5 Golden Rules for Finding Your Perfect Contract Manufacturer

You're sitting in a conference room, waiting for your contract manufacturer's account team to show up. They're late. Again. This is the third delay this month, and your product launch is less than two weeks away. As your frustration builds, you can't help but wonder if this partnership was a mistake. In this article, we'll reveal five critical rules that could have prevented this situation—and show you how to avoid it in the future by choosing the right-size manufacturer for your business.

The Allure of Tier-1 EMS Providers

This is so very common. An Original Equipment Manufacturer (OEM) gets starry-eyed when a large, tier-1 Electronics Manufacturing Services (EMS) provider like Flex or Foxconn expresses interest in their business. It's understandable, working with a global player with vast resources, advanced technologies, and high-volume production capabilities can feel like a dream come true for supply chain managers at small to mid-sized companies.

OEMs often assume that the prestige and capabilities of such a giant will translate into better service, innovation, and partnership. Top-tier EMS companies are truly amazing and are capable of astonishing things. But these large EMS providers are designed to handle high-volume, repeatable production runs for major corporations. The truth is that if you're too small for these giants, you'll likely struggle to get the attention and responsiveness you need.

Top-tier EMS providers often bring on lower-volume or less desirable customers during periods of slow demand to fill capacity. However, when their high-priority clients ramp up orders, smaller customers are left in the dust. Inattention, delayed lead times, and poor communication become common as resources are redirected to larger, more lucrative customers. Essentially, these smaller OEMs become "filler" businesses, brought on during slow periods but quickly sidelined when more profitable opportunities arise.

The risk of partnering with a top-tier EMS is that the drop-off in attention can be dramatic. What started as a promising partnership can quickly devolve into a struggle for resources. Your lead times might get pushed back, and your account team may become less responsive. Worse yet, if you depend on this large EMS for critical production, you could face supply chain disruptions at the worst possible time, like during a product launch or key growth phase.

Sound familiar? Let's talk about how to avoid it.

1. Be at Least 10% of the Plant's Revenue

This is perhaps the most crucial rule. To get the attention and dedication you need from a contract manufacturer, your business should make up about 10% of the plant's revenue. If you're less than 5%, it's unlikely you'll get prioritized. The important nuance here is that this 10% figure applies to the specific plant producing your products—not the entire company. For example, if you're spending $30 million with a $10 billion CM, it works if the plant building for you does around $300 million in annual revenue. Being a significant customer at the plant level ensures you're important to that plant's management, which translates to better service and support.

Actionable Tip: Start small, if necessary, but aim to scale your spending to that 10% target within the first year to solidify your importance.

2. Be No More Than 50% of the Plant's Revenue

While being important is essential, don't create risk by becoming more than 50% of a plant's revenue. If you account for such a large portion of their business, you risk instability. For example, a downturn in your demand could lead to staff cuts, erasing key knowledge and slowing their response when you ramp up again. You want a contract manufacturer that is stable enough to withstand fluctuations in your business without adversely affecting you.

Example: If your orders dip and the CM is forced to downsize, they may lose valuable personnel familiar with your product (aka tribal knowledge). When your demand increases again, they might be too slow to respond due to the need to rehire and retrain.

Actionable Tip: Ensure your spending stays below the 50% threshold to avoid this potential instability. Diversifying your production across multiple sites at the CM can also be a helpful strategy.

3. Meet the Plant Manager

A simple but effective test of your importance to the CM is whether you are offered a meeting with the plant manager. If your potential spend is below 5% of the plant's revenue, it's unlikely they'll take the time to meet with you. This rule is useful not just during your initial search but also when evaluating your ongoing relationship with a supplier. If you're not able to regularly engage with senior leadership at the plant, it may be a sign that your business is not a priority.

Actionable Tip: Always ask for face time with the plant manager when touring facilities. Gauge their interest and enthusiasm for your project as a sign of how their employees will treat your business.

4. Understand SMT Line Output: $1 Million Per Month Per SMT Line

While this rule may not be precise, it's still a helpful reference point for estimating a plant's revenue and your potential importance to them. Typically, a high-mix, low-volume plant with surface-mount technology (SMT) lines aim for around $1 million in monthly revenue per line per shift. A facility with two SMT lines running one shift may have a target of $25 million in annual revenue. If they tell you they are operating at 50 percent utilization, you can infer they're bringing in about $12.5 million annually. To command significant attention at such a facility, your annual spending should be around $1 million.

