5 Important Things To Consider Before Contracting A Manufacturer

Working with a contract manufacturer is one of the most important relationships your company will have. The quality of your products play a big part in your company’s success, and the manufacturer you choose has a lot of control over this.

To protect your company and to find the best contract manufacturer, take the following five things into consideration before signing anything, and if you are unsure how contract manufacturing works, take a look at this Intran article first

1. Manufacturers With Assets

Avoid shell entities. You want a contract manufacturer that has its own factory and other assets. A third-party company unaffiliated with the contract manufacturer that owns the factory spells trouble. How would it work if you have to take legal action for a defective product?

Some legitimate contract manufacturers, however, have holding companies in other countries. If you sign a contract with a U.S. sales subsidiary of a manufacturer from another country, such as Mexico, it is a good idea to have the Mexican contract manufacturer co-sign the supply agreement.

2. A Financially Healthy Manufacturer

You don’t want to end up with a contract manufacturer that closes its doors and leaves you stranded with a large unfulfilled order. You want a contract manufacturer that can continually invest in new equipment to keep up with the times. In other words, you want a financially healthy contract manufacturer.

Intran manufacturing equipment

Intran’s state-of-the-art facilities

Whether you’re meeting with a new or established company, always ask them point-blank about their stability and financial health. Look into their history as well. If a contract manufacturer offers pricing that seems too good to be true, look into it. 

3. An Experienced Manufacturer

Aks if they have experience producing the parts you need (similar products is fine). You don’t want to be an inexperienced manufacturer’s guinea pig.  You’d have to deal with them going through the trial and error stage that comes with any new part.

Intran brazing fire

Experience manufacturing a certain part is very important.

It’s worth mentioning that you should be 100% sure that the manufacturer is able to build to your specifications. Contracting a manufacturer before you have the design documentation finalized can lead to trouble. If you present them with a concept or a partially finished design of the product, they may assure you that it’s a project they can handle. But later on, when you have everything finalized, they might realize that they can’t fulfill a certain aspect of the design. That’s why you want the entire design finalized before contracting a manufacturer.

4. Process For Intellectual Property Protection

Before signing anything, ensure that you and the contract manufacturer are on the same page regarding intellectual property (IP). They must provide a written agreement, perhaps in the supply agreement, that you own any intellectual property, including trade secrets, to which they have access. It also can’t hurt to ask them about their practices for managing intellectual properties. A good manufacturer will have procedures already in place to prevent intellectual property leakage or theft.

5. A Detailed Supply Agreement

An ironclad supply agreement is a huge must. Don’t sign a bare-boned supply agreement, even if you’re rushing to bring a contract manufacturer on board. Make sure your supply agreement includes your detailed business requirements, as well as the manufacturer’s, and any legal recourse you may have against the manufacturer in case of a breach.

It also should include:

  1. A detailed bill of materials: It’s a comprehensive list of components that must be used while manufacturing the product. It will prevent the contract manufacturer from swapping out quality materials for cheaper ones to save money.
  2. An approved vendor list: To maintain the quality of your products, ensure that the manufacturer sources from your list of approved vendors.
  3. Quality requirements: Include detailed product and packaging specifications, quality control procedures, and inspection procedures.
  4. Product warranty: Ensure that the contract manufacturer offers a warranty against manufacturing defects.
  5. Contingency plans for delivery delays: You want a contingency plan for when a vendor delays on delivering materials to the manufacturer, and you want another contingency plan for when the manufacturer delays on delivering your completed products to you.

Key Takeaways

  • Once you find a legitimate and financially healthy contract manufacturer with state-of-the-art facilities, see if they have experience building the parts you need.
  • Wait until your design is finalized before contracting a manufacturer to ensure that they can build to your specifications.
  • Don’t sign the supply agreement unless it’s ironclad, protects both sides, and lists all of your detailed business requirements.

Now that you have a good idea of how to secure a quality contract manufacturer, check out this list of good questions to ask before contracting a Mexican manufacturer.

Ready to find out more about Intran’s contract manufacturing services? Contact us today!

June 9, 2017 Tagged: ,