Due Diligence – An Important Overlooked Category Buying A Manufacturing Business

Due Diligence – An Important Overlooked Category Buying A Manufacturing Business
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An Important Overlooked Due Diligence Category

Due diligence for the acquisition of a manufacturing company usually includes a deep dive into financial, operational and managerial issues. This is further explained in our article “What to Expect During Due Diligence.”

Most buyers will have a manufacturing-specific checklist that they run through.  Most checklists, however, do not prompt buyers to look closely at one very important category, which can be very telling about the health of the company. That category is customer returns due to quality issues.

How to Resolve This Due Diligence Oversight

Most buyers only look at this category from a financial perspective. What they should be looking at is whether or not the returns are a systemic indicator of the quality of the company’s manufacturing process, delivery or service. If there are repeated credits and refunds, you need to get to the WHY before closing the deal.  Analyzing trends in customer refunds can alert the buyer to problems with a particular person, department or a contract issue that requires the manufacturer to “buyback” inventory under certain conditions.

Biggest Reason is Quality

One of the biggest reasons that manufacturing businesses lose customers is quality. As Siemens explains: “At its most basic level, manufacturing quality is conformance to specifications.”

The cost of acquiring a new customer can be enormous, which is why most people will buy a manufacturing company rather than build one from scratch.  Make sure that you’re getting what you think you’re buying by taking a deep dive into customer returns during the due diligence process. This is an important and overlooked due diligence category in manufacturing company acquisitions.

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