Top 5 pitfalls: onboarding a new long-run contract manufacturer
By Ryan Lawson
Due diligence for long-term production
Don’t fall into the common pitfalls of finding a seemingly good contract manufacturer, giving them a few test jobs that yield good results – and then not doing your due diligence before entering into a long-term production contract. You should always ask some of the basic questions:
Is the supplier capable of holding the print tolerances?
Does the supplier have experience with the material that is required?
What type of quality program does the supplier have, if any?
Is the supplier local to reduce shipping costs & for you to receive better customer service for expedites?
What is the cost?
If you know their capabilities, the manpower and the experience, then total landed cost is going to be the next determining factor.
Landed cost =
Item Price + Shipping or Freight + Customs Duties + Risk + Overhead
As a plant manager at an OEM for many years prior to coming to Valence Industrial (Valence), I’ve heard & experienced a lot of poor procurement steps that lead to more severe mass production delivery issues.
As you look at the above, “risk” that is part of the landed cost, consider some of these common pitfalls.
1. Your late deliveries are adding up and it is all the fault of your vendor's supplier
At a previous company, our procurement group ran into an issue where our contract manufacturer had a supplier issue, which was creating late deliveries to our end customer. Our vendor had to continue to delay delivery because their vendors were late or the “entire” supply chain was late for the particular material.
Understand the long-run vendor's relationship with suppliers
However, they finally revealed that their payment terms went from net 60 to net 180 days, and their suppliers dropped them from repeat work.
At Valence, our vendors have net 30-day payment terms as a standard. For any vendor that we bring on, as part of our ISO 9001 Certification that we will be finalizing by Spring, 2023, we require a standard assessment of our vendors. Additionally, we do ongoing grading of their performance with a shared vendor issues list across factories.
2. You realize your vendor can’t deliver because of financial issues
After the above, issue occurred with our vendor pushing out their supplier's payment terms, our procurement team began investigating and realized they had poor financial health and were cash poor.
Identifying financial issues earlier
It’s not only finding that your vendor’s sourcing is late because of poor payment conditions that they have setup, there are other ways to identify poor financials. You may consider asking:
Can we do a credit check?
What are your payment terms?
How many vendors are you working with year over year since last year? Who are they?
Can you provide a reference with your lending and accountant contact?
What is your debt to asset ratio?
3. You are having too many quality issues after the small “test” projects went great
It’s not just doing the small test projects at the onset of a relationship to earn the right to do production jobs of 1000, 5000 or 100,000 assembled mass-production parts; it’s about the quality documentation.
For long-runs, may consider asking:
For production runs, do they do a first article of inspection (FAI)? What is their sample of the lot size that is inspected?
How does each work center document that they’ve done a quality check?
Do they have an inventory list and dates documented for when equipment has been calibrated?
Can they show a log of who the vendor has cross-trained or trained in each work center on the floor?
Can the vendor provide a pre-production or prototype design based on your requirements?
At Valence, with the complexity of our projects, quality has to be at the utmost importance.
4. You see safety issues everywhere on your factory tour
I had a situation where a vendor had to be shut down for two months after a failed EPA inspection even though they were on our approved vendor list. You can actually check if your vendors have ever failed an EPA assessment here. This is always a good place to start.
Research before signing on for extended-run machining or fabrication
Not only asking for an OSHA 300 log is important but taking in the environment when walking the floor is imperative. Many procurement people move forward without a factory visit.
Simple things like forklift traffic – erratic, fast, or lack of red flags & signage can be signals that it is an unsafe working environment. Are people wearing hard hats under cranes that are being operated? Are there beacons blinking and signage around the cranes?
Our safety requirements are visible throughout the factory with heavy training requirements for forklift operators, clearly identified lanes and all colleagues visibly wearing safety apparel.
5. You don’t see data visible on the floor
Not having data visible to floor colleagues or having a potential contract manufacturer unwilling to show data is a risk. If they don’t practice visual management, and someone has the data in an excel sheet on their computer that means no one can see it or improve on it.
Is visual management being used to understand the importance of on time delivery on the floor?
What do your folks in the manufacturing cell know of the performance of their process? It’s okay to ask for all of the key quality data to be provided for the last year.
What is their corrective measurement?
Are lean practices implemented?
You can see some of Valence's successful long-run projects recently completed like a stainless steel assembled device for a top three medical device manufacturer, machined parts and manhole covers for a pump manufacturer.