The True Cost of Labor

2015-02-10 07:00:00

An Insider's Insights

By: Charlie Barnhart

When we talk to OEMs about the fully burdened cost of labor, in geographies around the world, they often are in disbelief of the numbers we present.

“That’s not what I pay!”

Actually it is. Doesn’t matter if it’s an OEM in North America, Europe, or just about anywhere else, virtually everyone thinks they are paying far less for labor than we report in our Outsourcing Navigator Council but the reality of the situation is that they are paying considerably more than they believe.  How can we so certain?

Two reasons:

  1. We have an unprecedented level of insight into this calculation from running and advising companies in the Global Manufacturing Services (GMS) industry, both large and small, for over a third of a century.
  2. Our client list and therefore our data base is one of the largest in the industry thus providing us with a constant and reliable stream of industry comparables during both good times and bad.

Insider Insight: Admittedly, the labor rate that appears on EMS/ODM quotes (or is provided to OEMs in discussion) can have very little relation to what’s actually included in a contractor’s quotation as the quoting process is as much an art as it is a science. This is true as there aren’t any accounting “rules” related to quotations and a contractor can present whatever number they wish, as long as they are in compliance with the requisite taxing and securities regulations. Which begs the question:

“Do you as an OEM share your detailed internal cost-accounting data with your customers?"

Never forget that GMS companies (be they EMS or ODM) are for-profit enterprises and therefore have to:

1. Fully recover all their costs,

2. Include sufficient margin in their price to produce a profit.

And if they don’t they will simply go out of business!

Insider Insight: For an EMS or ODM the simple truth is that the more they tell an OEM about their internal numbers the more the OEM will pick-away at their price. It’s just the way business works. We get what we negotiate, so handing the person you are “negotiating” with a loaded gun is a really, really bad idea.

As it says on our website: “Myths, misconceptions and financial gamesmanship have made rational decision-making relative to Outsourcing virtually impossible.”

And our data clearly reveals just how dissatisfied both the OEM & GMS community have become with their relationships, i.e. “The level of mistrust between the parties is astounding, and as far as we can tell wholly unique to this industry.” This is why CBA decided to construct the Outsourcing Navigator Council as a venue where professionals on both sides of the table can get real data-based, straight forward answers to their questions!

Bottom-line, you can trust the data from CBA, even if the numbers sound strange to your ear!


(Originally Published on 8-22-2011)

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