What terms should I include with my factory for my tooling and product mft'g for a hardware product?

JP Stoops Founder & CEO at Stealth Mode Startup Company

June 23rd, 2016

I've got the retail demand and am about to move forward with my factory in Asia to do the tooling for my first product. I'm likely to specify things like:

- Payment terms: _% Deposit, _% upon 1st Shot, __% Upon Production of approved sample
- Tool/ mold location and Ownership (buyer owns). Tool/ mold/ jigs subject to be moved at Buyer discretion at any time.
- Number of lifetime shots (they quoted 500,000). Factory shall perform all maintenance and/or replacement to meet this number.
- General expectations that the tool be made of quality steel and will confirm and manufacture a product to the engineering designs and approved prototype. Mold accessories shall fit and function as designed and specified
- Right to engage 3rd party inspectors at any notice including during tooling, pre-production, production and post production. If tool or product fails quality expectations based on pre-approved samples, factory shall immediately fix the problem and pay for the cost of the inspector and future visit of the inspector to ensure the problem is fixed.
- Supplier will not market or sell buyer's product or similar variations (including excess stock and defects) to any other individuals or companies in China or any overseas country.
- Buyer's product is not to be shows at supplier's website, sample room, brochures, trade shows and other marketing activities without prior written notice.

Specific to Manufacturing:

- Must pass all applicable safety testing requirements (will list out)
- AQL (acceptance quality limits). In the event product is discovered to be defective and a retailer reports anything over 4%(?) defectives, factory shall be responsible for the cost to destroy each unit including.
- Product should be of high quality similar to (name similar brand)
- Raw Materials shall be purchased immediately in order to hit the agreed ship date

What am I missing? What Penalties can i put in and how can I enforce them?

I've got an NDA in place. I'm likely to send this in the form of a PO so it's more of a contract. Does anyone have an example?
Thanks!
JP

Steve Owens Startup Expert

June 24th, 2016

If you send me an email, I can send you the template we use.

David Austin Relentless problem solver and innovator.

June 23rd, 2016

Replace all your subjective and relative specifications ("high quality", "quality steel", "similar variations", etc) with objective quantified specs. Need detail on 1st article inspection criteria and expected values and tolerances. Don't say "right to 3rd party inspectors". Tell them you will be doing both 3rd party and 1st person inspections, and then do what you can to make it happen (give them requested dates for each step along the way). No offense, but if I were an Asian company looking at this I'd say "okay guys ... wing it". I recommend consulting with an engineer who's worked with Asian manufacturing, or at least done lots of RFQs locally both for fixed and T&M, possible bid conferencing experience, who can help cinch up your specs to something both professional and reasonable and provide a package where they will look at it and say "this guy's done this before and has manufacturing expertise and has high expectations". Having tight, specific but reasonable tolerances (dimensions, surface quality, strength, toughness, durometer values, materials, etc) will be a big part of that. As for quality, there must be a go / no-go test ... for the prototype if there is one, done at the 1st article inspection, and again for 1/x parts with specific criteria that must be passed. Penalties are tricky. I wouldn't get into details on that just yet. I would speak in terms of incentives to have it being done within specific time specifications, which is code for penalties if they don't. Be flexible, but also be professional and give them a nice RFQ package. There are lots of RFQ examples on the net ... do a search and find one that fits and also gives the impression that you've done this before.

Laura Tunberg Business and Legal Affairs Consultant at Black Ink Buisness Services LLC

June 23rd, 2016

Happy to advise- reach out privately.
Thx-
Laura

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