Actionable Tip: When evaluating potential CMs, you can ask for their SMT line utilization, but this is both a difficult number to understand and a marketing trap, so they will usually say 40%. A better practice is to visit the SMT lines yourself and judge the 'bustle.' If lots of employees are hustling around, figure the SMT line(s) are closer to $1 million/month. If the space feels underutilized and the employees are moving slowly, figure closer to $500k/month. If the place just feels empty, figure closer to $100k/month. Use this information to gauge where your business would fall in terms of their revenue. 

5. Be Honest About Your Spending Potential

Honesty is critical in building a lasting partnership. Misleading a contract manufacturer about your potential spending can set unrealistic expectations and lead to future issues, especially if you're sourcing the same product from multiple suppliers. For example, claiming you'll spend $10 million when you're only planning for $100,000 could cause them to overcommit resources, resulting in frustration and possible relationship breakdown when actual numbers don't materialize.

Actionable Tip: Always present your spending potential realistically and provide clear forecasts. If business projections change significantly, be upfront about the reasons. CMs have seen it all a thousand times before and can just sense honesty, so don't be evasive.  

Warning Signs of a Not-So-Legit Manufacturer

While following the rules above will help you find a good match, it's also essential to recognize red flags that may indicate a questionable manufacturer. Avoid these common warning signs to protect your business from subpar service.

1. Lack of Proper Documentation

A trustworthy CM will have all the necessary certifications, licenses, and quality control documentation. If they're reluctant or unable to provide these, walk away. Key documents include ISO certifications, ISO manuals, training certifications, business licenses, and relevant compliance paperwork. Without these, there's no guarantee they meet industry standards. 

Actionable Tip: Always request documentation upfront and make sure it's up to date. Certify that they comply with all applicable laws and industry standards for your products. Do they have a full copy of IPC610 workmanship standards? You'd be surprised how many don't. Also check the stickers on all calibrated equipment, are they current?

2. Unusually Low Prices

Everyone wants to save money, but if a CM's prices are way below market average, it's probably too good to be true. Prices at CMs with similar equipment and capabilities in similar regions should fall within a 5% range plus or minus. Significantly lower pricing can often indicate incorrect materials costing, documentation misunderstandings, or an effort to 'buy the business' with the intention to raise prices later. Always cross-reference with other suppliers and investigate why the pricing is so far off the norm.

Actionable Tip: Use price comparison tools and ask for breakdowns of cost structures to understand how the pricing was derived.

3. Poor Communication

A lack of transparency and responsiveness can be a major red flag. A good contract manufacturer should maintain consistent communication and be quick to respond to queries. Frequent changes in contact points or vague answers to questions can signal deeper issues, like disorganization or operational problems, that could eventually impact your business.

Actionable Tip: During the vetting process, test their communication. Are they quick to respond? Do they provide clear answers? A lack of solid communication early on can lead to more significant problems down the line.

4. No Facility Tour

A legitimate manufacturer will always be open to facility tours. The rare legitimate exceptions are usually related to the exposure of proprietary customer information, particularly defense-related. If they refuse a tour, it could be a sign that they don't have the capabilities they claim or they're not compliant in some way. Visiting the facility allows you to verify their operations firsthand.

Actionable Tip: Insist on a facility tour before moving forward. If it's not possible to visit in person, arrange for a trusted third-party auditor to inspect the site on your behalf.

5. Poor Reputation

It's crucial to research the reputation of any CM before committing. If they won't disclose current customers (which is common and ok) then ask their suppliers, someone in distribution or manufacturers reps in their area will know them. It's a pretty big red flag if the people selling to them don't respect them.

Actionable Tip: Utilize resources like Better Business Bureau or Glassdoor to check for any red flags or negative feedback. Check credit rating with Dun & Bradstreet (D&B) and use your finance department to inquire about their trade references. 

When It's Time to Make the Change

You know the risks, and now you know the strategies to mitigate them. It's time to take better control of your supply chain and demand. Start today by reassessing your current manufacturing partnerships or searching for a new one that will treat your business with the priority and care it deserves. Your next move could determine the success of your company or your career—don't leave it to chance.