As OEMs cut overhead to analyze their designs for RoHS/WEE issues, they wanted CMs to take this on.

CMs need to take on liability to assure compliance to meeting their contractual obligations, or quality will ultimately suffer. This means being very clear up front who is responsible for what. A “standard” contract would be a good tool so that everything is at least addressed up front, and then could be negotiated as the OEM/EMS agreed if different.

We are a small EMS company in business since 1991. As a CEM our limited warranty is 5 feet or 5 minutes which ever comes first and I tell the client this right up front.

We do not supply components for CEM services. Do the math, and it does not make good business sense to lay out $100 for parts and charge $25 for an assembly service at often less than 10% margins. How can $2.50 insure $125 of parts and service and grow a capital intense business?

Our warranty is limited to the work we do. If we put a part in wrong we will fix it, but the client supplies new parts if required. If a solder defect gets through QC we will fix it, but if a part failed in testing on the clients bench and has no manufacturing defects then the buck stops there. We fix and pay for manufacturing defects ONLY.

We do not offer test services to our CEM clients as the exposure is much too high. ie The board doesn’t work and there is no obvious manufacturing defect, so why should our techs hump over the board to make it work before we get paid?

Just like Brian says above – keep it all up front, and it’s about keeping realistic clientelle expectations and meeting those expectatinos.

On the other hand, our business is now aprox 80% ODM for all the above reasons. These are long term contracts where client retention is much higher, and we can see gross margins as high as 65% on the product as supplied to our clients.

We offer full manufacturers warranty from 30 days right up to 1 year. We purchase and inventory everything, and for new designs we do our best to keep our BOM’s overlapping with our other products in order to minimize our purchasing and inventory requirements and maximize volume discounts.

If an ODM unit fails it is FOB our dock and warranty is subject to a review for any potential abuse of the product. We control the design so if it turns out a design flaw it is in our best interest to fix the board and we can do something about it.

Warranties are not free! The important point of warranty is to understand it is not a clients privilage, but rather it is another service which we offer our ODM clients. We charge accordingly for the warranty service relative to the risk and exposure of the project.

It all boils down to thoroughly understanding the customer’s needs up front and communicating the issues as clearly as possible.

It is a constant, never-ending balancing act.

The liability should be limited to the supplies used to manufacture the end item and the product delivered. It is understood by the entire EMS supply base that just one wrongful judgment would put them in the position to close their doors.

I also have worked for many of the EMS providers in the industry and am firmly behind the reporting of RoHS items… after all, this is a global request, not just one request from one of our clients.

If we as ODM or EMS providers own the design and sign off on it, we should also be prepared to own up to the use of the product and it’s faults ONLY IF THE PRODUCT IS USED FOR IT’S INTENDED PURPOSE AND UNDER THE CONDITIONS SPECIFIED BY DESIGN!!

And we should also get our suppliers to follow the rules of reporting and traceability… one area that I personally am skeptical of. I try NOT to use independent distributors that cannot provide the paperwork proving where the component parts come from… sometimes that means missing a contract or two. But the end results are far more costly.

Real partnership means sharing the risks and the margins to support the liability represented in these risks. This is not the typical supply chain relationship though.

But the EMS industry also seems to want to take on no risk in any area – which makes them sound hypocritical. In particular, The EMS industry in general – with a very few notable exceptions – pushes back very hard in providing certifications of hazardous material content of the components and/or subassemblies they provide to OEMs. Knowledge and/or control of these materials are far more within the control of the EMS industry than they are of the OEMs they service, yet the poor fulfillment rate of hazardous material content information, and apparent reluctance of many EMS companies to even address the question, force the OEMs to set aside financial reserves against future risk of non-compliance.

Seems not very fair to want it both ways. If the EMS industry does not want to be asked to share risk in an area of product design and development that they do not control, then they need to take some responsibility for risk in areas in which they do.

Your timing is impeccable, as a supplier we have just been approached by one of our large EMSI partners to accept this type of risk as pass through for particular industry segments such as mentioned in this article.

As you know for the most part the supply base who has been dealing directly with these segments for many years understand and takes a firm position regarding what makes good business sense. The liability associated with accepting such risk can put a company out of business.

It is no secret that the OEM’s have leveraged their outsourcing dollars to pass on many unfair liability and terms with their EMS partners but at some point the sales organizations within the EMSI need to learn to push back.

Maybe they should consult with their suppliers before they accept these requests as an entry to doing business with these customers. They need to remember we have been doing business with these customers long before they got on the outsourcing wagon. We could be a valuable resource to them.