Selecting OEM manufacturers from the pack

If you’ve followed our guide, then you’ll already be building a shortlist by selecting OEM manufacturers that you’ve contacted by various means – and you’ll likely have pricing and a pretty strong impression of where the various OEM manufacturers you’re talking to sit on the skills, price and quality continua. That’s a great position to be in – but you now have to narrow down the field.

Every product originator and manufacturing business has come up against the need to  select suppliers, likely many times. Even startups staff members have likely faced this position before, in previous roles and jobs.

Some companies struggle to find the right match or stable relationships (both local and overseas), and return to this position when they’d hoped not to, while some are lucky enough to form a great partnership and go decades without making a switch. As a rule, the more you practise, the luckier you’ll become!

However you find yourself in this position, where to start the filtration/selection process is key,  ensuring you make the right choice for your immediate and longer term needs

Start with basics

Re-confirm what you’re looking for in selecting OEM manufacturers. Has the search and shortlist process altered your understanding of the requirements? You will doubtless have learned a lot in initially  communicating with suppliers – and it’s very possible that your perspective has undergone subtle shifts that you should be careful to fully accommodate into your analysis and eventual selection.

Were your initial concerns about language difficulties assuaged by the communications you’re getting?

Did you have expectations about professionalism and skillsets? Were they validated or adjusted by the experience?

Did any of the suppliers surprise you with insightful questions and thoughts? Were they valid?

Have you asked questions of price outliers and understood their perspectives? Do you agree with them, at least in part? As you analyse the quotes you’ve received, remember that selecting a supplier is not just a cost decision – critically important though costs are likely to be. Ask yourself – if one supplier offers much lower cost than the average, are they trying to buy the work? Equally, if one supplier is more expensive, have they integrated some knowledge into their pricing that others have missed? Common differentials can be simple factors like catalogue components as specified (implying possible imported status at the OEM) as opposed to perfectly serviceable local made equivalents.

Net cost of supply is the most important measure, in the mid to long term – saving headline costs at the start by buying downstream problems is never a happy result. But nor is paying too much for service quality that doesn’t show ongoing value. This net-cost must include competitive pricing, quality factors, supplier skills, future capacity issues, transaction and comms friction and (very importantly) support in the relationship.  Some aspects that don’t carry so much weight at the start can become burdens downstream – and an agile and supportive partner can be an invaluable asset, in a crisis.

Look to balance price and quality, in your analysis, as you’ve no doubt experienced that you usually get what you pay for – especially when you go ‘cheap’. Quality outcomes are paramount. However, when apparent quality is hard to differentiate, then this really doesn’t inform your choice. Ideally, your search has resulted in several looks-good, price-tolerable outcomes. You’ll have to narrow your options using a super important factor that is often under-rated in this process: the people.

Good starting questions to ask, if you’ve not already covered these prior to shortlisting, are:

What experience do you have making this type of product?

Can you introduce us to some of your current or past clients?

Do you do all the work in-house or subcontract to other factories?

What is the minimum order size you would offer for this assembly/part/product?

How long will it take to make my order?

What is the price for samples? or mass production?

What are your payment terms?

Consider the commitment

Any potential OEM supplier should be viewed as a partner and a core asset/member of your team. Consideration of this requires you to evaluate the people when making your decision. This ‘soft’ evaluation can be very hard to quantify and you may well end up relying on meta-data rather than facts – the ‘feel’ of the process. It needs to include:

Team fit – will they work well with their primary point of contact in your organisation?

Attitude – is the supplier or your main contact flexible, realistic, helpful, positive? You can substitute any number of keywords into this list, to define and clarify your own needs and expectations.

Comms quality – are there lower language barriers with one supplier that differentiate them? Does one supplier respond more quickly, with greater enthusiasm, with more rigour or greater knowledge? Again, your own situation and preferences will define the key attributes – but it helps to articulate them to yourself to build confidence that you’ve mastered the implications of the situation.

