Manufacturer due diligence: checking the company standing behind the factory

Who owns the business, and who owns the building

Establish the legal entity you would contract with, its registered ownership, and whether it is the same entity that operates the site. Groups routinely split trading, manufacturing and property across separate companies, so the firm signing your agreement may hold no equipment and no lease. Ask whether the plant is owned or rented and how long the tenure runs, because a site under a short lease near a redeveloping city edge is a relocation waiting to happen. Where ownership traces to a holding structure in another jurisdiction, at least know that before you commit tooling, not afterwards when you are trying to work out who to serve notice on.

Financial condition, read from what a customer can actually see

Filed accounts help where filing is required and are often stale, so read behaviour alongside them. Requests for unusual advance payment, sudden interest in shortening terms, equipment sitting idle for want of a spare part, agency staff replacing permanent operators, and quotations that undercut credible cost all point one way. Ask who their largest customers are and roughly what share of turnover the biggest represents; a shop carrying one dominant account has your exposure built into it. Suppliers talk, and asking a materials vendor whether the shop pays on time is a fast, unglamorous check that occasionally saves an entire programme.

The operations they send out without mentioning it

Almost every manufacturer subcontracts something, and the ones that matter are the operations that determine whether your product works: plating, heat treatment, anodising, sterilisation, printing, calibration, specialised testing. If those sit at a sub-tier you never assessed, your quality system stops at the wrong boundary. Ask for a list of outsourced operations with the firms performing them, whether alternates exist for each, and how incoming work from those firms is verified before it rejoins the line. The answer also tells you something about candour: a shop that describes its sub-tier openly is easier to work with than one that presents itself as doing everything.

Labour and working conditions are your exposure as well as theirs

Buyers inherit reputational and, increasingly, regulatory exposure from how their manufacturers treat people. The areas that generate incidents are consistent: recruitment fees charged to migrant workers, hours worked during peak season, the use of labour agencies whose staff are invisible on the payroll, dormitory conditions, and whether workers can raise a complaint without going through their supervisor. International guidance on responsible business conduct sets out how a buyer is expected to identify and act on these risks in its own supply chain. Look at practice rather than policy documents, since the policy is written for you and the practice is what exists.

References, and how to ask for ones that are worth having

A referee handed to you by the candidate has been chosen. Use them anyway, but change the questions: ask what went wrong at some point and how it was handled, how the shop behaved during a demand spike, and what the referee wishes they had settled at the start. Then look for a reference the candidate did not provide, such as a former customer, a materials supplier, or an equipment vendor who has been inside the plant. Ask any referee whether they would place a new product there today. Hesitation before a yes carries more information than the answer itself.

Frequently asked questions

How much diligence is proportionate for a small first order?

Scale it to what you would lose, not to the value of the order. A trial order with no tooling, no exclusive commitment and an easily replaced product needs little beyond confirming the entity exists and can invoice you. The moment tooling is cut, a launch date depends on the outcome, or your brand appears on the box, the exposure is no longer the order value. Diligence should track that exposure and be repeated when the relationship grows into it.

What should we do if a candidate refuses to share financial information?

Refusal is common among privately held firms and is not by itself a red flag. Offer alternatives: a credit report you commission, a bank or trade reference, filed statements where a jurisdiction requires them, or an undertaking to notify you of changes in ownership and control. If everything is declined, price the uncertainty instead of ignoring it by limiting tooling exposure, keeping payment terms conservative and avoiding a position where this shop is the only route to your product.

Does a third-party social or ethical audit replace our own work?

It supplements it. Commissioned assessments cover ground you cannot reach, provide a consistent format across sites and countries, and carry weight with your own customers. They also announce themselves, run to a checklist that experienced sites know well, and capture one day. Read the findings rather than the score, look at whether previous corrective actions were genuinely closed, and keep some of your own unscheduled contact with the site so the audit is not your only window.