Does it seem like your vendor is spending a great deal of effort keeping their factory a secret at the cost of getting work done?
Sometimes a vendor or trading company may not want to reveal the factory to you. The most common reason is that they don’t want you to approach the factory and order from them directly. And if you work with a vendor or trading company and approach the factory behind their back, the vendor is likely to feel betrayed—and rightly so.
At the same time, you might want the factory’s details for reasons other than to cut out the vendor.
One of the best ways to put your vendor at ease and still get in touch with their factory is by signing a non-compete agreement. A non-compete agreement, sometimes referred to as a “no-approach” or “non-solicitation” agreement, is meant to prevent an importer from hiring the vendor’s factory directly. Your vendor may ask you to sign such an agreement to maintain confidentiality and prevent them from losing business.
Here are three great reasons why you should sign a non-compete agreement with your vendor:
1. Direct communication with the factory
If most importers that experience production delays and other issues while working with a vendor express one common frustration, it’s this: not being able to talk directly with someone at the factory.
More layers between you and the factory often make it easy for details to get lost in translation. You may even find that your voice isn’t being heard at all by the people actually manufacturing your product. But talking directly with factory management and staff—with the vendor’s written consent—will allow you to address any issues quickly while getting more reliable feedback."Not being able to directly talk to your #factory adds unnecessary layers to your #supply #chain."
Easier problem-solving for technical issues
You may find it easier to solve problems, especially if the problems are more technical, without having to talk through a go-between.
For example, if you’re working through a vendor to manufacture wood furniture in Cambodia, you may encounter a problem with warping—a bending or twisting of the wood. Your supplier contact is likely going to be a salesperson, rather than an expert in your product.
They may send you an email to let you know a large percentage of the furniture has some issue related to the shape. But they may be unable to tell you exactly what the problem is or suggest possible causes or remedies. You’d like to contact the factory directly for details, but your vendor won’t share the factory’s contact information unless you sign a non-compete agreement.
If, however, you’ve signed a non-compete agreement with the vendor, your supplier will probably allow you direct communication with someone on the factory floor, such as a quality control manager or production manager. That person should be able to provide more details about the warping, perhaps even photos to show the affected areas and severity.
By talking with someone on the factory floor, you can work with the factory to find and mitigate factors like excess heat or humidity that might be causing the warping.
More timely response with fewer delays
Having direct communication with the factory can also help you to get your message across faster and prevent delays. Let’s say the order of furniture you’re manufacturing in Cambodia is taking longer to complete than expected. The epoxy used to glue components together needs more time to apply and set. As a result, of the total PO quantity of 5,000 pieces, only 3,000 pieces will be finished and packaged in time to ship on your ex-factory date.
Now this isn’t a problem for some of your customers, who are expecting to receive the product in two or three months. But you’ve promised a number of major distributors that they would receive the finished furniture next month. Fortunately for you, you’ve signed a non-compete agreement with your vendor, allowing you to:
1. Learn about the epoxy delay first-hand from the production manager and
2. Avoid a much larger delay by advising the factory manager to split the order into two smaller shipments: one of 3,000 pieces that will leave earlier and a second of 2,000 pieces that will leave two to three months later.
In this example, direct communication with the factory has helped you prevent a major delay that could have soured your relationship with your customers. Had you not been able to talk to someone at the factory, you may have learned about the problem from your vendor days later than necessary and with less information available (related: 3 Ways Experienced Importers Avoid Production Delays).
A word about the benefits of communicating through a vendor
A discussion of the value of direct communication with a factory wouldn’t be complete without mentioning the benefits of communicating through a vendor.
One consideration important to recognize is the value of having an established relationship with a factory. If your vendor has been in business longer than you’ve been manufacturing in a particular region, they’ve probably been working with some of the same factories for an extended time. Your vendor is often able to leverage these relationships to work in your favor, such as negotiating lower prices or shorter lead times for production.
Your vendor is also likely to have staff with superior communication skills, particularly in English, relative to factory staff. So although you may be talking through a salesperson, you can expect that talking with the production manager at a factory in Cambodia will present more opportunities for translation issues and misunderstandings.
