MENLO PARK, CA -- Product cost is fast receding as the most important factor in the OEM-EMS relationship, asserts a recent survey of electronics OEMs.

The survey of senior operations and supply chain professionals at OEMs ranging in size from $1 million in annual sales to over $100 billion found "significant" year-over-year changes, said Riverwood Solutions, which conducted the work. The patterns, the consulting firm said, "suggest a shift in thinking by OEMs."

Among the findings:

• 14.3% of survey respondents believe that product cost is the single most important performance factor for measuring and managing their EMS provider. In the 2009 survey, more than 41% of survey respondents believed product cost was the single most important factor.

• 40.9% of survey respondents are concerned that under-investment by their EMS provider will hurt performance on their account. In 2009 only 25% of respondents were concerned about the level of investment by their EMS provider(s).

• 47.6% of OEM respondents say they would be willing to pay their EMS provider 2% more if product returns were cut in half. Affirmative response to this question more than doubled year-on-year, up from just 23.5% in 2009.

• 63.6% of survey respondents say that they are likely to hire remote operations staff near their EMS provider. Only 29.4% of OEM respondents reported remote hiring plans in 2009.

In a statement, Flextronics chief executive Mike McNamara said, "The data seem to suggest a shift in thinking from purely lowest cost to one of increased social and supply chain responsibility, and I am encouraged that this will be a positive change for customers, employees and communities.

"For years, the users of EMS services could often obtain very low prices for manufacturing services due to pricing structures and operating practices of some industry participants. A fundamental shift has occurred in China, driven by demographic and economic changes particularly in southern China, that requires all EMS companies to invest more in their employees. Aside from basic wage increases, employers need to invest more on employees' health, welfare and living conditions if they want to attract and retain the best employees. This increased focus on social responsibility will undoubtedly increase costs to OEMs, but will inevitably result in greater employee commitment, productivity and quality."

"Some dramatic changes in the distribution of responses to certain questions year-over-year are difficult to explain without some significant external shock to the system," said Ron Keith, chief executive, Riverwood. "Perhaps the recent deluge of negative press regarding Foxconn that has spilled over onto some of their key OEM customers can explain some of the significant shifts in executive views at key OEM users of EMS services."

Survey respondents spent more than $100 billion in the global electronics supply chain in calendar year 2009, Riverwood said. Riverwood plans to release the final results of its survey early this month.

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