What to Consider When Evaluating New Manufacturing Suppliers

Evaluating new suppliers is a key part of the job for anyone working in supply chain, supplier quality, or outsourced manufacturing.

You may be doing it because you need to find suppliers with new capabilities that your current supply-base does not have, or because you need additional capacity, backup sources, or to replace poor-performing exising vendors.

No matter what, doing your due-diligence on new suppliers up front can save a lot of headaches later in the process.

Use this checklist to make sure you consider the important factors:

1. Technical Experience

It is obviously important to make sure the supplier has a track-record for producing the same type of parts and products that you need from them. Be sure to evaluate their ability to hold specific tolerances, cosmetic specifications, and other detailed requirements. These finer details are often what sets suppliers apart.

2. Industry Experience

Specific industries often have their own unique set of "ways of doing things" -- including quality standards, lead-time and fulfillment expectations, industry-specific technical terms, and other often un-documented specifics that are baked into the culture of an industry. Make sure your supplier has experience selling into your industry, or else you may run into a mismatch of expectations in the future.

3. Quality System & Quality Culture

Most manufacturers will have ISO 9001 certification, essentially meaning they have a documented quality system, but it's important to get a feel for how much of a "quality mindset" exists through their team.

Do they treat their ISO 9001 certification and overall quality system as just a compliance "check-box"? Or do they live it? When you meet with their team, is the head of quality in the meeting? Does their production line staff follow their procedures? To properly evaluate this, an on-site visit is almost certainly needed.

4. Right Sized

It's important to work with suppliers that are the right size for your company. If you are a top-tier global OEM, you will likely want to be working with large manuafacturers. But if you're a smaller OEM, you'll likely get better service, quick response, and better overall support from a smaller manufacturer.

I've heard small electronics companies talk about wanting Foxconn as a manufacturing partner, but I usually tell them that's a bad idea. Large manufacturers are setup to work with large OEMs. Smaller manufacturers are setup to work with smaller OEMs. Any mismatches on size will inevitably lead to problems down the road, especially if you encounter part shortages, capacity constraints on the manufacturer side, or something like the COVID-19 pandemic (hopefully not anytime soon)!

5. Production Cadence & Mix vs. Volume

Similar to finding a "right-sized" supplier, its important to find a supplier that can support your production order "cadence". Do you need your supplier to do a one-off production run, then ship you the parts that you hold as inventory and consume over time? Or do you need a supplier who can run continuous production at a specific volume over time?

Some suppliers are setup best for one or the other, perhaps specializing in being a high-mix, lower-volume supplier that supports vertical-focused OEMs. Make sure your expectations for production and order cadence match well with the capabilities and interests of the supplier.

6. Value-Added Services - Development, Testing, Logistics

Many manufacturing companies can offer more than just pure contract manufacturing, bringing additional value in areas that you may (or may not) need. Understanding what they offer can be a good sign if they are a good fit or not.

Such services could include in-house product development support, NPI qualification testing, or downstream logistics services such as warehousing, door-to-door delivery, or others.

If the supplier typically provides many of these value-added services to most of their customers, but you don't need them, you'll likely end up overpaying. But if you need these services from your suppliers and they don't seem to offer much, they'll likely underperform down the road. It's important to set any expectations about such requirements as early as possible in your supplier evaluation process.

7. Price

Evaluating price is an obvious one. But understanding exactly what comes with that price, and understanding how the supplier arrived at that price can be more nuanced. It's very important to consider all the other items above, which may explain why a specific quote is either high or low. It may simply be a mis-alignment of expectations or experience.

It's also very important to evaluate the supplier on multiple datapoints, if possible. More data = better decisions. You can do this by regularly sending benchmark RFQs to new potential suppliers, just for the sake of evaluating their competitiveness. Such activities can be burdensome if done manually, but sourcing automation software tools like Supplios can make it much faster, simpler, and easier.

8. Ongoing Customer Service

The relationships between OEMs and their manufacturing partners are long-term -- at least that's what you hope! It can be easy for a new supplier to dazzle you at the beginning, but then fall flat later. You want to make sure that doesn't happen, and that you have a clear understanding of how routine things will happen between your teams during ongoing production.

Are the contact windows clear, for commercial, technical, and quality related things? Do people respond in a timely manner? Have the contact windows been at the company for a while, or is there a lot of turnover in those roles? Are escalation channels clear? All are important things to evaluate.

9. Trust

This one is less tangible, but still very important. No matter how many contracts, NDAs, Supply Agreements, or other "official" things you put in place with suppliers, it all comes down to whether you can trust a supplier. After all, it doesn't really matter what the paper says if your production line is down because of bad or missing parts.

Does the supplier admit what types of work are a good fit for them and which ones are not? Are they open about their price quote and overall cost structure? If you push them on something do they just always say yes, or do they appropriately push back at times?

It is nearly impossible to find the "perfect" supplier that ticks all the boxes for some project, so you'll often have to take a chance. And trust is what allows you to do that.

Summary

Finding good suppliers on which you can build long-term relationships is not easy. Which is why it's important to always be on the hunt for new ones. Not just when you have some new project that comes up, or not just when some existing supplier fails. At that point you'll become desperate, and be tempted to make bad decisions.

So make it an ongoing process. Run benchmark RFQs. Visit potential new suppliers who are nearby when you visit existing suppliers. And continue building your network of suppliers as you go through your career and network with others in your industry. As we say, "Always Be Sourcing". You'll be glad you did.