Top Ten Questions to ask a Contract Manufacturer

To be sure a contract manufacturer suits all of your needs, and your valuable resources and bottom line are protected, make sure you interview them and visit several times first. Since all contract manufacturers operate by different philosophies, it is best to prepare yourself with some good questions before you make a critical decision to partner with them. The list of questions below will save you from making some harmful oversights before you partner with a new contract manufacturer.

  1. Do you have processes in place to protect my intellectual property?

If a new manufacturer starts asking you about your product before a non-disclosure agreement is signed, it’s trouble. A contract manufacturer should take the approach that it is their job to protect YOU from day one. Inquire about the manufacturer’s data systems and what they do for security of sensitive IP information. Is the information on their computers encrypted? Do they have a firewall on their servers? Is there a security system and sign-in policies for the building?

  1. Will pricing and costs be transparent?

Can you ascertain from what a prospective manufacturer shares with you what their open costs are, and does this include overhead? Are there any hidden costs? Do you know what they are charging up front and what their margins are? If not, you may wonder if you are getting a fair price or if you could get it cheaper somewhere else. Ask for similar case studies and references. Find out if they have worked with a specific or similar process to compare to your product. Being upfront and honest translates into transparency, which is integral in any good business partnership.

  1. Are your finances sound?

You need to know how leveraged a prospective contract manufacturing company is. Ask what the top two to three reasons are for cost increases, if they have regular or average increases, and what constitutes a cost increase. Ask what deposits they require up front. The average range is 10-25%. If they are asking for more, you will have a high cost of entry, meaning there are a lot of materials you are funding as well as labor. If there are not a lot of materials cost in that deposit, then you are paying for high labor costs. Be aware of the red flags here! Remember, a partnership has to benefit both parties involved.

  1. Are you the right size for my business?

Are they only dealing in high volumes? Do they work only with commodities? Determine which type of manufacturer you will work best with. If you want a manufacturer that is a large company or only works with commodity products, then you may not get the personal service, design expertise or progress monitoring you need. If you choose a smaller manufacturer, make sure they understand your challenges and needs. They should be able to help you analyze innovative options for your designs, and work to improve efficiency and marketing appeal. Additionally, ask how they will adapt and improve your product as they monitor the progress every 12-24-36 months and possibly even offer mentoring along the way.

  1. Will you dedicate a value stream manager to handle my account?

Do you have a partnership with a manufacturer, and more specifically a person, that will champion you? Is there someone you can call directly who will know/understand the nature of your product and your needs? If you do not have a person dedicated to your account that’s involved, you may be dealing with a different person every time you call, which can lead to disjointed communication and inconsistency of solutions.

  1. How vertical are your service offerings?

Vertical represents how much is done in house. When you visit the plant, observe the processes and people. Do you see machines idle? Do you see people working? Some contractors have no people and no machines because they farm everything out. That is not a good thing. It’s important to ask questions and observe to know if they can handle what you want to give them. If they do have machines and accessible people, are the machines paid for? You want to see enough equipment to know at least that they can prototype your product.

  1. What is your corporate culture?

When you visit, are you greeted at the front door and in corporate meetings? Do you see happy, smiling people? Is this a place where you would want to work? Instead of growing and peaking, is the manufacturer focused on nurturing the cohesive group they have and the assets they can offer to you and your customers? Your contract manufacturer should treat you as an integral part of their business culture.

  1. Will my orders be consistent?

If you are outsourcing to Asia, you never know what you will get each time you reach out to your manufacturer. You should be very clear that you are looking for consistent orders. Also, learn if you have any issues, will they be accessible and work to resolve any problems quickly? Assess if they are easy to talk with and how available they are when you need them during the sales cycle.

  1. Do you have regular Lean manufacturing events on the production floor and in the front office?

Do the manufacturer’s organization and office processes flow? Are their certificates up to date and current? Is the area you see clean or dirty? Are the offices you meet in organized well? These are good indicators as to how your products will be treated and handled, as well, so take note.

  1. Can you show me historical program renewals with other clients?

Ask about average price increases, and if they have cost reduction plans in place for each product and customer. Are rate increases figured on a client-to-client basis, or will there be annual hikes? Are program renewal terms based on actual costs or general cost of living and price increases? For an extra measure, ask how many companies have they been able to help get from here to there. Ask for case studies and references, and see if they correlate.

Hopefully, this top ten list will ensure a less painful process in selecting the appropriate contract manufacturer to partner with. Since a partnership of the wrong kind could directly impact your bottom line, it is wise to be selective in this process. Since all contract manufacturers differ in their pricing and services offered, it is imperative you choose a partnership that is not only cost effective, but the right relationship for your solutions.