Why & How to Change your Factory
By: Jared Haw
Tags: Engineering, Consumer Goods, Consumer Electronics, Supply Chain, Contract Manufacturing

Finding the right manufacturing partner is always difficult. The factory you work with to launch your product might not be the ideal company to help you scale and sustain a high level of production.

As your company grows, the services your contract manufacturer (CM) provides is expected to grow and expand. As you grow, your manufacturing partner is expected to scale up their own operations by growing their production, quality, engineering, supply chain and other teams to support your growth. If they are unable to or have provided poor services, a change will be necessary.

Most companies have thought of changing their factory, but usually, no action is taken. Most companies also underestimate the amount of value their contract manufacturers can add. Nowadays, your manufacturing partner is not just expected to provide production and quality but also engineering, supply chain, project management and more. Why not leverage these services?

With my experience, there are several reasons why people want to switch. The most common reasons for the change are the following:

Reason 1: My current factory can’t scale up

Some factories have no interest in growing into a larger facility. This means that if you grow, your factory will not be able to absorb these orders. On the other hand, a factory might be in the mindset to scale up, but lack the correct supply chain, space and financial position to support you. This is unfortunate but if they can’t help you to scale up, you need to transfer production to someone that can.

Reason 2: There are too many costing issues with my current factory

Price conflicts are very common in our world. Therefore, having the support of an engineering team that can launch cost down projects is key. Decreasing the price does not mean the factory decreasing margins, but instead it’s the study of decreasing your COGS. A manufacturing partner can analyze how using alternative materials and processes can affect your price without negatively affecting quality.

Reason 3: Quality issues often come up and they are unable to solve them quickly enough.

Solving a quality problem is not temporarily re-working a problem. It’s finding the root cause and finding solutions which leads to eliminating the problem. Having quality problems will lead to decreased margins, extended lead times and increased complaints. Following the proper quality practices will eliminate quality problems. Unfortunately not all factories educate their staff with proper quality practices.

Reason 4: They don’t have an adequate engineering and technical team

A main reason why brands love working with CM’s is that they can leverage their resources and expertise. One department a brand leverages most often is their engineering team. Having a factory with a strong engineering team will support you with DFM, cost down, developing additional products and more.

Reason 5: They lack proper communication skills

This reason can usually be off the list if proper due diligence was performed. Unfortunately, people still complain their point of contact lacks proper English and communication skills. Both should have been a huge red flag before you launched production. However, understand that communication is a two way street. Exercise patience when explaining key parts with your factory.

Switching manufacturing partners is not easy but working with one that lacks the size, skill sets and resources to support your growth is 10x worse. If your factory is hindering your growth by any of the reasons listed above or any others, a change will be necessary for you to pursue your ambitious dreams. Just imagine how much your profits could have been increased, how many additional products you could have launched or how much better your reputation would be if you had chosen the best manufacturing partner.

Throughout my career, I have helped a number of brands switch their supplier. Some of the time, it’s bringing production into my factory, while other times it’s guiding a friend through the process so he can transfer production to a factory that is best suited for him.

All in all, the steps are the following;

Step 1: Understand your Needs

The following questions will help you to understand your position.

What is your current financial position compared to where you expect to be in the next 12 months?

What is your future demand? Can your current supplier absorb extra orders?

How many products do you expect to launch within 12–24 months?

Is your factory providing you with services and products that can affect your brand image in a negative way? Such as poor quality, poorly engineered products, etc…

Is your current supply chain too messy?

Before proceeding to the next steps, you have to understand whether or not you need to change. The main question is: will your brand suffer financially or be unable to grow as you would like with your current partner?

Step 2: Due Diligence

Let’s take this time to see what else is out there. Sometimes when you have been doing something the same way for years it can be stuck in your head as the correct way. However, don’t let ignorance get the best of you. This is the best time to explore other options and see what else is out there. Look for the following:

Can anyone refer a factory that is suited for you?

Let’s stay away from Alibaba, Made-In-China and some of these other marketplaces for factories, unless your product is commoditized.

Once in communication, be transparent about your situation. If you tell the factory you are not looking to switch quickly, they might lose interest in you. A sign of patience is key to building a successful long term partnership.

A trip to visit them might not be practical unless your current supplier is within driving distance. If you’re in the area, why not pay them a visit?

Use a supplier evaluation checklist to audit them.

Learn from mistakes that are making you look to change.

If they are able to pass these tests, it’s time for them to sign an NDA to proceed.

Step 3: Test their Capabilities

By now, you have found a few factories that you can work with. They have passed your audit and you feel they are an improvement of what you currently have. Factories, especially those in China, are famous for saying they want to build a partnership and they will do anything to get and keep your business. However, talk is talk and taking action is a completely new game. If you want to test their capabilities, you will need to provide them with some confidential information. But if your due diligence was thorough, this should not be a huge issue.

Take these steps in order to see if they have the capabilities to make your product.

Quotation — Can they provide a competitive quote?

Samples — Can they provide you a high quality sample?

Documentation — Can they provide you with acceptable payment terms, tooling terms, lead times, quality specifications, etc…

Step 4: Analyze your Financial & Product Position

This step is when you can start to compare apples to apples. You’ll have the quotation from your new supplier and the investment needed to move, such as opening up additional tools if transferring your tools is not an option. If your move is financially driven, when is your break-even point? Take into account the investment needed, such as opening up tools and then calculate how many pieces you need to make to break even. If your move is product driven, can they help you to launch the amount of products for your 12–24 month window?

Step 5: Pre-Production

You can move to pre-production if all of the steps have been completed and the finance side of your business makes sense to switch.

Confirming the contract (confirm the price, quality and lead time for x product)

Opening up tools

Developing the golden sample — What production is based off of

Develop production line flow

Step 6: Launch, Sustain & Repeat:

After the pre-production step is confirmed, you will have the green light to buy the raw materials, and get the new supplier into production. Understand that launching a new product of anything always takes time and care. Once these early kinks are cleared up, strive for sustained production and look to continuously repeat the cycle.

Results & Benefits:

Staying with a supplier that is underperforming will hurt your business and continue to do so going forward. Carefully finding your new supplier can have positive results after the first order. You can expect the following results from the switch:

Higher profit margins

Improved engineering & technical support

Quicker development speed

Additional SKU’s

Relationships like Apple leveraging the skills and resources of Foxconn is not just for the fortune 500 companies. Companies of all sizes, even startups, can lean on CM’s and optimize themselves by using their team.

If you’re not utilizing your CM as much as you could feel free to chat with me. I will be happy to listen to your story and provide some free and unbiased advice.