Working with a Contract Manufacturer? 7 Key Elements for Your Next Manufacturing Agreement

Would you marry your spouse BEFORE going on your first date? Probably not! In the business world, a contract manufacturing agreement is the equivalent of a marriage certificate. If you sign one without first going on several dates with your partner, you could get yourself into a bad relationship that is hard to break.

Here are some essential dating questions that you should have your prospective partner answer before you think about getting a ring:

• Are you capable of protecting my company’s intellectual property?
• Will all factors of your pricing be transparent?
• Is your organization financially stable and capable of meeting my demand?
• Can you provide novel solutions to common problems that I may experience?
• To what extent do you employ lean manufacturing processes?
• What do past clients have to say about you?

As with any dating couple, transparency is key at this stage. When you get the answers to these questions, you should also expect to receive some supporting evidence. Once you determine that you want to move beyond dating, it is time to consider the marriage certificate, or in this case the Contract Manufacturing Agreement (CMA).

The pillars for maintaining a healthy relationship include communication, consistency and accountability. To achieve this with a contract manufacturer will require regular check-ins and a clear process for identifying, reporting and resolving issues quickly.

To ensure that you set up a good marriage, ensure that your CMA contains these 7 key elements:

1. Non-disclosure Agreements (NDA): Prevent your soon-to-be spouse from spilling your secrets to those that come after you. Apple, for example, will always include an NDA in its contracts with third-party manufacturers to ensure that they have the element of surprise when revealing their latest products. If Apple makes this a standard part of their agreements, then you should too!
2. Licensing Agreements: Without a licensing agreement, the contract manufacturer cannot legally manufacture a product. The licensing agreement is a crucial part of the CMA as it protects the contract manufacturer from receiving a lawsuit for trademark infringement.
3. Purchase Orders (POs): You can establish specific terms of the transaction with the contract manufacturers through individual POs.
4. Quality Standards: To ensure that the contract manufacturer maintains high-quality products and services, include stipulations related to quality standards. This saves time and effort in the long run and reduces the possibility of receiving sub-par products.
5. Supply Chain Agreements (SCA): If your product requires further processing steps beyond a particular contract manufacturer, the CMA should include an SCA, which will improve efficiency and enable communication throughout the production process.
6. Essential Processes: Oftentimes, contract manufacturers produce goods that go into various industries. To ensure that your contract manufacturer understands your products and commercial market, the CMA should define the terms for key processes including delivery, lead times, invoicing, and payment. Outlining the processes and defining the terms ahead of time will help to avoid headaches and frustration on both sides.
7. Termination Clauses: This by far is the most important element of the CMA. To prevent a messy divorce, the CMA should address what happens when the relationship ends. The CMA should directly outline the circumstances in which the contract can be terminated (ie breach of the agreement or insolvency), and what happens to patents and intellectual property.

Before you start a CMA, you can review example manufacturing agreements to get a full view of their features to ensure your chance of success. Don’t let the price from your contract manufacture be the only determining factor for your decision to work with them.

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References for this article: Intran; Upcounsel; Thomas Net.

FAQ’s

Q. What is the purpose of a Non-disclosure Agreement (NDA) in a contract manufacturing agreement?
Ans. An NDA is included to protect your company’s intellectual property and prevent the contract manufacturer from disclosing your proprietary information to others.

Q. Why is a Licensing Agreement important in a contract manufacturing agreement?
Ans. A Licensing Agreement ensures that the contract manufacturer has the legal right to manufacture your product without infringing on any trademarks or intellectual property rights.

Q. What role do Purchase Orders (POs) play in a contract manufacturing agreement?
Ans. POs establish specific terms and conditions for each transaction between you and the contract manufacturer, including pricing, quantities, delivery schedules, and other relevant details.

Q. Why are Quality Standards included in a contract manufacturing agreement?
Ans. Including quality standards ensures that the contract manufacturer maintains high-quality products and services, reducing the risk of receiving sub-par products and saving time in the long run.

Q. What is the purpose of a Supply Chain Agreement (SCA) in a contract manufacturing agreement?
Ans. An SCA is crucial if your product requires additional processing steps beyond the contract manufacturer. It helps improve efficiency, facilitates communication, and ensures a smooth production process.

Q. Why should essential processes be defined in a contract manufacturing agreement?
Ans. Defining key processes such as delivery, lead times, invoicing, and payment terms in the agreement helps both parties avoid confusion, delays, and frustration throughout the manufacturing process.

Q. Why are Termination Clauses important in a contract manufacturing agreement?
Ans. Termination Clauses outline the circumstances in which the contract can be terminated, such as a breach of the agreement or insolvency. They also address the fate of patents and intellectual property upon termination, preventing complications and ensuring a smooth transition if the relationship ends.

Limited Marketing Budget? Here are 3 Secrets for Small and Medium Manufacturing Companies to Increase

So how did we increase the revenues for the flagship product of a small Midwest manufacturing firm by nearly 3x within 19 months without spending any money on external advertising? You might be tempted to guess we found a new “viral” web-marketing strategy, but in fact, we did not even use the internet. We focused on distributors.

Revenue growth is a company’s life blood. However, successful revenue growth often comes with increased advertising expenditures. In the article below, we will give you 3 secrets to grow revenues without spending more money on external advertising.

#1. Study the distributors of your competitors.

