Businesses may want to do a production transfer for various reasons, including reducing costs, improving quality, or even avoiding tariffs. The transfer process has steps that should be followed, so here’s how we tackle it for our customers so you have an idea of what success looks like and the challenges you may face (with a focus only on assembly operations).
Setting The Scene For A Production Transfer
Here’s an example to set the scene.
- A customer wants to transfer assembly operations to us at Agilian from another manufacturer.
- That production was already running in another factory, and the product is already selling.
- The assembly work is of average complexity and the volumes are not very high at the start.
- They provided us with some documentation about the method to put the parts together, but it’s not very complete.
- We gave an initial quotation based on a video of the current process.
- We really need to study the parts and do the assembly by ourselves, devising ways to improve it, confirming there are no issues, etc.
As you will see in this example, it is about a relatively simple product, to be made in the thousands, and transferred from a factory that is in the same country. A more complicated product assembly job, with expectations of higher volumes, would require much more in-depth work. And a transfer to another country takes many more steps!
The Production Transfer Process
Transferring production includes these steps:
1. Initial Evaluation: Understanding the Assembly Process
When starting a production transfer, the new manufacturer needs to become familiar with the product’s assembly process and identify potential challenges.
(You may have done this during the product development process, especially if you did a feasibility study and/or DFM review. If so, it is best if you give your new manufacturer complete and thorough instructions.)
If not, the new manufacturer’s initial evaluation phase may include these steps:
- Analyzing assembly: Start by working with a small batch of three units. This step helps engineers understand how the assembly process works and identify areas for optimization.
- QC inspection planning: Use these units to develop a quality inspection plan and determine key QC goals and checkpoints.
- Retaining reference Units: Retain one or two of these units as reference samples for quality inspectors (they won’t be shipped as they serve a developmental purpose). These references are critical for ensuring consistency throughout production as tangible examples, as well as images, make life a lot easier.
Here, we are assuming that the documentation pack (including the full BOM, the drawings of custom-designed parts, the quality standard, etc.) has been received. Unfortunately, it is far from sufficient to evaluate the manpower needed to do production, hence the need for these validation steps.
2. Pilot Run: Pre-Production Testing
A short pre-production pilot run will help to iron out any production issues before full-scale manufacturing begins. This pilot run is a critical step that we never advise skipping.
The pilot run, in this case, would typically include:
- Produce a very limited run: Produce a batch of just 50 units on an assembly line.
- QC check: Do incoming QC checks on the parts received from suppliers because supplier consistency often presents a significant challenge at this stage.
- Estimate the expected production yield: For example, if 90% of the batch meets the required quality standards and can be shipped out, that’s an important data point. It can be estimated when evaluating the first three pieces.
- Confirm price and quality: The unit pricing and quality standard can also be confirmed after evaluating the first three pieces. And it needs to be re-evaluated after the pilot run.
A second pilot run may be necessary if serious quality issues are found.
3. Small Batch Production
After the pilot run(s), move to a small batch of production — for example, 500 pcs. This stage further validates the assembly & testing processes (which need to be made easier, better, and faster) and the quality standard (which needs to be made more specific and more objective).
Rather than going straight into full-scale mass production, this cautious approach allows confirmation that there is consistent quality, the assembly line is relatively optimized for efficiency, and transitioning to larger-scale production does not carry a lot of risks.
Cost Considerations of a Production Transfer
Understanding the cost breakdown of a production transfer is vital for budgeting and planning. While each transfer is unique, we will typically quote on these points:
- First 3 initial units: Includes engineering hours for assembly and inspection setup.
- Pilot run: Covers setup costs and unit production costs.
- Small batch production: Based solely on unit production costs.
Remember, all quoted prices follow the EXW (Ex Works) incoterm, meaning logistics costs are not included.
Takeaway Points
When transferring production from one manufacturer to another, these are the key points the new manufacturer needs to be on top of for a successful outcome.
- The product and the production process may be mature, but that can’t be taken for granted.
- The process of bringing a new product (which is “new to this factory”) has a lot in common with the process of bringing a new product (which is “new to the world”) into manufacturing.
- Good design for manufacturing & assembly will help a lot.
- Good documentation, good tooling (including jigs, fixtures, automation, etc.), specific and clear quality standards, and good component suppliers, make the transfer much easier!
Get help to take action now
If your Chinese manufacturer’s quality is on the slide, they deliver late, spring unwelcome price rises on you without warning, or other problems (explored in the eBook), it’s probably time to find a better supplier!
This eBook, drawing on our decades of dealing with Chinese suppliers and manufacturing in China ourselves for various customers, will help introduce why you will benefit from switching and how to make the transition in an orderly and secure manner. Grab your download here.
