Approved Vendor List (AVL): A listing of all approved sources. This usually also includes a list of parts they are approved for with part numbers and part descriptions.
Bill of Materials (BOM): A comprehensive listing of all components and subassemblies that go into a specific product, showing the quantity of each required to assemble the item.
Box-Build: Contract Manufacturing: The production of products on behalf of an OEM, in which the design and brand name belong to the OEM. Also see “Electronics Manufacturing Services” and “Outsourcing.”
Contract Manufacturer (CM): A company that engages in product assembly, engineering services, order fulfillment and product distribution on behalf of another company. A CM usually works on behalf of an OEM. However, OEMs can also function as contract manufacturers.
Core Competencies: Activities or practices identified by a company as critical to its long-term success and growth. Typically, core competencies are based on skills or knowledge sets rather than products or functions.
Corrective Action Request (CAR): An action item that surfaces when there is an issue that needs to be resolved in the production process. The requesting party (either the OEM or EMS provider) asks the party responsible to conduct a root cause analysis and resolve the identified issue.
Electronics Manufacturing Services (EMS): An industry that provides contract design, manufacturing, and product support services on behalf of OEMs. Traditional services include PCB assembly, box-build, and testing. Today, EMS providers are also providing numerous services such as supply chain management, global distribution, logistics, customer support and repair. All intellectual property belongs to the OEM in this relationship. Also see “Contract Manufacturing” and “Outsourcing.”
Engineering Change Order (ECO): A directive for making alterations to an AVL or BOM, such as the replacement of one component by a substitute component. Any changes should be prepared, approved, and incorporated promptly and correctly to minimize problems. ECOs should be documented that contains key information, such as a description of change, a reason for the change, the type of change and the implementation date (e.g. immediate action or implement when possible).
First-Pass Yield (FPY): The percentage of a tested product that passes inspection on first attempt.
High-Mix, Low-Volume: A contract manufacturing environment where products vary widely with little to no volume production. Contract manufacturers that are equipped for high-mix, low-volume production have the ability to change over product requirements and convert assembly lines in a matter of hours. They can easily add capacity to accommodate increased volume and rapid throughput cycles. However, high-mix, low-volume manufacturing creates numerous challenges because there are more areas to invite error. Also see “Production Mix” and “Production Volume.”
Intellectual Property (IP): Any product of the human intellect that is unique, novel, unobvious, and has some value in the marketplace. It includes ideas, inventions, business methods, and processes.
Joint Design Manufacturer (JDM): A company that helps design products for OEMs. Distinction of who owns the intellectual property is murky and can cause licensing problems without a contract.
Joint Service Agreement (JSA): A document used in conjunction with a contract to define the processes, performance targets, and expectations of both an OEM and a contract manufacturer. The joint service agreement should be specific in how the work will be done, how it will be evaluated, and should be supplemented by a management control system that requires a regular review of performance against the JSA expectations. Also see “Manufacturing and Supply Agreement.”
Low-Mix, High-Volume: A contract manufacturing environment where products are produced at high volume without much variation. High-volume production may last for weeks or months using the same setup. Changeover is at a minimum and equipment utilization is very high. Contract manufacturers are at their most efficient when running at high volumes, with minimal MRP. Also see “Production Mix” and “Production Volume.”
Manufacturing and Supply Agreement (MSA): A contract that defines responsibilities and bridges the relationship between an OEM and a CM. It outlines what the EMS provider is required to do for the OEM addresses pricing for both current and new products, inventory liability, and performance and service expectations. Also see “Joint Service Agreement.”
Material Requirement Planning (MRP): The planning, scheduling, and inventory control system of a product.
Medium-Mix, Medium-Volume: A contract manufacturing environment where production volumes remain relatively stable for an extended period of time with some variation in the product. Medium-volume production may last for days or weeks using the same setup. Also see “Production Mix” and “Production Volume.”
New Product Introduction (NPI): A set of integrated processes used to convert a product design into a manufacturing-ready product while meeting cost, quality, and time-to-market objectives.
Nonrecurring Expense (NRE): Costs an EMS provider must charge specific to a particular OEM’s product program such as setup, tooling, and programming. These one-time charges are separate from the product cost.
Original Design Manufacturer (ODM): A company that manufactures products of its own designs, which are then sold under an OEM’s brand name. Typically, the ODM determines what products to build and the OEM simply purchases the items ready for sale. Unlike an EMS provider, an ODM designs products based on its own intellectual property. OEMs are considering the ODM model because it offers a more complete turnkey solution with less design and supply-chain interactions.
Original Equipment Manufacturer (OEM): A company that designs and specifies products under its own company name and brand. Traditionally, OEMs design products, purchase components from suppliers, operate their own manufacturing plants, and handle sales, service, and support activities, but many of those functions are being outsourced today.
Outsourcing: The process of subcontracting a process, such as product design or manufacturing, to a third-party company. Also see “Contract Manufacturing” and “Electronics Manufacturing Services.”
Plants, Property, and Equipment (PP&E): The key elements of a fixed-asset manufacturing model. Plants include factories and warehouses. Property includes land and leasing. Equipment includes production tools and automated assembly machines.
Production Mix: The amount of variation in product in a production line. The higher the mix is, the wider variety of product can be produced.
Production Volume: The amount of time a single product is produced. A higher volume means there is less variation in product and are typically produced in large amounts.
Request for Quote (RFQ): A document that is prepared by the OEM and submitted to the EMS provider for quotation. It typically includes product specifications and quantities, in addition to an AVL and BOM. The RFQ should also include key elements the OEM will request of the contract manufacturer in the MSA, such as inventory liabilities.
Return on Invested (ROI) Capital: An important model (net profit / PP&E + inventory + accounts receivable – accounts payable) that can help OEMs determine the cost effectiveness of outsourcing.
Time to Market: The length of time it takes to get a quality product into the marketplace.
Time to Volume: The length of time it takes to bring a product from prototype or first article to a high-volume production mode.
Vendor-Managed Inventory (VMI): A process in which a supplier owns components until they are issued or released to the production line. Usually, VMI is handled by a distributor located within a plant.
Volume Purchase Agreement (VPA): A contract service agreement giving better pricing, deliverables, and cost reductions based on volume manufacturing.