Getting one new distributor can dramatically improve your business! Distributors are the fastest way to increase sales without significant effort. Depending on your industry, the competition for distributors can be fierce. Among those distributors, the competition can be especially ferocious. Some of them might be seeking ways to differentiate themselves from the crowd. You can grow your revenues by identifying the distributors that fall into this category and working with them to tailor a solution that will help them separate themselves from competitors in their market.

#2. Build a regular communication channel with your distributors.

Every relationship needs nourishment for success. Among the distributors that you already have, taking the time to get to know them and their markets better can dramatically impact your business. Schedule regular calls and visits to ensure you get a pulse for their business and how your products can best serve them. You might want to also provide regular product demonstrations as their staff turns over or generate updated marketing materials to help them drive the sales of your products over other similar offerings that they retail.

#3. Do NOT publish your distributors list.

It’s nice to be able to tell your prospective customers where they can get your products… but why would you want to tell your competitors where YOU SELL your products? Tell your prospective customers that your products are available through distributors and they should contact you for the nearest location. Offering upfront information about your distributors is like opening up your store and replacing the price tag with a “FREE” sign!

To learn more and stay abreast of our latest news and receive more helpful tips, subscribe to our blog. To help businesses through the current COVID-19 crisis, we are extending the 30-min free strategy session with August Brown to 1-hr through July.

Copyright 2020 August Brown, LLC

Break the Assumptions and Break into New Innovations

Before your team gets started on a new project, what are the routines that you undergo to ensure that you have considered varying avenues of innovation for the project? Is there a routine? Is it left up to individuals to think through and structure their projects by themselves? Is there room for feedback?

One of the areas that we have regularly dealt with at August Brown is the unintended stymying of innovation by a lack of registered processes that encourage thoughtful contributions from multiple angles. Business strategist Teri Giannetti, in the book, It’s All About the How, not only stresses the importance of the process but HOW you actually execute the process. We want to introduce one of the tools that August Brown teams regularly employ to help achieve breakthrough innovations as we take clients through the Tech Translation framework.

Assumption Storming resembles brainstorming in that one develops new ideas around a specific topic. The main difference, however, is that instead of coming up with new ideas to address an issue, the team comes up with the assumptions around a specific product, function, process, application, service, or even revenue streams.

After the specific objective is defined, ensure that you have a mix of people from different areas of your organization in order to contribute to the diversity of ideas. As a first step, the team catalogs all of the assumptions associated with the particular target on note cards or Post-it Notes. Once the team captures all of the assumptions, each assumption is placed on a chart based on its impact or risk factor. Now the fun begins! From here, the team will work to BREAK EACH ASSUMPTION and catalog the corresponding solution(s) from breaking the assumption.

For best results, teams should incorporate the Assumption Storming exercise into their standard routine at the start of projects or at anytime the project reaches critical milestones. We can almost guarantee that your team will walk itself into new areas of innovation by regularly including Assumption Storming as part of your in-house ideation process.

If you want to learn more about Assumption Storming, August Brown will be offering A FREE webinar that will teach the basics of Assumption Storming and offer practical examples to members of its private Facebook group in September 2019. If you are interested in the private Facebook group or attending the webinar please click here and we will notify you of the event details.

Copyright 2020 August Brown, LLC

“Shoot the Laggard”: 4 Steps to Improve the Outcome of R&D Spend and Achieve Good Market Placement

Recently, one of our clients said to us: “We’ve spent $8M in R&D over the last several years towards the development of this technology. You [August Brown] need to make it work in the market. We have spent too much money to give up on it.”

Unfortunately, despite the amount of money the client had spent, the technology didn’t perform at the level needed to achieve market adoption. At this point, no amount of tech translation, new marketing tactics or better sales techniques were going to change the outcome for the technology—it simply did not meet minimum performance requirements.

By the time the client contacted August Brown, they had already invested their money into the R&D project. Had they involved our firm earlier in their R&D process, they would have saved a lot of money and time. And while we knew ending this project would be bad for our consulting firm’s bottom line, we stayed true and told the client what they needed to hear: “Shoot the laggard.”

Principles of Tech Translation

Many technology companies often fall into the same trap as this client—pushing themselves to go to market with a technically inferior product due to any of the following: (a) a perceived or arbitrary deadline for a product launch, (b) a minimum viable product that misses the technical requirements, (c) a budget shortfall, (d) egos, (e) you name it! The outcome of a move towards the market with a product that’s not fully be ready can be catastrophic, both financially and to the firm’s reputation.

There are a number of processes companies can implement to reduce failure rates resulting from a pre-mature market launch and to avoid excessive spending in product development. Here are four proven, reliable steps from August Brown’s Tech Translation Framework that you can use to improve the outcome of your R&D spend and achieve good market placement:

1. After product conceptualization, conduct a market placement activity with your team. This involves a series of assumption-storming and lateral-thinking exercises that enable your team to achieve a 360 degree view of the technology/product and to develop various formats for implementation and pain point solutions.
2. Calculate the market size to confirm the total available market and the level of sales capture required for a return on investment.
3. Establish technical milestones and associated budget levels to overcome technical gaps for the requirements set by a minimum viable product.
4. Conduct an independent test of the product embedded in real-world simulations prior to the explicit commercial launch activities.

While there are many processes that technology companies use to guard against failure, the above steps provide a strong framework for maximizing R&D spend and outcomes in the market.

Are you looking for more information on improving the returns from your R&D spend? Do you have an aging IP portfolio that hasn’t returned the investment? Contact us for a free strategy session—and avoid the painful situation of having to “shoot the laggard.”

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