Top 15 Challenges you’ll face Outsourcing your Production Needs to Mexico, China, Canada or the US in 2022

Top 15 Challenges you’ll face Outsourcing your Production Needs to Mexico, China, Canada or the US in 2022

True Statement- Sourcing Parts from Manufacturing plants outside of your plant isn’t easy. Once a Supply Chain is established, new challenges arise, but it is not a secret that setting up a new supply chain network requires heavy lifting, patience & investment. On average, the minimum time to set up suppliers is 3 months, in most cases, it takes up to 9 months nowadays with the current materials shortages happening in 2022. 

This article applies to every Manufacturing company in Mexico, China, the US, and Canada, including but not limited to companies doing Rotational molding (Rotomolding), Injection Molding, Thermoforming, Sheet Metal Fabrication, CNC Machining & Rapid Prototyping.

After what happened in 2019,2020 & 2021 with longer lead times for parts coming from China, Companies more than ever are now looking to diversify their supply chains. Some are looking to Mexico, Southeast Asia, or to bring the Production closer to the US, Canada is an option too.

There are without doubt advantages of global supply chains, and we have to adapt to the current times by finding ways to overcome several challenges, many of which are complex and outlined down below.

If you use a domestic supply chain, all of your eggs are in one basket – your country’s basket, that is. If there was a natural disaster or economic recession, it’s possible that your entire business could be ground to a halt. However, if you were to position each of your global supply chain stages in different countries, the diversification can help minimize the effect of local interruptions.

This guide outlines 15 of the most common global supply chain management challenges so that you can approach them adequately.

Start sourcing products from China, Mexico, the US, or Canada – great choice!

Here’s my look at the top Fifteen problems you may run into when sourcing products.

1. No response from the manufacturer

2. Cultural Differences

3. Lead Times

4. Product getting damaged in Transportation

5. Quality Assurance: Response Time for replacing Defective Parts

6. Inability of supplier to meet specifications

7. Overestimating Profit- Unit cost vs Landed Cost

8. Payment Terms: Cashflow

9. Data management- Most up-to-date drawings.

10. Time Zones

11. Accountability & Compliance

12. Conflict Resolution

13. Lack of understanding of the Law

14. Supplier Vetting

15. Exposure to risk due to Political Regulations

For those of you who’d like a little bit more than just a list, we’ll dig into these fourteen points in more detail below with a piece of advice for each.

If you’d like more information about “How Supply Chain Disruptions are affecting US companies” then click the link to read our thoughts on the subject

1. No response from the manufacturer: Lack of interest in doing business

Although this might be more common for smaller orders, you’d be surprised about some companies not showing much interest. There’s been a spike in RFQs for Nearshore companies (Domestic sourcing or re-sourcing), meaning manufacturers in Mexico, Canada & the US are receiving more inquiries than ever before. 

The right of refusal for doing business with customers is real, we are seeing that some suppliers we used to work with are re-evaluating their MOQs (minimum order quantities) and filtering out what type of customers they want to work with. If it is out of what they’re aiming for, oftentimes they won’t even dare to respond. After COVID (2019-2020-2021-2022) occurred, many companies are looking for better options to source their parts other than China. 

We’ve noticed that usually when there is a lack of interest, It means that the supplier does not quite believe in your business or your product. As I mentioned above, nowadays good companies are quite selective. This happens especially when you are developing a new product, not only you will get charged astronomically high, but sometimes manufacturers tell you to approach them with that product when you’ve reached thousands or millions in volume. This happens all too often particularly when you try to make last-minute changes to the design, or over-configure a product. Manufacturers don’t like making changes on the fly as it disrupts the Production Flow, not to mention is not the right way to start a relationship. If it’s just changing a tolerance, everything is easy, but if you want to change a feature of the product and you need to make molds, you may start to notice that the interest will be lost and days will turn into weeks, and then into months once you get going unless you are completely transparent from the start.

Golden Nuggets
Duplicity comes with a cost, don’t expect other countries to be as cost-effective as China for ALL parts, evaluate other benefits as well such as Lead Time, mitigated risk due to proximity, availability, stronger supply chain, etc. There are cases where it makes more sense to produce domestically, in Mexico, in Canada, or in all of them. Make sure to explore your options before defaulting to one of them. 

