-
- News
- Books
Featured Books
- smt007 Magazine
Latest Issues
Current IssueDo You Have X-ray Vision?
Has X-ray’s time finally come in electronics manufacturing? Join us in this issue of SMT007 Magazine, where we answer this question and others to bring more efficiency to your bottom line.
IPC APEX EXPO 2025: A Preview
It’s that time again. If you’re going to Anaheim for IPC APEX EXPO 2025, we’ll see you there. In the meantime, consider this issue of SMT007 Magazine to be your golden ticket to planning the show.
Technical Resources
Key industry organizations–all with knowledge sharing as a part of their mission–share their technical repositories in this issue of SMT007 Magazine. Where can you find information critical to your work? Odds are, right here.
- Articles
- Columns
Search Console
- Links
- Media kit
||| MENU - smt007 Magazine
Why an SLA is Central to Meeting Customer Demand
November 17, 2016 | Neil Sharp, JJS ManufacturingEstimated reading time: 4 minutes

In a simple world, an original equipment manufacturer (OEM) would take out their smartphone, hit the 'buy' button, an order would be sent immediately to their electronics manufacturing services (EMS) provider and their fully tested, configured-to-order, complex electronic or electro-mechanical product would ship out to the end user on a same day delivery.
Unfortunately, we don't live in a simple world. But that doesn't stop our service expectations increasing thanks to the likes of Amazon and other e-commerce giants. Can you imagine having to wait several weeks to get your hands on the latest gadget after you have ordered it? We now expect goods immediately and if supplier A cannot deliver we quickly look for someone else that can.
Consumers of industrial electronic products are starting to have the same expectations which presents both a challenge and opportunity for OEMs and their EMS partners. They must ensure the right products, in the right configuration, are delivered to the right place at the right time. This can create havoc if the EMS supplier is not adequately prepared – for instance they don't have enough finished stock or raw materials in the pipeline to satisfy the order. Or perhaps they don't have the resources to test and then ship products out of the door in a reduced time frame? Either way there's a real risk that the relationship between the OEM and their EMS provider could turn sour. The former doesn't get product to their exact requirements; and the latter feels that they've been put under unreasonable pressure.
So how do EMS providers overcome these obstacles in order to successfully meet the challenge of consistently delivering product to fluctuating customer demand?
The Importance of an SLA
A service level agreement (SLA) ensures that both parties are on the same page and that each is completely clear on their respective responsibilities - thereby keeping the relationship on the right track. This document, drawn up between the two sides of the partnership, contains details of service expectations, such as pricing, estimated annual usage, call off batch sizes, delivery timescales, quality and warranty.
While it is difficult to foresee all circumstances, it is vital that an EMS provider fully understands their customer's delivery expectations. If the OEM is likely to ask for fully configured tested product at the last minute or their design contains components on extended lead times, the EMS provider will need to make sure any SLA they propose is agile enough to meet such demands.
An SLA will also provide a robust framework for the OEM and their EMS partner to manage on-going stock liabilities and commitments and will outline the finished goods stocking policy. Best practice is to calculate the P:D ratio, which Blackwell Reference Online defines as: "the ratio of 'demand' time (i.e.: the time a customer must wait between asking for a product and receiving it) to the whole operation production cycle, P (i.e.: how long the operation has to manage the flow of materials and information)".
Furthermore, the SLA should detail how the EMS provider and OEM will monitor performance. What mechanisms are in place to trigger a formal review if expectations are not met? Are on-time in full delivery metrics built in and if so is there an agreed method of how these will be measured and reported?
Taking the time to draw up a thorough SLA is the best way for EMS providers to ensure they can meet customer demand on a consistent basis, even when things change at short notice.
When an SLA may not be Appropriate
An SLA brings many benefits. It provides flexibility when demand is unpredictable and, for the OEM, can help reduce finished stock liability. It is particularly useful in outsourcing relationships that involve complex supply chains, and multiple products or product variants.
However, an SLA really works best in long-term partnerships, as it requires commitment and management on both sides. Both parties will need to be in constant communication, to ensure the best outcome therefore, monthly meetings and quarterly reviews are advisable. As an OEM, it's important to take this into account before signing on the dotted line. If you have a habit of changing assembly partners every 12 months, an SLA may not be the best option for you. Similarly, if your demand is stead and predictable, you have a small product portfolio, and your customers are happy to buy to lead-time, the same may be true. Firms scheduled purchase orders also work perfectly well!
An SLA is critical to meeting fluctuating customer demand, thereby maintaining a healthy, mutually beneficial relationship between OEM and EMS provider. While not needed in all outsourcing scenarios, they can deliver many advantages. Ultimately, an SLA enables the fulfillment of the key manufacturing goal: excellent products, delivered on-time and exactly to requirements.
This article originally appeared on the JJS Manufacturing blog which can be found here.
Suggested Items
Mouser Electronics Named Best New Product Promoter for 2024 by Diotec Semiconductor
04/18/2025 | BUSINESS WIREMouser Electronics, Inc., the authorized global distributor with the newest electronic components and industrial automation products, proudly announces that it has been named the Best New Product Promoter for 2024 by Diotec Semiconductor, a leading manufacturer of diodes, transistors,
Satair, RTX’s Collins Aerospace Extend 50-year Relationship
04/14/2025 | Collins AerospaceSatair and Collins Aerospace, an RTX business, have signed a four-year extension of their cabin interior parts distribution agreement, continuing a relationship that has spanned more than 50 years.
AIM Solder and India’s Persang Alloy Industries Announce Strategic Joint Venture
04/10/2025 | AIM SolderAIM Solder, a leading global manufacturer of solder assembly materials for the electronics industry, is pleased to announce its participation in the upcoming SMTA Wisconsin Expo & Tech Forum taking place on May 6 at the Crowne Plaza Milwaukee Airport, in Milwaukee, WI. AIM will be showcasing its cutting-edge soldering materials, including Type 5 solder paste offerings.
Bonso Electronics Reports on Redevelopment of the Shenzhen Factory and Potential Loss of Revenue
04/09/2025 | PRNewswireBonso Electronics International, Inc., a designer and manufacturer of sensor based products and pet electronic products, today reported on the redevelopment of its Shenzhen factory and a potential loss of revenue for the fiscal year ending March 31, 2026.
Tariff Uncertainty Weighs on Display Demand, Pricing, and the Supply of AMOLED Materials,
04/09/2025 | TrendForceTrendForce reports that the U.S. began implementing reciprocal tariffs on April 9th, based largely on trade deficits. Consequently, Asia—particularly Southeast Asia, a key hub for the consumer electronics supply chain—has been significantly impacted.