factory selection Manufacturing How To Select A Factory

How To Manage Your Contract Manufacturer Part 1: The Contract

on June 06, 2014

The following post is the fourth in a series of guest posts for GrabCAD.

How to Manage Your Contract Manufacturer

You’ve completed the RFQ process and you’ve selected your Contract Manufacturer (CM). You feel great about your choice; you’ve done your homework, you’ve met the management team and familiarized yourself with the people who will now become your own extended manufacturing team. You are now officially on the path to getting your product made.  Now you need to switch gears from picking the CM to managing them.  Here are the next steps:

Part 1: The Contract

The contract, also known as the Manufacturing Services Agreement (MSA), is a legal document spelling out the details of the arrangement with your CM. It is broken out into the following sections:

  • Manufacturing Services:
    • Defines who is responsible for doing what
    • Material Operations: Vendors, procurement, consigned materials
    • Subcontractor agreement
  • Forecasts and Purchase Orders:
    • Forecast planning
    • PO procedures, lead times, cancellation
  • Fees and Payment:
    • Pricing (what’s included/not – VAT, taxes, fees, etc.)
    • Margins/Markup (standard vs. consigned vs. “special”)
  • Shipments, Samples, Quality Testing:
    • Shipping requirements, schedule
    • Samples: quantity, timing, who pays
    • Quality Testing: Who does it, who pays for it, how it is done
    • How Epidemic failures will be dealt with
    • Audit: Record keeping
    • Final Inspection Procedure
  • Product Acceptance & Warranty:
    • You can return product that doesn’t meet the specified warranty
    • Warranties: Professionally made, original work, tested as specified, manufactured as specified.
    • Clearly spell out that you’re allowed to visit and audit at any time
  • Representations & Covenants:
    • This is a legal document, no conflicts of interest
    • Manufacturing in a safe environment, no child labor, ethical, etc.
  • Intellectual Property Ownership:
    • Definitions
    • Who owns what
  • Confidentiality:
    • Mutual Non-Disclosure Agreement
  • Term & Termination:
    • Defines the term of the agreement
    • How you terminate the agreement
  • Indemnification & Liability Limitation:
    • General protection for everyone involved & related procedures
  • Miscellaneous:
    • Terms of agreement, use of name
    • Successors / assignment – new agreement
    • Controlling law, jurisdiction, venue

Download Guide for Selecting a Factory

You should not be surprised if the CM pushes back on certain sections of the MSA as part of the negotiation process.  All CMs are different and will have different requirements but in general, take into consideration their position and find an agreement that’s fair for everyone. The MSA process typically takes two to four weeks to complete. Finally, while MSAs are legal documents and considered quite common, there are many permutations so we strongly recommend having legal representation.

Questions or feedback? Let us know.

Scott N. Miller

Scott has been fascinated with hardware since he was old enough to hold a screwdriver. He worked on a robotic tuna fish, life-size robotic dinosaurs for Disney Imagineering, and robotic baby dolls with Hasbro, before joining iRobot where he was responsible for leading the Roomba team to scale the functional prototype to high-volume production of the first three million units.

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