2. Cultural Differences

Business people must have some sensitivity to the culture you are sourcing parts and how it impacts business. There are some key points you need to know when sourcing in each Country. 

Communication that’s ineffective or a complete lack of communication can really break a business, also the preferable way of communication is an important factor. For instance, in China WeChat is a more personable way of communicating with people in business environments. It is considered a way to be closer to people, email is seen as a more formal way of communicating which in some cases is unnecessary, or rather, slower. The same principle applies to Sourcing in Mexico, WhatsApp is the preferred via of communication, and even audio messages are acceptable. We are noticing more and more Mexican companies responding and quoting over Whatsapp, rather than sending quotes over email. 

Doing business with Manufacturing companies in China & Mexico often takes longer than it would in the US or Canada. American companies often fail because they are eager to move ahead rapidly, but it is typical in Chinese & Mexican culture to establish a strong relationship before closing a deal. Therefore, it is important for US companies to understand they may need to meet or talk with the higher ranks of the Mexican or Chinese company multiple times before a business partnership or deal can be made. It is a common practice to have dinner or go for drinks, it is believed it is vital to the development of the relationship.

The importance of having a Native speaker or a company like Brecher Manufacturing on your team is second only to due diligence on Mexican & Chinese Manufacturers.

If your supplier speaks fluent English and can understand your English well, you may get away without a Native speaker’s help. Otherwise, you should consider engaging a Native speaker, preferably a native speaker who also knows the business culture to help make sure your suppliers understand your expectations clearly and completely. We’ve seen cases where this doesn’t occur and expectations are not met after assumptions are made at crucial stages of the engagement, like clearly setting product quality expectations, Process Times, including transportation, and some other hidden costs such as import/export duties, fees, etc. Finally, it is generally preferable to have someone on your side that has gone through these challenges to mitigate most of the inherent risks.

Outsourcing your production needs to Mexico, the US & Canada is a smart business decision. This is especially true if you’re hoping to get your product to market in a short amount of time, or for NPI (New Product Introductions) it gives you the ability to make changes faster and somewhat gives you more visibility of your production as the communication is even closer than Producing in China. Mexico has a fast-paced, skilled workforce that’s experienced and generally with a can-do attitude. Producing in Mexico, in the US, or in Canada can ensure quality at a price that’s affordable, but that doesn’t mean it’s without its challenges. The bigger the parts, the more sense it starts making to produce parts on the nearshore, but this is not always the case. We can help you evaluate what the best fit for you is according to your part and business requirements.

Golden Nuggets
You want to have someone who understands the culture for things to happen smoothly and better. You need to make sure you and your supplier understand each other’s expectations. It goes both ways, for this matter, you might want to get your forecasts as close to reality as possible, don’t go with the highest numbers, be realistic, or else you will lose credibility and potentially damage the relationship.

3. Lead Times:

There’s a beauty in quick deliveries, it can help your business tremendously make more revenue, launch a product faster, not to mention the reliability for your clients. It is becoming a standard that buyers expect faster deliveries and we can Amazon to thank for that. 

For Production environments where raw materials have to be ordered, orders processed, manufactured, check for quality, reworks, and finally shipped, Lead Times can often times sound long. The average for a Production order for Sheet Metal & CNC Machining is 7-9 weeks on the first order and 4-5 weeks thereafter for most Plastic & Metal Parts, now if Tooling is involved, you add another 8-12 weeks for Injection Molding, Rotomolding & Thermoforming. 

For companies who have never ordered Plastic parts, this will sound outrageous. Again, this is average and there are ways to expedite orders, get them in front of the line and shorten Lead Times in Half, at a cost. These long lead times make it challenging to balance supply and demand effectively. Brecher Manufacturing has been able to expedite Rotomolding Molds/Tooling in less than 7 weeks, but very seldom companies are able to deliver in such a short time.

For Production going or coming from overseas, China in particular, Although air freight is more expensive than ocean freight, it’s a lot faster and it might make more sense sometimes. The most cost-effective transportation method to be considered is land or ocean freight day-to-day, but having air freight agreements in place that you can use quickly to capitalize on emergencies such as sudden increases in demand or for replacements when defective parts arrive, believe us, this will come in handy when the time comes, and it will.