The communication advantages offered by working through a vendor are not to be understated. In fact, communication is one of the advantages of working with a vendor or trading company over going factory-direct (related: 3 Reasons To Buy Through a Trading Company).
2. Access to the factory for product inspection
Trust between you and your vendor is crucial to getting the product you want delivered when your customers need it. But it’s often necessary to visit the factory and look at the product before shipping to confirm order status and quality. To do that, you’ll need the vendor to disclose the factory’s address and contact information. And that can be difficult without signing a non-compete agreement with the vendor beforehand.
More efficient inspection booking process
You can’t possibly visit the factory yourself to inspect your order if your vendor is unwilling to disclose the factory’s details. And it can also be difficult for you hire a third-party inspector to visit the factory on your behalf. The vendor would have to provide the third-party with the factory information. And the third-party would have to keep that information from you in their reporting.
This is far from ideal.
Let’s say you need to arrange inspection at the factory in Cambodia that’s producing your furniture, and you don’t have a non-compete agreement between you and your vendor. If your vendor wants to hide the factory from you, the process might play out as follows:
1. You introduce your third-party inspection partner to the vendor and ask the vendor to provide the factory’s details.
2. The vendor provides the factory’s contact details and address to the third-party.
3. The third-party contacts the factory to arrange inspection.
4. The responsible party at the factory stalls in confirming inspection.
5. Your third-party informs you of the booking delay.
6. Without the factory’s details, you contact the vendor and complain about the delay.
7. The vendor contacts the factory and asks them to cooperate with booking.
8. The factory finally complies with booking and sets a date for inspection.
Booking is likely to take anywhere from two business days to a week or more in the above example. But it could take even longer if there are other complications. You can often speed up the process by having improved access to the factory that allows you to coordinate booking quickly (related: Product Inspection: 4 Steps to Scheduling Yours)."Not having a non-compete agreement with your vendor can make #inspection and #scheduling take way too long."
Resolving questions about product quality or specifications
We’ve seen how the booking process for inspection can quickly become tedious if the vendor won’t reveal the factory details to you.
Now imagine the process for addressing any issues found during inspection, such as scratches and chips in the coating on your furniture. You would need to talk with the vendor—who is typically NOT at the factory—about these defects and how to correct or prevent them in the future. The vendor would then need to communicate this to staff at the factory.
Any feedback you get about solutions to problems with your product would have to be relayed by your third-party inspector or your vendor. This can make the situation more difficult if there’s a dispute about the inspector’s conduct or the findings of the inspection report. Rather than being able to talk to a factory representative who was present during inspection, you’re forced to rely on the vendor with their relatively limited perspective.
3．Protect your order deposit
Handing over a deposit to a vendor can be risky. And stories of vendors that accept a deposit and then disappear with it are not unheard of. Some vendors claim to have an extensive network of partner factories or some other selling point. But there’s no way to verify such claims without being able to talk with someone from the factory that is manufacturing your product.
If your vendor is prepared to have you sign a non-compete agreement, you may be able to investigate the factory they’re working with before putting money down on an order. Once the vendor is comfortable providing information about the factories they work with, it’s much easier for you to evaluate the factory by visiting or conducting an audit.
And an audit can prevent a lot of unwanted surprises, ranging from child labor and unsafe working conditions to poor quality management systems and wasteful manufacturing practices (related: How Can Six Sigma Lower Costs and Improve Quality?). Sometimes a factory visit or audit is all you need to see if a particular factory qualifies to manufacture your product.
Can you afford a massive hit to your supply chain if your vendor loses trust and drops you as a customer? An easy way to lose trust with a vendor is to go behind their back and work directly with their factory.
But there are ways to work with both the vendor AND their factory while still maintaining, or even improving, the relationship you have with your vendor. If your vendor prefers to conceal the factory that’s manufacturing your product, suggest signing a non-compete agreement. You stand to gain greater transparency, fewer uncertainties and delays and added security by knowing where your goods are being produced and who you can contact on-site.
Do you have any tips for effectively using a non-compete agreement with a vendor? Share in the comments below!