How to Select a Factory Part 2: Request for Quote / Contract Manufacturer Selection
Selecting the right Contract Manufacturer (CM) is the most important manufacturing decision you’ll make. It is critical to your success and you get one opportunity to do it right. Here’s an overview of how to approach this process.
Guest post from Scott N. Miller, co-founder and CEO at Dragon Innovation:
11 Steps for Selecting a Contract Manufacturer
1) Ask for recommendations
Talk with companies in your trusted network who have manufacturing experience to see what factories they have had a good experience with in the past.
2) Make a list
Use the information you get from your conversations with peers to generate a differentiated list of 5-10 CMs.
3) Create an RFQ
The Request for Quote package (RFQ) provides the CM with sufficient info to understand the product and provide a quote for the cost of goods sold (COGS), tooling, schedule, etc. There is always a balancing act, as you don’t want to provide so much info that your IP is overly exposed.
4) Provide the right details in your RFQ
Overview (Word Doc)
- Team overview
- Product description
- Pending work
- Factory selection criteria
BOM (Excel Doc)
- Canonical format
- Transparent and Formula Driven
- Separate Std, Special and Consigned Margins
- Include all costs to Ex-Factory
- Fill in the blanks format
- Ganttt chart (Cloud)
- Fill in the blanks format
5) Narrow down your list
Down select to 3 to 5 factories based on your product category.
6) Get NDAs in place and release the RFQ
7) Visit each factory
The best time to visit is roughly one week after sending the RFQ. They have had a chance to review the documents and create questions.
8) Talk to references
Ask the CMs for intros to their customers to reference check.
9) Create a CM Decision Matrix
Base your decision matrix on the following categories:
- Margins (Std, Special, Consigned)
- Pareto of the top 5 most expensive components
- Fit criteria
10) Negotiate with the finalists
Narrow your list down to the top 2 to 3 CMs and negotiate the biggest line items.
11) Select the winner
After picking a CM, be sure to leave the others on good terms.
And with that, you are officially on the road to pre-production!
Questions or feedback? Let us know!
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About the author: (Scott N. Miller)
Scott is the CEO and co-founder of Dragon Innovation. He has worked with over 100 companies to help them scale by providing them with his expertise in all sectors of the business: DFM, Sourcing, Costing, RFQ, Manufacturing Service Agreement, Quality, Handover, Pre-Production, Production and Sustaining Engineering. Scott loves new challenges and the opportunity to work with world class teams.
All posts by Scott N. Miller — Follow on Twitter