Unfortunately, there are longer lead times in 2022 than in previous years for the Long Beach Port and others near Los Angeles. Ensenada, Mexico is not showing such delays, if you’re planning to send parts there and import them into the US, you might want to also explore producing parts in Mexico and see what that looks like, instead of keep bringing parts from China. With so many steps in the global supply chain and such large distances for goods to travel, there are many opportunities for things to go wrong, this is why we’ll cover packaging below. Plan for the best, Prepare for the worst.

As a result, it’s crucial to have firm completion dates and shipping times, constant updates are of the utmost importance, this is why a company like Brecher Manufacturing can help you manage orders and stay on top of it. Outsourcing Manufacturing in Tijuana, Mexico, San Diego, CA, or Riverside, CA can present you with great opportunities for its proximity and take advantage of the shorter distance & travel time from one to another.

Golden Nuggets
Maximum and minimum inventories play a part in addition to close communication with your suppliers for a planned and fully healthy pipeline that will prevent you from having shortages. Especially in these times of so much of that. Effective planning is the solution. Spare yourself the time, trouble, and expense of finding out problems the hard way, let Brecher Manufacturing take a look into your projects, and support you in whatever way we can. 

4. Damaged Product in Transportation/Shipping
Transport Quality Is Paramount

Transportation isn’t cheap; the farther away your parts need to travel, the more costly it gets. A key element to consider is Packaging as it requires to be adequately fit for the Transportation distance and method. To give you an idea of the cost per part in packaging, Manufacturing locally it would require $0.40 dlls whereas adequate packaging for parts coming from China could go up to $1.40 per part in some instances. For some parts that don’t seem like much, but it can easily add up. 

Brecher Manufacturing suggests always weighing the options between manufacturing in China or sourcing closer (Mexico, Canada, US). Knowing that you may be drawn to good rates for trucking services, particularly when scheduling in advance. This is when close communication with the manufacturer is paramount as mentioned above in point number 2. 

Now let’s talk rates, US, Canada’s & Mexico’s trucking companies vary between good and not so good. A lot of not-so-good companies are going to draw you in with lower prices and when the holidays come, which is when they become inundated with business, they will leave you high and dry. For instance, shipping manufacturing parts from Tijuana, Mexico to San Diego, California, or Riverside, CA (Southern California) can cost anywhere between $1600 USD all the way up to $5,000 USD. This is when shipping consolidation starts making sense, negotiating contracts & having the right freight trucking company working alongside with you.

For China rates, shipping a container could cost from $14K USD at the lowest all the way up to $20K USD just to give you an idea about price fluctuations. We suggest you take this into account when doing your calculations as it relates to your Transportation costs.

Golden Nuggets
Account for the packaging costs, as well as packaging designed for that specific Transportation method and traveling time your product will have to be in a vessel, truck, or in an airplane. Don’t overlook how you secure your parts, including how the pallets are stacked in a container, or in the truck, this can be a money sucker given shipping rates. Avoid anything low-quality because you’ll find yourself paying for damaged goods and unable to deliver your products on time, not to mention the added costs in transportation should the parts get damaged due to unfit packaging.

It costs more than a thousand dollars to transport finished goods, and that’s something to really consider and plan for. Failing to calculate and prepare for bad transportation conditions and these costs could cripple your finances, and will slow down the time it takes to get your product to market.

5. Quality Assurance: Response time for defects

Quality Assurance can also be challenging to manage. Quality is not something you want to leave for common sense. There is a standard in tolerances for each industry, that becomes a real problem mainly for assemblies or when you’re getting parts from multiple manufacturers. Moreover, having a Quality Specifications document that outlines what is acceptable will help your supplier and you launch your product quicker favorably for both entities. 

It’s essential to clarify the quality level expected, but also be mindful that the higher the quality you need, the more cost will be involved as that is taken into account in the Production & Quotation process. For example, An aerospace part typically costs more than a consumer goods part for the simple fact of requiring tighter tolerances, and more documentation control, meaning higher quality standards. There are instances where the cost could be similar depending on the requirements, make sure you evaluate your Quality level before going out looking to quote parts. It’s also best to define who is responsible to approve or make decisions for Quality matters, and what happens should there be a disagreement in the future.

