Your Guide to Total Cost of Ownership in the Electronics Manufacturing Service (EMS) World

Understanding the real cost of changing your supplier to a new printed circuit board source and or a new EMS supplier can, and often times will, be a bit of a challenge. The better we understand and can identify the associated cost drivers, the Understanding the real cost of changing your supplier to a new printed circuit board source and or a new EMS supplier can, and often times will, be a bit of a challenge. The better we understand and can identify the associated cost drivers, the more accurate we can understand the theoretical savings opportunities. 

In the corporate world, we have a tendency to focus on the dollars and cents of a given business proposition and/ or transaction. Often times the purchasing communities view the world with an eye towards unit cost savings multiplied by the estimated annual usage, which equals a favorable or unfavorable purchased price dollar value variance of a possible change in suppliers. On the surface this calculation is correct, but many do not factor in all of the other elements that may impact their organization either favorably and or unfavorably, which will also have associated costs involved. In either case, it is important to be able to quantitatively understand the impact to either of the above. Companies should apply a dollar value to insure that the proper sourcing decisions are being reviewed and factored into the supplier sourcing decision. This insures that the supplier change was appropriate, and most importantly, financially sound. The way that this is done is by factoring in all of the elements involved in Total Cost of Ownership (TCO) model. 

There are many factors that need to be considered during the course of a TCO study, and identifying these factors is the main focus of this white paper. We will provide an outline of the main elements which need to be considered when developing a TCO business model analysis to insure proper sourcing decisions are being made which reflect financial benefits to a given organization. Many companies do a fair job of understanding the six most fundamental cost factors when reviewing quote options with perspective suppliers. These reviews typically include the following as noted in the below table.

Total Cost of Ownership – Six Fundamental Cost Factors

1.Cost of Goods Sold (COGS) Typically reviewed
2.Ex-works Factory Unit Cost
3.Freight and Logistics Cost to Ship to Location Air Freight versus Ocean Freight
4.Applicable Duty %
5.Initial Tooling and or Capital Equipment Costs
6.Payment Terms

What is typically not considered are all of the other factors that are equally important but far more difficult to quantitatively analyze during a source selection process. Every company has their own unique set of contributing factors which will vary from organization to organization. It would not be appropriate to assume that one size fits all, so please find TCO cost drivers that should be considered prior to making a sourcing decision. Each of these with the supplier under consideration could be viewed as either beneficial and or negative depending on the situation. Our intent is to denote these variables for your sourcing consideration, prior to selecting a new supplier of choice.

Variable Examples of Variable
Operation Cost Labor Saving Assembly Cost Capacity

Cost of Quality

Scrap Customer


Lead Time



for New Use

Supplier Ability
to Change

and Capability

Partnering Cost

Trust Supplier
Suppliers R&D
Supplier Ability
to Grow

Inventory Cost

Safety Stock

Life Cycle Project Life
Life of Product Cost Saving
Over Life of
Redesign Cost
Transaction Cost Supplier
Initial Price Long-Term Price
Long-Term Price
Initial Capital
Opportunity Cost Cost of Money Cost of Money Overhead

As a suggestion, it may be appropriate to pick the elements that are applicable to your organization and then develop a simple quantitative grading scale from 1-5 for each of the elements. This could provide a summary for each supplier under consideration. The higher the individual value, the better positioned the supplier is on the given element. Once done, you could sum the total value of all the elements to see which supplier is best aligned with your important supplier requirements and expectations. 

Download your guide to Total Cost of Ownership in the EMS world.

Vexos prides itself in working closely with our prospective and current customers to ensure that we offer value that far exceeds the six fundamental cost drivers of a supplier customer relationship. 

Our collective focus is to exceed our customers’ expectations in all that we do! 

For more information on Total Cost of Ownership Contact VEXOS today

or Call 855-711-3227

Vexos, is a mid-size global Electronics Manufacturing Services (EMS) and Custom Material Solutions (CMS) company, providing complete end-to-end supply chain management solutions in electronic and mechanical products for Original Equipment Manufacturers (OEMs) and new emerging technology companies.  

Vexos services extend over the entire electronic product life cycle, from value engineering services for product development to prototyping and New Product Introduction (NPI) through to the growth, maturity and end-of-life phases with a strong focus and commitment to quality and customer service satisfaction.

With manufacturing facilities in LaGrange Ohio United States, Markham Ontario Canada and 2 locations in Asia Vexos can efficiently compete in today’s marketplace, primarily focus within automotive, industrial, networking, communication, medical and security market segments.  Vexos enables their customers to focus on their core business, reduce your cost, speed your time-to-market and gain a competitive advantage.

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