Case study · Supplier vetting
The lowest quote will not always make you the most money
A vendor promised a 50% cost reduction on a part we had been manufacturing for years. We spent a year finding out why that was possible.
This situation occurred over half a decade ago, and we still discuss this supplier to this day. The factory in question does not appear in any of the photographs on this page.
Scenario
A 50% saving, quoted on the spot
Envest had been manufacturing a simple metal welded assembly for a client for years. Production ran relatively smoothly, but rising raw material, zinc plating and labour costs meant margins were getting slim.
At a conference we were approached by a vendor claiming significantly lower costs than other suppliers — a fully operational factory with preferred material pricing, co-located plating facilities and lower labour rates. They quoted a 50% cost reduction instantly.
We followed up on the lead and vetted the manufacturer through our Supplier Approval Process, including in-person audits. The results scraped by. We decided to proceed to sampling anyway, rather than miss out on a saving that size.
Result
A year later, a total write-off
After nearly a year attempting to complete the Production Parts Approval Process, we abandoned all the capital and time invested in the supplier.
They had misrepresented their resources at every level — business management, engineering, quality control, and the fixed assets needed to run the manufacturing and quality plans. The equipment shown during the audit had been borrowed from sister companies. The factory floor we toured was never going to be available for our product.
We explored helping them invest in assets and train personnel to reach an acceptable standard. The cost of those improvements would have more than doubled the part price — wiping out the saving entirely, and potentially costing more than staying where we were.
Solution
What we changed afterwards
The old adage held: if it seems too good to be true, it probably is. We reviewed our entire Supplier Approval Process rigorously.
More specific and pointed questions about production activities, available resources and company background are now answered before any supplier is approved for sampling. If a supplier will not meet those questions, or refuses them, they are culled from the vetting process immediately and without exception.
We also lean far more heavily on our own ability to predict manufacturing cost. By breaking an injection moulded, sheet metal or glass component down to its constituent materials and processes, we can often predict target costs to within 5 to 10% of the ideal quoted value. A supplier quoting below that prediction raises a major red flag, and we approach them with immense caution.
Outlier quotes are usually just that — outliers. Very rarely will a significantly cheaper quote from a fly-by-night supplier make you any money.