A Quality Assurance system will dictate how many parts per million are allowed in the production process. This system entails the dos and don’ts for you. Also, it will ensure that the parts you’ll receive will be consistent in quality, hence, a more reliable supply chain.

Golden Nuggets
The following is a list of practical actions you may consider to avoid Quality issues:

• Set a clear definition of “quality” in your Quality document and make sure it is understood by your supplier. What is the exact standard of product quality? What are those Critical Tolerances? What is non-negotiable?
• Make sure delivery terms and responsibilities are clear.
• Consider placing a small initial order for samples, rather than making an initial large purchase. This first order will be more expensive and slower to get into mass production, but it could save you a lot of headaches and money in the long run.  Brecher Manufacturing always requests from suppliers a few First Article Samples along with a FAIR (First Article Inspection Report) to evaluate the quality & a few other aspects such as response time, JIT (Just in Time), communication, etc. 
• Once you are satisfied with the samples, you can release the big order, or then place a series of increasingly larger orders from the same supplier over a certain period to establish a strong relationship over time. If the supplier develops a track of record of delivering quality goods on a timely basis, the trust between you and the supplier is established and you may proceed with larger purchase orders.
• Build duplicity, and have multiple sources within your supply chain network. Brecher Manufacturing strongly advises to produce in at least 2-3 different countries to cover your basis. If you are Manufacturing in China, also Produce in Mexico, the US, or Canada so you always have an alternative in the event that the service of one of your suppliers deteriorates. It is like having insurance, you don’t know when you’ll need it, but you’ll be thankful you set it up prior to being needed. Expect to pay more for dual-sourcing, but you can’t beat having peace of mind.6. Inability from the supplier to meet your Specifications

Over the years we’ve witnessed many malpractices or not Good Business Practices we should say turning good relationships into nightmares in business. The Top issues we’ve seen are the following: 

• Uncontrolled production costs and the supplier trying to raise prices all the time due to not negotiating with their suppliers, excess scrap due to lack of quality & inefficient production processes. 
• Not meeting deadlines, nor delivering on time.
• False Promises, and asking for another extension in delivering products become the norm.
• Lack of transparency in their process, not sharing documentation, processes, or systems, nor willing to communicate what is happening with the parts, at what stage of the process they are. Most likely is because the company doesn’t have a plan in place, this is a red flag.
• The manufacturer does not solve the problems found in the quality inspection report, nor issues in their process or parts until it’s pointed out by us. This is another red flag about a supplier not caring enough about meeting specs.

It is more common what one might think when a supplier is not able to make the product according to your quality standards. Sometimes the machinery they utilize malfunctions, human errors occur, or merely the systems they have in place don’t suffice for meeting such specifications. Choosing the right manufacturer is paramount for the success of producing a product. More of is covered in our blog post “ 8 Most Valuable Tips for Finding the Best Sheet Metal, Rotational Molding & Injection Molding Companies in Mexico & China”

One of the problems with Chinese and Mexican suppliers is that they will take the first order at a steeply discounted price and after realizing that there is no profit at all, or that they are losing money, they will raise prices.

Producing in China or in Mexico can save you a lot of money when done right, make sure you continue reading this article which can help you as a guide, if you need any support don’t hesitate to reach out to us at Brecher Manufacturing.

Golden Nuggets
If your quality standards are above average, make sure you locate a supplier who understands them before you start production as mentioned in the previous point, you want to work with a company that aligns with your goals. Don’t leave anything out as obvious as it might seem. The key is to stipulate everything in advance, this is where SLAs (Service Level Agreements) come into play, which we’ll discuss further down.

Sourcing in Mexico or in China is, after all, an international transaction. Disputes are managed differently in those countries, before you make a payment, make sure you understand how to handle those situations regarding product quality or delivery. Otherwise, you are at the risk of losing your money and a considerable amount of time already invested.

7. Overestimating Profit: Unit Cost vs Landed Cost

The main concept to understand here is Unit cost vs Landed Cost.
When you quote a part you will get the cost per unit after accounting for producing the parts, maybe the supplier includes the mold or Tooling that will be used to manufacture the parts. However, Transportation (Freight Truck), Packaging, Expediting Fees, Air freight, Customs Fees, Administrative Fees, or any other cost associated with receiving the part in your warehouse is part of the Landed Cost. For parts coming from China, you’ll have to account for the Trump Tariff, along with some other costs pertaining to the containers waiting to be unloaded. 

