When we meet new customers who are considering switching to a new global contract manufacturing services company, the reason they are looking typically falls into one of four buckets. It used to be just three, but the world continues to change, and good contract manufacturers change with it. Of course, there are more than four reasons. These are the most frequent underlying motives we hear from new customers why they are considering switching to new manufacturers:
No matter how good the reason is to justify the expense, you simply must find concessions within your current supply chain. How do you do it? You start with the most expensive, or most vulnerable spend category and work your way toward the lowest.
You are starting to see your products failing in the field a little bit more, or returns are on the rise This incremental creep in poor quality is going to have a long-term effect on the health of your company if your brand is tarnished along the way. Maybe you are noticing the failure rate has increased over the last year and your CM doesn’t seem to be fixing the problem no matter how many times you call to get things right. It’s one thing to get lip-service and promise of better quality. It’s another if it’s not happening.
You simply cannot afford a quality issue, and the time to act is now if your contract manufacturer is not taking action to resolve the continued quality issues.
Sometimes suppliers’ priorities change. Maybe in the beginning you used to be a big fish in a small pond, meaning you were one of their top 5 revenue customers. Now, they’ve grown and you’re barely in the top 20. Do not linger in a relationship with a contract manufacturer whose once great customer service now has you feeling like just another face in the crowd. It’s okay to make an exit plan, qualify a second supplier and slowly move away from your current CM. Your product and your business can be adversely affected if you don’t. Better for you to walk away from your CM than they fire you. You simply cannot serve your customers if your strategic supplier is not serving you. Period.
This may be the most complicated of the reasons. It’s very easy to track increased cost and bad quality on a spreadsheet. Poor service is less tangible. Seeing the risk of your supply chain is almost impossible to measure, until it’s too late.
Supply chain disruptions are inevitable. It could be lack of raw materials, a shipping or logistics delay in delivery, a long lead component could be delayed or wasn’t ordered on time, basic supply and demand, tariffs, or even an unforeseen global pandemic.
This interruption could last a day, a week, a month, or worse, longer. Some parts aren’t as critical as others. The last thing you need to do is shut a line down or be unable to deliver finished goods to your customers or directly to the consumer (all depends upon your distribution model: e-commerce, brick and mortar, etc.).
You can keep some excess inventory on hand, or you can ask your contract manufacturer to keep a specific amount of inventory as safety stock. Maybe both. You may pay a small premium price for finished goods inventory (either on your books with cash tied up in your inventory or with a must-take agreement for safety stock – held on your CM’s books). It’s a small price to pay to keep your production lines up and running.
You can work with one CM that can offer multiple factories and is willing to manufacture your project across multiple geographic locations. Ideally, one local (higher cost) that’s closer and one offshore (lower cost) that’s higher volume and longer lead (delivery) times. You will have a higher total blended cost, but you’ll also have a plan B is the unimaginable happens. Another plus is you have one supplier than can manage the total inventory across their system. This reduces your time to manage two or more suppliers for the same category.
If quality issues, poor service, rising costs, or supply chain risk keep you up at night, I can promise you’re not alone. The contract manufacturing landscape is evolving.