13 Nov Key Questions to Ask Before Entering into a Manufacturing Agreement
Key Questions to Ask Before Entering into a Manufacturing Agreement
Blog post by Stefanie Crowley-Clough
14th November, 2023
Before choosing a manufacturer or entering into any sort of manufacturing agreement, it’s crucial to ask questions to ensure that both parties have a clear understanding of the terms, expectations, and responsibilities involved.
Over the years, I’ve had the privilege of working with manufacturers in both the food and beauty/medical industries. What I’ve learned is that the initial research and fundamental questions that need to be addressed are quite similar across most industries. However, I always recommend seeking guidance from a legal expert or a field-specific expert when making critical decisions in your business.
Here are some key questions to consider:
1. References and Past Performance
- What is your experience, and how long have you been operating in this industry?
- Can the manufacturer provide references from previous clients?
- What is their track record in terms of meeting deadlines and quality standards
2. Pricing and Payment Terms
- What is the pricing structure for the manufacturing services?
- Are there any hidden costs?
- Are there any volume discounts or bulk order incentives?
- What are the payment terms and schedule?
3. Quality Control and Standards:
- What Quality Assurance (QA) or Quality Control (QC) systems do you have in place?
- Are there specific quality standards or certifications that need to be met?
- How will product defects and deviations from specifications be handled?
- Are there any regulatory or compliance requirements that need to be met?
- Who is responsible for ensuring compliance?
4. Do you own your machinery and factory, or do you outsource the work?
5. Production Capacity and Lead Times
- What is your production capacity?
- What are your estimated lead times for production and delivery?
- Can you walk us through your process?
- How will production delays be addressed
6. Intellectual Property Rights
- Who owns the intellectual property rights for the product?
- Are there any licensing or royalty arrangements?
7. Confidentiality and Non-Disclosure.
- What measures are in place to protect confidential information?
- Do you have non-disclosure agreement (NDA)?
8. Environmental and sustainability practices
- Can you provide information about your environmental and sustainability practices?
- What is your contingency plan in case of unexpected disruptions (e.g., supply chain issues, natural disasters)?
9. Order Quantities.
- Are there minimum or maximum order requirements?
10. Cancellation and Termination
- What are the terms for cancelling or terminating the agreement?
- Are there any penalties for early termination, for both parties?
11. Shipping and Delivery.
- Who is responsible for shipping and logistics?
- What are the shipping terms (e.g., FOB, CIF)?
12. Warranty and Returns
- What is the warranty policy for the manufactured products?
- How are returns and defective products handled?
- What insurance coverage does each party have, and who is responsible for what?
14. Dispute Resolution
- How will disputes between the parties be resolved (mediation, arbitration, litigation)?
- Is there a jurisdiction specified for legal matters?
15. Communication and Reporting
- What is the communication protocol between the parties?
- How often will progress reports be provided?
16. Change Orders:
- How will changes to the product or production process be managed?
- What is the process for approving change orders?
17. Insurance and Liability
These questions serve as a launchpad for manufacturing agreement discussions. Carefully document the answers and negotiate terms to protect both parties. Consult legal and industry experts for a comprehensive, legally sound agreement.
*Liability is a big one. Manufacturers may attempt to shift liability away from themselves. Ensure clarity on responsibility for defects, damages, or other issues.
- How do you handle liability issues in our partnership?
- Force Majeure: What happens if unforeseen events or circumstances (force majeure) affect production?
18. Exit Strategy
- What is the plan for transitioning production to another manufacturer if necessary?
I’m Stef, after spearheading a few start-ups, I’m here to share my small-business start-up insights.
Through my experiences, I hope to inspire others to bring their business ideas to life.
My credentials? I’m the brains behind “Don’t Dairy” and boast over a decade of expertise encompassing traditional and digital marketing, brand management, product development, and ‘starting’ start-ups
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