For parts coming from Mexico or Canada, other fees will apply, just make sure you cross your T’s and dot your I’s before claiming one part to be “cheaper” than the other. We’ve seen an allocation of 200% extra cost in added costs to the Unit cost, oftentimes making a part coming from the US, Mexico or Canada cheaper once Landed Cost is calculated. 

Another consideration is the high cost of international transactions when using a bank, along with the cash flow due to payment terms with International Suppliers. Typically, once the relationship has been established, better terms can be negotiated, it can be hard at first to have not too favorable terms which can add a cost to your operation.

Golden Nugget

It’s expensive to ship goods across borders. Make sure you run your numbers and calculate your Unit Cost, but most importantly Landed Cost is what will give you the true cost per unit. Whether you are sourcing parts from China, Mexico, Canada, or the US, make sure you send full containers or trucks to maximize the utilization of Transportation and make the best bang for your buck.

Also, there is a cost Exchange rate and foreign transaction costs. They can increase costs significantly when managing a global supply chain, even with a slight change in a few cents. Perhaps the most critical advantage of global supply chain networks is the many chances to save money & mitigate risks of supply shortages.

8. Payment Terms: CashFlow

Cash flow management is a serious task in every business, but it’s a particularly complicated task in global supply chain management as not every supplier will agree to the same payment terms. Generally, suppliers in China have more favorable terms than Mexican suppliers where credits are not as easily given as in the US or China where the government subsidizes manufacturing operations.

For example, if you spend $25,000 on materials, you need to know how much it will cost from placing the order until selling that product to your customers. It takes time for the business cycle to be finalized and get to the customer’s hand. This process might include parts manufacturing, packaging (see the importance of it above), shipping to your warehouse or distribution center, storage (cost per sq ft), Distribution to the points of sale, customer acquisition cost, Marketing, Administrative costs, and more.

Golden Nuggets

We’ve seen products not moving forward or great cost reduction initiatives getting stuck due to not having the capital to invest in them. Don’t be over-optimistic thinking that things will just line up, plan ahead and create a detailed calendar of future expenses and take measures to ensure you’ll be able to make it through when the time comes. Avoid any warehousing charges should you not be able to pay for the second part of the order already placed.

9. Data management: Product or Part Drawings & 3D Files

I’ll start this point by asking the following:

1. Do you have a File Management System?
2. Do you know where all of your files are and are ready for access when needed?
3. Can anybody in your company know and access the most updated files or versions? 
4. Is everyone aware in your company and in your supply chain about the latest updates on new parts or products?
5. Do you have an NPI (New Product Introduction) process in place? If so, is clear for every stakeholder the cut-off period for the suppliers to start producing such parts?

If you answered yes to all of them, then you are doing the right thing, if not, there’s some work to do. 

When outsourcing Production is very common for the manufacturer to take care of an issue and not inform the Product Owner. This is not ill-intentioned, is just a very common practice, the same as not sharing those files. If you only have one supplier this might not cause a big operational issue, however, the problem becomes monumental when having more than one supplier producing for you. 

Golden Nuggets

• Having a File Management System can be as simple as standardizing a way of organizing files & folders. 
• Keep everyone informed at all times (Engineering & Sourcing/Procurement) about the latest changes or updates of the parts. You don’t want to continue producing outdated parts. 
• Develop an NPI process and consider Tooling costs when designing new parts or any changes to the parts. Is not the norm for Sheet Metal, often times the same Tooling could be used. For Injection Molding, Rotomolding & Thermoforming is a guarantee that any change to a part will require a mold change, make sure to have your files in order to avoid any unnecessary costs.
• It is not uncommon that companies that help you develop or improve a part won’t want to share the files, this is more common in China Manufacturers. Make sure YOU control and have access to the latest revisions to avoid a disruption in your Supply Chain with the most updated part.10. Time Zones
  

Times zones can also make communication challenging, particularly when working with China Suppliers where is not only a few hours difference but almost a day (~15 hours). For you to speak with someone from China you would have to either wake up very early or go to bed very late to engage in communications with China Manufacturers. 