Agility, technical reach and quick comprehension are valuable attributes. Does one supplier stand out in this regard? Understanding new and challenging ideas quickly – and offering proposals that show understanding and build on your ideas can define the stand-out supplier.

In evaluating potential partner OEMs, consider their culture. Do they adhere to compatible methods, procedures and assumptions?

What level of service do they (actually) strive for?

Only a proportion of suppliers can do vendor management really well. If you’re devolving sub component sourcing (either custom or off the shelf) then this could be very important to you, so make sure the supplier you choose is capable of rising to the challenges you represent. Evaluate their systems, where you can – ask questions and probe the answers.

Be aware of, and ready to use, any added features or expertise an OEM can offer – they SHOULD have greater detailed process knowledge than you, so assess how far you think they can advance your knowledge and your process.

The future success of your business rests on learning and advancing your team’s understanding of every aspect of the enterprise. When you choose suppliers who are able to teach you – even if they do not know they’re doing so – you advance your own knowledge, your team’s knowledge and your future ability to accelerate and optimise your processes. This learning is part of how good businesses sharpen their processes and deliver great products – and deliver them in the future with decreasing friction and fewer delays.

Get to Know the People

Once you have it narrowed down to a few options, go out and kick the tires. Visit each OEM supplier and get to know some of the people there. Get a feel for what kind of relationship you might be able to build, even early on. In order to have a healthy supplier relationship, you’ll need to place a high level of trust in those you are working with.

Being able to peek behind the curtain will also allow you to gauge just how well the supplier will be able to deliver on their promises. For instance, they may have a fancy presentation to wow in the boardroom and still be lacking the expertise and resources to deliver. You need a supplier that is focused on helping you win on the production floor, not just in the office.

Pick a partner as well as a supplier

The right OEM partner is an asset that strengthens your position considerably.

Just as choosing the wrong one can be guaranteed to hurt you – sooner, or later, or both.

The right supplier is one that;

You’re confident can deliver the quality of parts and assemblies that you need;

at the price that secures your products market position;

timed to fit your schedule, with plenty of warning of and plan to counteract schedule shocks;

all the time.

You must develop and constantly refine the business process that allows you to deliver on this, through a focus on products, process and people. Quality products are vital in the moment, but it’s even more important to build the right relationships that allow honest, open discussion to reduce the occurrence and difficulty of issues – and there will always be problems to solve.

Your OEM and particularly your primary contact/account manager must be an extension of your procurement and technical teams, ready to raise a red flag without fear that blame apportionment will take priority. Ultimately, people do business with people.

On this basis, you should quickly build and test rapport with potential suppliers. This can be a remote process – by email or using online meetings. That’s a good start – but nothing is more effective than spending time together when you visit candidate OEMs. This is one reason why we suggest geographical limitation as a factor in your shortlisting – a cluster of suppliers in the same city can make a visit much simpler and lower cost.

Assessing whether, in the real, an OEM lives up to their resume and presentation can help a lot in narrowing the field. Everyone presents well in a filtered, idealised approach – but assessing fine details that are only visible in a visit can make a big difference;

Knowing that the factory is clean and orderly, that machines are well maintained

Seeing that product/materials are properly handled, that scrap is quarantined and that the staff know how to differentiate the two

Seeing the staff going about their jobs without drama and histrionics

Seeing meetings and discussions happen – gatherings around tooling, or parts or assemblies that look professional and capable

Knowing that the staff are happy – while their happiness is not your problem directly, you will own the effects that an unhappy company sees. Take Foxconn as a lesson in holistic analysis, to avoid reputational and schedule damage.

Overseas or local ownership?

Understanding the implications of the ownership of your candidate OEMs can have implications you should understand. Many foreign owned manufacturing facilities exist in the OEM space, and this can be a factor in your attitude towards selection of suppliers.

For example in China, Taiwanes and Japanese ownership of OEM factories was the norm for mid size and large suppliers – and brought advantages to overseas clients. The imposition of Taiwan and Japanese work practices and quality methods used to be a significant differentiator and a factor to look for in choosing suppliers. Local owned suppliers were lower grade and more poorly managed, as a rule.

