Contract manufacturing Question

Back from my days at a CM, the setup fee was only used for first time customers. Basically this was to ensure that if the relationship was to be permanent, all data formats, documentation, and special issues were taken care of. This requires extra time from in house engineering, documentaion control, and a product manager to take time away from their normal routines. Also, depending on the CM (usually smaller ones) when they are setting up for a new job, the line(s) are at a complete stop. Stopped machine=no money so they have to make up for it somehow. There were also special line item charges if the customer did not provide some components (for consignment orders) or if the parts supplied were not in the correct packaging or machine ready format(the great DigiKey baggies 50 strips of 10 components, etc...) hope this helps clear up some of the questions. Everyone is different, but this should shed some light on the subject from their point of view.

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Is this setup charge the cost of purchasing the required materials? I left that out of my previous post. As far as manufacturing cost, usually they add up the cost of machine time (leased or owned), operator time (wage based), and the size of the order. Will this job prevent them from being able to run more profitable jobs? If so, then they will try and recoup those cost with your order (depending how the relationship is between them, you, and the other customer in question).

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Two words: competitive bidding

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CAL

Here is another perspective. Ask what is included in the setup costs, ie. programming, stencils, setting up part number bins, bill of materials, changeover time on the line etc, etc.

Then ask how much time and costs the CM is allowing for each of those functions and what they are charging you.

Now read our white paper Profit-Driven Manufacturing which is free on Bliss Industries web site http://www.blissindustries.com. Review the numbers in the white paper against the numbers the CM is quoting if they are way off ask them why they are not using up to date methods of changeover and handling for these various processes to be competitive. Maybe they are ready for some improvements and that will translate into lower costs for you. it should.

There typically should be setup costs (one time charges) reocurring setup costs (for each time you run the job) manufacturing costs (the cost per board each time you run the job). Unless you are doing a lot of business with them I would think they would charge you all these fees every time. Your actual costs would be calculated by taking the reoccurring setup costs divided by the total part qty run and add that to the manufacturing cost. The larger the run, the cheaper it should get on a declining scale.

hope that helps

Ken Bliss

This message was posted the Electronics Forum @

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Hi, We have a complete solutions in electronic manufacturing (SMT & Through hole).Please give your requirement to us we will give you the best offer. Regards Jojo Jameson

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Hi,

Ever onward to Brainstorming.

If you really wanted to reduce set up charges you would have to guarantee a volume and price with early termination charges. This would require a lot of trust on their part and some investigation of your bill payment records.

YiEngr, MA/NY DDave

This message was posted the Electronics Forum @

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CAL,

I'd look into getting some more bids before making a final decision. Try to get quotes from at least four CM. It wouldn't hurt to also consider the core competency of the CM (i.e. High Volume or High Mix). This will give you a better perspective on NRE charges. You'll probably find CMs will be all over the map on NRE. Every CM is different. Depending on the size of the circuit card and the technology used NRE could range from $1500 to $2000 per configuration. Some CM are fully automated while others are partially automated. A fully automated CM requires more money upfront for Engineering and production support. And, as we all know, labor varies throughout the globe. One more thing...If I were you I'd work with your finance gurus and consider the impact to your exsisting labor base. If your an OEM and looking to reduce costs you might find the loss in labor base may end up costing you a few points in OH rate. Without a RIF this could increase the costs of products you still build in house and may offset any savings stemming from that cheap CM bid. Good luck!!

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