Conversely, communication often happens via WeChat, over the phone, or email. In this situation, you’ll usually have to either work around the clock and burn yourself out or wait until the next day to receive an answer. For this matter, it comes in handy having boots & eyes on the ground like Brecher Manufacturing to ease this process. Otherwise, it can make it very challenging to oversee technical aspects of the production process, not to mention slower response times when dealing with Quality issues, new product introduction,s or any feedback which can harm your business.

For Mexico, Canada and US Manufacturers is only a 2-3 hours time difference, making it easier to exchange information. Mainly, when you are developing a product, this can be a huge advantage to have a shorter launching to market time. For instance, if you’re in Southern California (Riverside, CA, Los Angeles, or San Diego, CA) and you’re working with companies in Tijuana, BC, Mexico, or Ensenada, Mexico, Mexicali, or Tecate, the time difference is 0. If you work with a company in Queretaro, Monterrey, or Mexico City, the time difference will only be 2-3 hours making it a huge advantage over having a 17-hour difference when working with an Asian supplier.

Golden Nuggets

You might want to have someone who has tight connections and a direct relationship with the manufacturer/supplier whether you are producing in China, Mexico, Canada, or in the US. We suggest you set up company representatives like Brecher Manufacturing to manage these sorts of things in each country of the global supply chain.

11. Accountability and Compliance

Companies have to define clear ownership for every step of the way in their supply chain. Having defined roles will allow everyone involved to be on the lookout for what falls within their area of responsibility. Ownership thinking is not standard or common practice among all companies or suppliers. Some vendors will try to evade responsibility and put it all on anyone else. 

Furthermore, consider social compliance when sourcing in Mexico, China, Canada, the US, or anywhere else. Unfortunately, malpractices are still happening and unacceptable working conditions along with unfair compensation are just some of the unethical practices present in global supply chains. Taking into account that ethics & values have a wide spectrum and what can be seen as right for one person, may not be for some other. There are risks associated with these issues besides the ethical conflict: unfairly compensated workers, legal course of action, brand damage, shortage in your supply chain, and a lot of time going to waste after having to develop a new relationship with other suppliers should this go wrong. 

Golden Nuggets
Make sure that the Manufacturer aligns with your company culture, predominantly ownership thinking, where they will jump on the boat you are. You want a partner, a relationship, not merely a transactional one. The more you grow, your supplier does. Suppliers who understand this principle have grown dramatically, as it develops loyalty after watching each other back. Not every company in Mexico, China, Canada, or the US will align with your culture, sometimes the size of a company need to be taken into consideration as well, as how leadership treats their employees, etc.

Doing business with a company that is not complaint carries lots of risks as they could cease to operate at any given time by authorities, not to mention the social aspect. We’ve seen companies not paying their employees right and not abiding by the law, a big red flag is when a facility is unorganized, unclean and answers are not given easily. Be in the lookout for these traits which will help you vet out bad suppliers.

12. Conflict Resolution

It was mentioned above that when Quality is not met, or any other specification, whether is product related or not. Situations will arise which can bolster your relationship with the supplier if your culture is aligned as we explained in the previous point about ownership thinking. Now, even if your culture is aligned with them, if responsibilities are not clear and are not previously stated what is expected of each party. 

Then, conflict is most likely to occur as there are so many variables and things go wrong from the start which is processing a part until delivery. Case in point, the manufacturer has already shipped a part and some dents are noticed at Incoming Inspection in your warehouse. 

The supplier says they were damaged in transportation and they secured it in the packaging adequately. They insist they had nothing to do, parts could be replaced quickly at a cost, they won’t budge and allege it is not their responsibility what happens after the truck or container is loaded. What do you then? You need the parts and you end up using AirFreight if is a China Manufacturer costing you a few thousand just to get the parts. 

For a domestic supplier or a Mexican manufacturer, parts might arrive sooner and cheaper, but still, there’s a cost that will need to be covered by you.

The previous situation can be avoided by previously making clear who holds responsibility for as many situations as you can think of. The document used in Contract Manufacturing for high volume is called a Service Level Agreement, also known as SLA. It outlines expectations, clears out responsibilities, and seeks to avoid as many gray areas as possible. There is no standard SLA, sure, you can use some general characteristics, but they will vary from industry to industry, among suppliers, and it is basically an understanding from both parties that should any situations arise, everybody will know what to do and how to handle it. 

