How to Assess Risk in Manufacturing

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By the time most manufacturers request quotes from a manufacturing partner, they’ve already identified their final contenders. They might have started with a list of about 20 candidates, and then disqualified the majority of them for a variety of reasons. This is efficient in the sense that the list of potential manufacturers has become more manageable.

Being quick and decisive can save time, but from a risk mitigation standpoint, making too many decisions too soon can have negative repercussions. Rather than involving a manufacturing partner early in the buying process, manufacturers approach potential partners after major decisions have already been made; many of which won’t produce the best results.

If a manufacturing partner isn't included in a project from the beginning, the client misses out on the
opportunity to include any expertise or knowledge that they may be able to contribute.

Asking the Right Questions is Crucial
Many clients will approach a manufacturer thinking they’ve already covered their bases, but this is usually
not the case.

Sometimes, key decision makers are heavily focused on choosing the option with the lowest upfront
cost, but they often end up paying more in the long run due to hidden costs and strategic oversights. By
consulting a manufacturing partner early on, engineers can analyze the potential hidden costs, risks and
other concerns that company leadership might not be considering.

“Because we’ve managed so many OEM projects, we can identify risks and potential setbacks
that the customer either didn’t consider enough, or didn’t consider at all. Our sales team will
walk the client back through those initial planning stages to ensure their evaluations include
all variables and risk factors and are in line with their best interests.”
Jean Horvath GM of Custom and Speciality products at Vollrath Manufacturing Services

Here are some of the most important questions that customers need to address before delving too deep
into the project.

What’s Our Total Cost of Ownership?

Companies that offshore their products often face a 20 to 30 percent miscalculation of actual offshoring
costs, according to The Reshoring Initiative®. What seems like a smart, cost-effective decision can
backfire in the form of exponentially higher transportation costs, inventory costs, slow lead times,
language barriers, cultural differences, political instability and tariffs. The more that customers try to
lower that initial price tag without looking at the big-picture implications, the more likely they are to widen
the gap between the initial cost and the actual cost.

As experienced during the COVID-19 pandemic, companies need to consider how the global market can
impact total cost of ownership. COVID-19 hit some countries much harder than others, which inevitably
impacts a country’s ability to manufacture and transport products.

Companies also need to be acutely aware of inventory security. Events that might not heavily disrupt the
U.S., such as a hurricane, can be catastrophic in other nations. Manufacturers need to truly weigh
inventory risks and factor them into the total cost of ownership.

Is This Manufacturer Truly the Right Fit for Us?

Many manufacturers use a process of elimination to determine which manufacturers are worth the time
and effort of an RFQ. It’s not that the contenders are necessarily the right fit for the company, but rather,
there wasn’t enough reason to disqualify them

“Most of our projects are highly engineered with high design criteria and tight tolerances.
These are projects that typically stay domestic to begin with because they’re usually too
complex to send overseas. If you’ve been offshoring your products and are trying to bring
production back into the U.S., you need to be aware that certain manufacturers won’t be the
right fit. This is something we’re very upfront about during those initial conversations with
customers. But the problem is that they’ve already moved so far along in the process that by
the time they request a quote from us, they assume we’re the right fit for them. Or they might
not request a quote from us because they’ve already determined we’re not the
right fit. Either way, they’re made decisions that might not be accurate.”
Jean Horvath, GM of Custom and Speciality Products at Vollrath Manufacturing Services

Should We Single-Source or Dual-Source?

The decision to single- or dual-source is greatly affected by the current market, and fraught with
risk, which makes it a complicated question to answer.

“20 years ago, almost all manufacturers tried to dual-source products to mitigate risk. But over
the last couple decades, the risk of importing something from overseas has, in their minds,
really gone down — which has been true to a large degree. But now with a global pandemic
coupled with other supply chain disruptions like raw material shortages, soaring
transportation costs and clogged ports, the risk of single-sourcing products is infinitely
greater than before.”
Jean Horvath, GM of Custom and Specialty Products at Vollrath Manufacturing Services

Time will tell whether manufacturers will revert back to dual- or multi-sourcing or continue
single-sourcing with the hope that the pandemic is an isolated incident that most likely won’t
happen again.

Are We Choosing the Right Materials and Processes?

By the time manufacturers approach a potential manufacturing partner, many of them have already
determined which materials and processes they want to utilize. This becomes problematic when there’s a
disconnect between the customer's vision and the manufacturer’s understanding of what works and
what doesn’t.
An experienced and knowledgeable manufacturer can identify even the tiniest of nuances that will
impact the cost, quality and manufacturability of the product. This is a scenario that VMS runs into
frequently with its NPD projects.

“Clients will come to us saying they want a cheaper part and quickly spec carbon steel based
on the lower material starting price....Whereas if they start with stainless steel that provides
some of those rust inhibitor properties right out of the gate, they’ll end up saving money
because they won’t need to add in all those secondary operations to get the same result.”
Dan Blindauer, Regional Sales Manager at Vollrath Manufacturing Services

Even though the client thought they were making a smart business decision, the manufacturer knew
from experience that selecting material based on the product specifications and needs, rather than the
straight material costs, can save money in the long run.

Manufacturers that plan to offshore their products should also know that material specifications can vary
across the world. Clients might think that 304 stainless steel is the same everywhere, but it really matters
where you get it from and which class/family the steel belongs to. Even the slightest variation in specs
can impact the performance of the part or product.

The decision to offshore can seem like the logical one if you’re only looking at the initial price tag.
But manufacturers need to recognize the trickle effect that these decisions will have on the entire
project. The decision to offshore can influence material properties, which influences quality, which
influences costs, and so on.

Speaking With Manufacturers Early in the Process Saves Time, Money and Stress
VMS refers to the first phase of the buyer’s process as the “Learn & Confirm” phase. According to
Horvath, this is when manufacturers should be involving potential partners to help mitigate risk and
identify key project factors:

“We’re always happy to answer questions or help manufacturers without the hard sell. We can
assist with research and even recommend alternative manufacturers, technologies, materials
or processes to help ensure the customer doesn’t eliminate potential solutions or critical
considerations when defining the purchase and source criteria. This is arguably the most
crucial phase of the project, and it’s something we’re here to help with.”
Jean Horvath, GM of Custom and Speciality Products at Vollrath Manufacturing Services

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