The unpredictability of the US tariff regime means that a lot of our clients, American and non-American, are scrambling to get out of China. It’s an understandable response to the current situation. We at MTG have, many times, recommended that companies explore their options outside of China.
Why You Should Not Trust Potential New Suppliers
The advice we provide here applies to companies all around the world. While different tactics are more common in certain regions than others, there are a few methods that we have seen over the years.
- Great Samples Terrible Products
It is a common practice for companies to put a lot of time in effort to produce perfect samples to get the business, yet these companies cannot scale to meet the volume or capacity or both when the orders start to come in. Sure, the manufacturer may have a good return policy, but it is not acceptable to have tons of scrap no matter how good the price.
- Saying They Can When They Can’t
Many factories will tell you that they can manufacture their product even when they can’t. There are a lot of reasons for that. Companies are hungry for business and usually would prefer not to turn down new revenue sources. It could be that it is culturally difficult for them to say “no”. My brother is a programmer and says this is often a challenge with companies from India. The company will say “Yes, we can do that” then months later admit that they do not know how to accomplish your objectives.
- Not Really a Manufacturer
We often see companies masquerading as manufacturers when they are in fact trading companies and source their products from a third party. That does not necessarily mean that the product is bad; however, it makes your supply chain opaquer. We have spoken before how a client found out that their supplier was a trader and that the product was manufactured in a location that did not meet the strict medical standards required.
- Hiding Their True Role
Finally, this is something we have seen more in North America. Companies will say that they provide a full solution but only supply final inspection/assembly with a foggy supply chain. Once you are locked in, prices often increase, and it is difficult to control quality.
How to Verify
Verification is a multi-step process. First, do some internet searching. Is there a website? Does the website have generic pictures? Use AI tools to search for the company. We have found that this is successful even in non-English companies. We were able to find a company in Thailand as part of our due diligence including its designation, size, and area of operation. It is not a perfect method, and you should expect to spend shifting through the results and verifying their source.
Next, there should be an on-site assessment of its capabilities. We recommend more in-depth to see if it is a well-run manufacturing operation. That does not necessarily mean that it is a fully automated shop. A factory can use a lot of manual operations and still be an excellent manufacturer.
While we recommend bringing in a manufacturing expert (MTG is quite good at this), there are a number of warning signs that it is not a high-quality location:
- Cleanliness
Factories should be clean. That means no trash, dirt, grime, spills, etc. Machinery should be free of dirt and built-up scrap. Cleaning is not just an aesthetic matter. Cleaning shows care and attention to detail. A clean factory is likely to have better operations as its machines will run more efficiently and effectively and there is less of a chance of injury.
- Orderliness
A well-managed manufacturing operation is orderly. There are clear directions for the flow of material, the location of parts, packaging, and people. Every workstation should have instructions and be organized to optimize the production activities. A bad is a lot of WIP (work-in-progress) spread throughout the facility.
- Downtime
You should not see workers waiting around. Every worker should be engaged in some value-added activity. The work should be predictable and steady. Workers waiting around is not as sign of laziness but rather of poor organization and planning.
These warning signs can be observed by anyone even without manufacturing expertise. What happens on the ground is just as, if not more, important than certifications and
You should perform due diligence on all suppliers. This was true in China and remains true even now as companies are looking to move out of China. It is a new frontier but don't forget the old lessons.
What can MTG do to help you improve your operations?
