from a wide variety of sources including: past relationships, leads from executive management’s past, manufacturing representatives (MC Assembly has had positive results with this model), current happy clients, public domain information (local announcements), supplier referrals, trade shows, EMS web site inquiries, networking with channel partners, trade affiliations, and targeting specific industry leaders, to name just a few ways the EMS industry knows who to call on. The timeline on this phase of the sales process can be rather fast for opportunistic leads to many years of work for the NBD individual.

Qualification Phase

The qualification phase is one of the more difficult phases of the sales cycle for the NBD professional as they must always remember they are a business person first, a sales professional second. In this phase, MC Assembly NBD has the responsibility to uncover the possible manufacturing, technical support and business model “fit” between the OEM and the EMS company. What are the real needs of the OEM and does the OEM value the service offerings supplied by the EMS? At MC Assembly, this phase determines if we will invest the company’s time and resources in trying to complete a successful sales cycle. Additional considerations usually addressed at this stage should include questions such as financial viability, the outsourcing strategy employed by the OEM, and timeframes needed to invest in the outcome, as just a few examples. This is the time to decide if the EMS and OEM pursuit of each other is really in both parties’ best interests and that answer can only be uncovered if both parties engage in very honest and mature discussions of all the aspects of the potential business relationship. If either party is not convinced this is a good fit for them, it’s best to professionally step out of the sales process and move on to other options. If both parties are satisfied this is worthy of the heavy investment of each other’s time and resources, the EMS has to select the targeted manufacturing facility (possible facilities) they will compete for the OEMs business at. This qualification process takes between three to sixteen months in the current environment we operate in.

Pursuit Phase

During this phase, major time and resource investments are usually made by both the OEM and the EMS. Requests for quotes (RFQs), formal / detailed requests for information (RFIs) disclosures, formal self-audits completed by the EMS, factory audits conducted by the OEM at the EMS targeted facility, and formal pricing and business support proposals are made with preliminary terms and conditions discussions being addressed at a high level. Key leadership from the targeted EMS site and various corporate team members of the EMS engage with the leadership and decision makers at the OEM, as well. Since we all know that people do business with people and not a company brand, this personal leadership investment should not be overlooked if long term relationships are to endure. The time involved in this phase of the decision process seems to run from three months to eighteen months, depending on the decision process the OEM is using to pare down the possible EMS companies to a manageable number for the eventual outsourcing decision.

Re-Qualification Phase

During this time, final negotiations of the OEMs terms and conditions happen and the initial group of EMS bidders have been down-selected to a small, manageable number for the OEM to make final decisions on. Best and final bids are entertained, key executive leaders are usually very involved at this stage and any final de-bugging of the cost models the EMS has deployed are finalized.

In this phase, it is critical to reconfirm all the facts and assumptions that have been discussed during the long process preceding this late stage of the sales cycle. Even though the current investments both the OEM and EMS have made in each other are substantial, there is still time to avoid bad decisions if any of the facts changed or assumptions the companies have been making turn out to be faulty and the parties determine that the business “fit” between the two companies is not optimal. The goal is to avoid engaging in a sub-optimal relationship and short-term partner; as this can be excessively painful and costly for both parties when this occurs.

This timeframe tends to run a little quicker than the previous phases, usually lasting one to six months. I have seen protected negotiations run much longer than necessary at times though. From my perspective, three terms that seem to be most coveted by the EMS community are the FOB point for revenue recognition, the expected payment terms and coming to an agreement on the timeframe that raw material is deemed excess or obsolete so ownership and cash exchanges can occur. I know there are many pages of additional elements always negotiated but these three, along with factors affecting the cash to cash cycle of the EMS and terms that overlook the fact that this is a build to the OEM specification, AVL and print relationship; tend to be the sticking points on protracted negotiations.

Award Phase

Once an OEM awards an EMS a job, the sales process now morphs into one of execution for the winning EMS. It remains critical for frequent, honest and open communications but now key performance indicators (KPIs), better known as metrics, are tracked and analyzed to assess the health of a sustaining relationship. From the time the initial orders are placed with the EMS to when the outsourcing is completed, the EMS community has experienced a dramatic lengthening of this phase over the years. What used to take six to 12 months to fully load the EMS with the desired outsourcing of the available products, now may take two to three years for full ramping. Nobody I talk to, in either the EMS or OEM communities, seems to be able to offer sound reasoning for this phenomenon, other than we all seem to be “doing more work, with less people.”

When you start to accumulate the times the EMS NBD person spends on each opportunity brought to a close, it can easily add up to one to three years of time; and even then, there is no guarantee they will become the chosen source of supply to that OEM. Since time is one asset nobody has figured out how to recoup, it is imperative that the fit between the OEM needs and the ability of the EMS to serve those needs be vetted as completely as possible. The sooner a misalignment of those two aspects of any deal can be uncovered, the less time will be wasted by both the OEM and the EMS with each other.

To read this entire article, which appeared in the January 2017 issue of SMT Magazine, click here.