However, this situation has altered dramatically in recent years. The generation of young engineers and managers who used to work in such foreigh owned enterprises have become the backbone of the whole industry – and they now run their own businesses – but they commonly operate in the ways and to the standards they learned before.

In our experience, suppliers fall into three categories;

Small and less stable companies, less well invested  – for example, old school China owned manufacturers who are not keeping pace. This class NOW defines a shrinking proportion in most sectors of the OEM space. They often have good skills, but they operate in less dependable ways and are to be avoided – unless you’re looking for the cheapest possible outcome and have high tolerance for quality issues. Unsafe working practices are still common at this level – and this represents risk to the stability of your production.

Small to mid sized suppliers that are intent on a growth path but still hungry. This is the class of businesses that tend to have foreign-company experienced local management and largely or entirely local ownership. They’re run by and staffed by leaders, technologists and managers who learned their trade in foreign owned companies, or working overseas. They generally operate to high standards and compete aggressively for overseas clients – because export is the key to stability and growth. This is the sector to concentrate on if you’re both cost AND quality sensitive!

Mid to large OEM companies, more foreign owned than local and no longer hungry. Avoid if you are looking to restrain pricing – this is the class that should offer the greatest security of process and quality, at a price – they will tend to be inflexible unless your brand profile is very significant and your volumes very large. It is a sad fact that subtly unsafe work practices are all too common in these large businesses, as they strive to win the largest and highest profile clients.

Protection of your Intellectual Property (IP)

Protecting your intellectual property (IP) may be critically important in your outsourcing process. Copyrights, trademarks, and patents are some tools you can use. If Intellectual Property is an issue you are concerned about, be clear in your discussions with potential suppliers – their responses may be a key deciding factor in issuing a contract for the work you need completed.

Before you commit to an OEM supplier, you must assess your own concerns about their ability to handle your Intellectual Property to protect your interests. Their responses to the concerns and queries you raise should offer tangible reassurances – but nothing guarantees their adherence.

Are your concerns realistic? There is a generic assumption that outsourcing leads to theft of ideas.

Answer this concern by assessing whether your product has deep originality. In truth, most new manufactured products do not involve protected (patented) technical steps, so your concern is not protected IP but copying of product. Ask yourself, is there an easy path to market for copies of your product? If not, your risk of this is very limited as nobody is interested in stealing ideas that are difficult to sell!

A factor that is often neglected in analysing the Intellectual Property risk in outsource OEM manufacture is that you are making a product to sell. Your OEM supplier is unlikely to make exactly similar products and vanishingly unlikely to back door ‘extra’ product from your inventory unless it’s really easy to sell and really high margin – the risks make anything less simply not worthwhile.

However, your competitors may be MUCH more interested. As soon as your product goes to market, your competitors have access to much or all of your Intellectual Property and it is THEY who represent the real risk to you.

A few simple steps can offer you greater security – and the willingness to take these steps is a litmus test of OEMs that can help you to differentiate them;

In bringing your OEM product from design to manufacture, you can use a codename for the OEM project, ensuring the OEM only refers to the product by this codename.

Assign well thought out document numbers for tracking and track key confidential documents shared with the OEM provider team. Use of a centralised vault gives you visibility as to file actions by the supplier (though consider that Google Drive is only usable in China via VPN)

Hold a roll call at the start of meetings or calls, to ensure only pre-approved people from the OEM provider are attending.

Assign unique ID or serial numbers to track engineering prototypes and police their whereabouts.

Consider using personal NDAs with specific OEM team members.

Consider separating product final designs into sub assembly and outsourcing them to additional OEM providers so no supplier holds all of the design details.

Any competent OEM provider will understand that, to win new customers, they have to ensure protection of their customer’s IP. To this end, they must accommodate your concerns and provide assurances – and unwillingness to do so is a very bad sign!

Conclusion

It can be very hard to differentiate the shortlisted suppliers to narrow down to the number you need. This is a good sign, as it means your initial searches and short listing were well done – so it should reassure you that you’re doing well.