What should I check before buying a contract (OEM) manufacturer?

A contract manufacturer makes parts or finished goods for other companies, often under their brand. That shapes what you are really buying. Customer relationships and approvals are worth examining as closely as the building. The general manufacturing checks still apply. This page covers the questions that matter most when the customers are other businesses that hold a lot of power over the plant.

Who owns the tooling

Moulds, dies, jigs and fixtures are expensive, and customers often own them even though they sit on the shop floor. Ask for a list of every tool and who holds title. Ownership depends on the contract, so confirm it with your lawyer. Match the list against the equipment the seller says is included in the sale, and ask your lawyer how ownership is documented.

Approved-supplier status

Many customers qualify a supplier through audits, certifications and sample approvals. Ask whether a change in ownership triggers a fresh review, who at each customer decides, and how long it has taken in the past. A buyer who meets key customers before closing, with the seller’s consent, can hear first-hand what the documents do not show.

Contract terms and customer reliance

Read each supply agreement for change-of-control wording, termination rights and price-down or rebate terms that squeeze margins over time. Then look at the customer list. If a couple of customers carry most of the volume, losing one changes the business. Our page on supplier concentration risk explains the idea from the supplier side.

• A tooling list with the owner of each item.
• Current approvals, audits and certifications.
• Every supply agreement, with amendments.
• Sales by customer over several years.