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Written contracts Will help ensure
successful business
relationships between OEMs and their EMS providers.
Back in the days when the electronics manufacturing services (EMS) industry was universally called contract manufacturing, the industry joke was, "If I'm called a contract manufacturer, how come I can't get my customers to sign any contracts?" Today, maturation in the relationships between original equipment manufacturers (OEMs) and their EMS providers has helped to change that attitude in most top tier providers, but contract use in smaller EMS companies is still not universal. Some issues that EMS providers face include: overcoming contract negotiation challenges, defining elements of a good contract and developing methodologies for ensuring adherence to contracts.
Contract Negotiation Challenges
The biggest hurdle EMS providers face in negotiating contracts is that contract manufacturing is a unique service that many purchasing or contracts administration departments do not have standard contracts to regulate. If they modify a standard purchased parts contract, it typically favors the customer relative to liability issues.
Consequently, EMS providers should have their own boilerplate contract with industry-standard terms and conditions to offer as a starting point. Contract terms should be favorable to both parties, as a one-sided contract will typically be rejected.
Another major challenge is that many middle managers see contracts as something with which only lawyers should deal. The larger the company, the more prevalent this attitude may be, as companies with contracts departments or in-house counsel typically handle contract negotiations through these departments.
However, this approach creates a two-fold problem. First, managers responsible for working with EMS providers may not want to admit that they lack authority or knowledge to negotiate contracts covering the relationship. Accordingly, they will either resist attempts to introduce a contract or they will pass the contract straight to the department charged with contract negotiation.
Second, contracts departments like consistency and prefer to use their own contracts. For a contract to protect a company from liability, the person writing it has to lip understand enough about the relationship to know where liability occurs. However, the average contracts department does not completely understand the major liabilities involved in a contract manufacturing relationship, so they may move slowly in negotiations.
OEMs that are volume users of EMS services are...