The Journey to Finding the Right Contract Manufacturer for Your Business

For those OEMs and brands looking to outsource their electronics-based products to a contract manufacturer (CM), selecting the right CM to partner with is mission-critical to your organization’s ongoing success and growth.? Sourcing teams faced with identifying potential CMs may have a lot of experience in the CM world or they may be new to this type of business process.? Regardless of where you land on the experience curve, the following can act as a guideline for novice sourcing personnel or a good reminder to the more experienced.?

Step 1: Be clear on your organization’s “Problem Statement”

Problem Statements related to outsourcing manufacturing might look like:

• “My company can no longer manufacture products in-house because of a lack of available labor.”
• “My company is in high growth mode and needs to find a manufacturing partner to support that growth.”
• “My current CM is located in a “high-tariff” region and our corporate mandate is to regionalize manufacturing to “no-tariff” countries.”

Regardless of your reason, make sure you document the critical aspects of the product lines that you’re considering outsourcing so that you can clearly communicate these to the CM. Some considerations to take into account:

• Do your products require unique processing capabilities?
• Must the products be manufactured in plants with particular certifications (FDA, ISO13486, IATF etc)?
• Where does your product line fall on the volume/mix spectrum (High Volume/Low Mix, Low Volume/High Mix etc)?
• What geographic region does your product get distributed to?
• Is your product potentially subjected to tariffs?

Step 2: Identify the key characteristics of your ideal CM partner

Examples:

• A mid-sized company that will give my company and product the attention it deserves
• Located in regions that support my distribution channel
• Have multiple plants to support growth and mitigate supply chain risks
• Has a well-documented New Product Launch process
• Is capable of supporting my engineering team with design services
• Has the manufacturing capabilities and quality certifications that meet the product requirements

Whatever your ideal characteristics are, be sure to apply them as you move into the next phase.

Step 3: Initial CM Research

While online searches will certainly yield a lot of potential CMs to engage, be sure to also utilize other sources including Component Distributors, Colleagues, Sales Reps, and your LinkedIn contacts.? The goal of the initial research is to create a list of 6-8 potential CM partners that fit your criteria in Step 2.

Step 4: Engage the CM Directly

While an introductory email to the potential CM’s sales group may start the process, the next step should include an initial phone conversation.? This does not mean the CM should provide you with a formal presentation (there will be time for that later), rather this should be a 1 on 1 call where the sourcing person lays out their objective and product overview and asks the CM’s salesperson to explain how they can support your needs.? Keep it simple and trust your instincts.? Can the salesperson enunciate the CM’s value proposition crisply?? Do they seem to understand your needs?? Do they listen?? Does it sound like they’re interested and capable of supporting your company?

Based on how these conversations go, make your first “cut” and move the rest into the Request for Information” stage.

Step 5: Request for Information (RFI)

The RFI stage involves the formal collection of basic data from the CM.? A good RFI does not need to be overly long to provide you with a solid understanding of the CM’s:

• Organization and ownership structure
• Basic financial information including payment terms
• Manufacturing locations
• Service and manufacturing capabilities including equipment list
• Certifications and Quality Management System
• Areas of expertise
• Customer Survey Results (Example: Net Promoter Score)
• Market and Industry experience
• Available Capacity
• ERP and Customer Service/Planning support

Keep the RFI to a reasonable length.? You’re looking to get enough basic information on the CM to create a practical “compare/contrast” matrix of all the CM candidates. ?

Step 6: Identify and present a small cross-section (3-5 SKUs) of products for the CM candidates to provide an initial/representative quote.?

The purpose of the initial quote is to determine:

• How well the CM understands your requirements and the level of detail shown in the quote
• The CM’s sourcing skills and global reach
• The CM’s level of transparency in showing BOM Costs, Overheads, and Profit
• The CM’s competitiveness relative to the other CM’s you’re considering

It’s important to remember that providing a detailed quote involves many hours by the CM and the CM’s supply chain partners.? Be respectful of the CM’s time when determining how many SKUs you ask them to quote.

Helpful Hint #1 – To get a reliable quote from the CM, it’s critical to supply them with the minimum information:

• Overall business case – Volumes, Life of Program, SOP Date, and Target Pricing
• Product Information – 2D Drawings, 3D Models, top-level BOM with approved manufacturer and manufacturer part number, PCB design files, Inspection and Test Requirements, and Packaging Requirements.
• Letters of Authorization – In order to achieve “best” material pricing, be sure to provide the CM with Letters of Authorization to allow them to receive “Franchise/Negotiated Pricing” executed by the OEM.

Helpful Hint #2 – If you need to quickly understand what kind of “mark-up” on the value add that each CM will apply, simply provide the CM with:

• Total BOM Cost amount
• Number of SMT and Manual Placements
• PCBA Assembly Drawing?

From these few numbers, the CM can provide a quote showing their mark-up.? This will help you more quickly assess the competitiveness of the CM’s without having them create a complete proposal from scratch.

Step 7: Filter down the candidates you wish to visit/audit by an objective review of their RFI and Quote.

Again, keep the visit/audit activity manageable and efficient by visiting roughly 3-4 CM plants.? These site visits should include:

• A formal presentation by the CM showing why they’re a good fit for your business.? This presentation should be specific to your business and your products, not simply a boilerplate presentation.
• An in-depth tour/audit of the facility led by a Supplier Quality Engineer to evaluate the production capabilities, process, and systems in place.? This tour should be led by plant personnel.
• A review of any questions not addressed in the RFI document.

Step 8: Final Negotiation, Selection and Kick-Off Award

In this last stage, final negotiations will cover not only piece part price, but also critical areas such as Tooling, NRE, Lead Times, Shipping Terms, and Pay Terms.? It’s important to make sure you understand the Total Landed Cost of each CM’s offering.? Finally, at the award stage, it’s vital to align with the chosen CM on the product launch timeline with all critical launch team members identified.?

By following these eight steps, you can select a contract manufacturer that will help you design, launch, manufacture, and deliver the highest quality product to your customers. Take the time to do your due diligence, and you will be rewarded with a long-term CM partner who will work with you side-by-side to execute your new product launches successfully.