More than a contract is an agreement that helps build a good relationship as there are no misunderstandings or false expectations. Things won’t go according to plan, having agreements in place with your partners will help smooth any potential conflict as long as those situations were described there. 

We have negotiated better terms for our customers once there’s a relationship or trial period, once that trust is there, more favorable terms or provisions can be drafted in the Agreement. If you want to better protect your interests, just be cognizant that the manufacturer will look for their best interest as well. A too punitive Agreement might not help start a relationship on the right foot.

Golden Nuggets

Brecher Manufacturing has dealt with these scenarios more times than we can count and every time we are grateful we had Agreements in place for Contract Manufacturing. Protect your interests but be mindful about being fair, yes, you are a customer, but you also want to be reasonable while developing a partnership.

To give you an idea about what is typically included in well-written Agreements, the following provisions are described below:

• Agreement Duration
• Terms on First Articles, Samples, Production Lead Time, Transportation, Quality Assurance/Control/Management, Price, Payment terms.
• Definition of quality and specifications outline. 
• Shipping terms
• Defective parts are response time and financial responsibility, where one starts and the other ends. 
• Parties involved
• Liability for breaching the contract
• Dispute/Arbitration resolution: Where and how it would be solved
• Who will be covering Attorneys’ fees should there be a dispute due to agreement infringement (We strongly advise you to be cognizant of this one as mentioned above regarding punitive clauses not being too nurturing for new relationships in particular)13. Lack of understanding of the Law of the Country you are Outsourcing your Production needs

This point is more related to having peace of mind, than really being an operational pointer, at least until knowing the law is needed should a dispute arise. When crafting a Service Level Agreement (SLA) we strongly suggest you do some research about the laws in that country and better yet, get legal advice. 

Not too long ago it was brought to us a dispute where a Sheet Metal Company in Tijuana, Mexico canceled the order to one of our customers in Riverside, CA. What do you do at that point? What How do you go from there? Who gets to keep what? The Manufacturer claimed that there was no pending item to be delivered whereas our customer thought otherwise. 

It was an interesting case as no SLA was in place the best way to do that is face to face in the spirit of looking for a resolution. Yes, there are legal ways to proceed which was  I know what you might be thinking, if it had happened in the US, you could’ve solved it in small claims, or maybe to the Business Bureau (BBB). Similar in Mexico, PROFECO would be equivalent to BBB and certain procedures need to be taken into consideration when facing that kind of dispute. 

Golden Nuggets

Better is to avoid all that hassle and do things right from the get-go (learn about the country’s laws and culture before outsourcing). You should understand that the legal structure and enforcement options in China, Mexico, Canada, and other Southeast Asian countries are different than in the U.S.

14. Supplier vetting/Due diligence- Trial and error

Inadequate Due Diligence Performed on Suppliers can bring you a lot of disruptions to your supply pipeline and become a real nightmare for your business also it also causes liabilities of many kinds to your company.

Many companies fail to perform adequate due diligence and end up delaying the timeline for critical projects in Sheet Metal, Rotomolding, Injection Molding, CNC Machining or Rapid Prototyping.

Golden Nuggets

The following is a list of aspects to consider when performing due diligence on manufacturing companies in Mexico, China, Canada, or in the US:

• Check their website- Where are they located, is leadership visible/approachable? 
• Check their social networks- Are they active? What they post about or what they describe there is related to your project?
• Online reviews. This one is a practice more common for US Manufacturers, for suppliers in Mexico & China might not be a manufacturer’s directory available, just ask for referrals or request the email of someone they’ve worked for in the past.
• Get on the phone. Evaluate from the moment they pick up the phone, Are they knowledgeable? Are they helpful? Friendly?
• For Manufacturing companies in Mexico, they should have an RFC which is the identification form of a business or a person. 
• Regarding a China Manufacturer, ask the supplier for a copy of its business license to make sure the company is legitimate. Suppliers that refuse or are unable to provide their business licenses are probably not worth your time. Verify the local AIC (Administration for Industry and Commerce ) for the supplier’s local registration. Be aware that the information on the local AICs may not be always up-to-date, and all the information is in Chinese, it’s not the only way to check, but definitely, it’s worth looking into.
• Meet face-to-face with potential suppliers. You could go the extra mile to visit a few selected suppliers yourself & we highly suggest doing a video call before even heading out there. When you talk to your potential suppliers face to face, you can often get a better sense of who they are as a person as well as assess whether they would be a good fit for your project & company culture. During the on-site meeting, you can ask questions & inspect their Quality Assurance systems, organization, cleanliness, facilities, production capacity, the inspection process, prototyping capacity, and other important business aspects such as warehousing/storage capacity, transportation accessibility, and much more.
• Hire a Sourcing company. Sourcing companies can assist you in vetting manufacturers, make sure they already have vast experience doing it, like Brecher Manufacturing.

• Geographic location. 
• Production capacity. Based on your forecast, determine whether or not the manufacturer would be able to fulfill the orders. If the supplier is too small, it may not be able to ship your products on time. If the supplier is too big, most likely you won’t catch their eye.
• Quality standards. What is your expectation of the quality control and inspection process from a supplier?
• Price range. What is the price range you are willing to deviate from for the products you are sourcing?.
• Technology and communication capabilities. What is the level of communication & technology of that supplier? You have to weigh out the options by running a risk-benefit analysis against their capabilities.

If you are placing a small order with a large company, you should assume that your order will be delayed because your production will only start when there is a gap between their large orders.

The same is true if your order is more complex than is usual for a normal production run.

15. Exposure to risk due to Political policies and regulations

Companies have very little control over these factors, but there is some risk mitigation that can be done by researching the country’s political scene. For companies only producing in 1 country, there is a higher risk, for disruptions in their supply chain. Companies producing in multiple countries add a lot more complexity to their supply chain, but also more reliability in the long run. What’s more, global supply chains are exposed to risks that local supply chains aren’t, such as international policy changes. Always hope for the best and prepare for the worst.

Having a plan B, C, D, n always comes in handy. Set up agreements with suppliers, manufacturers, and Transportation companies in multiple regions to fall back on.

Golden Nuggets

The key benefits of having a global supply chain network are shown below:

• Allows you to grow your company in a more sustainable way with more resiliency. 
• Pricing advantages, leveraging resources & cost structures.
• More sourcing options, materials, and capabilities are not available as much in some other countries.
• Lower labor costs and lower fixed/variable costs.

So tell me, what challenges have you faced setting up a new supply chain?, and how do you handle them effectively?

Brecher Mfg is your Manufacturing source for Rotomolding, Injection Molding, Sheet Metal Fabrication, Rapid Prototyping & CNC Machining. We specialize in Mexico, China, US & Canada Sourcing being able to provide options the best out of each country and assuring Quality, On-time-delivery & reliability. Based in Riverside, CA with more than 35 years of experience.

At Brecher Manufacturing we have extensive knowledge across virtually all industries.

Throughout the years we have gained a strong network of suppliers who we proudly can call our business Partners. We aim to develop long-term relationships based on trust, transparency, and business integrity.

By now, you may have realized that there are so many things that could go wrong, hopefully, you are taking notes, if not, feel free to refer to this article when you need it. 

We are experts in Rotomolding (Rotational Molding), Injection Molding, Sheet Metal Fabrication, Urethane Casting, Rapid Prototyping, and CNC Machining.

We can provide you with a wide selection of quality products at competitive prices. Brecher Manufacturing is able to provide the best possible service for our clients in Tijuana, Mexicali, San Diego, Los Angeles, Mexico, Canada, the United States (US), or wherever they are since we deliver globally. Our experienced team is able to work with you to create a customized solution for your manufacturing needs.

If you’re looking for the following, then Brecher Manufacturing can meet your sourcing needs:

Rotomolding Companies in California
Rotomolding Companies in Tijuana Mexico
Rotomolding Companies in Mexico
Rotomolding Companies in China
Rotomolding Companies in Riverside California
Rotomolding Companies in San Diego California
Rotomolding Companies in Los Angeles California
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Rapid Prototyping Companies in San Diego CA
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CNC Machining Companies in Tijuana Mexico
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Mexico Sourcing
China Sourcing
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