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Thread: Business Scenario Manufacturing

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    Diamond Member Blurock's Avatar
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    Business Scenario Manufacturing

    Scenario: Customer approaches Manufacturer and requests product readily available in the market to be manufactured. He does not have drawings etc, but provides a rough sample. There appears to be a lucrative market for this item which is available in various material composition and configurations.

    Manufacturer makes prototype which is further developed and approved by Customer. Looks different from sample and has further advancements. Manufacturer makes tooling and incurs cost of materials, labour etc.

    Customer buys 20 or 30 products and does not place return orders, although he has promised huge orders. No written agreement. There is nothing wrong with the product. There is market demand etc. The customer is just not selling as he has other product to sell.

    Manufacturer contacts customer who still has not paid for tooling and development. Customer agrees to Manufacturer selling remaining products to defray costs.
    What is Manufacturer’s position with regards to the product? Can he legally sell it to recover his expenses? May he now manufacture this product for his own account?
    Excellence is not a skill; its an attitude...

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    Site Caretaker Dave A's Avatar
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    Maybe get some sort of contract in place to protect the manufacturer from repercussions down the line?

    Something along the lines of the customer gives over his rights and ownership to the manufacturer for the product and tools as full and final settlement of his debt to the supplier.
    The trouble with opportunity is it normally comes dressed up as work.

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    Dave's suggestion might be the safer route, but I can't for the life of me see how the "customer" has any rights at all. The product already exists in the market, so I presume there is no copyright held.

    My view: Manufacturer should go ahead and recover his costs by making and selling the product and then profit from his work.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by BusFact View Post
    but I can't for the life of me see how the "customer" has any rights at all.
    There's a significant difference between ownership and possession.

    Selling the existing stock and tools to defray expenses is fine as long as you follow the correct procedure (notices, advertisments etc.).
    To start using the tool to manufacture product for your own account without first resolving the ownership issue is a different story completely.
    The trouble with opportunity is it normally comes dressed up as work.

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    Gold Member Martinco's Avatar
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    I have been in the same situation and Dave's suggestion is 100% correct. Come to an agreement first and work from there as you do not want to end up in all sorts of litigation.
    If, however, the sale of the existing product does not cover the costs incurred for tooling, material and labor I would think that the customer does not have much of an option but to allow the manufacturer to continue producing product and selling it till the costs are covered and who can tell when this stage is reached ?
    The way I work now (till Wednesday ! ) is that the customer must sign an agreement stipulating the ownership of the tools because even if the customer pays for the manufacturing of the tools it does not necessarily mean that he "owns" the tools.
    Bear in mind that all tools require maintenance during manufacturing and if the customer does not pay for this, I normally stipulate that I take ownership of the tools especially if I manufactured the tools in house.
    The other thing to bear in mind is that there are people out there that does not want to pay the exorbitant costs of having a tool made by a tool shop and then supply the tool to a manufacturer to produce product as opposed to having the manufacturer making the tool in house at a lesser cost with the prospect that there is money to be made in producing product. Ask me........I know how much it costs lately to make tools !
    These types normally wait till the tool is finished and then take it away to some other manufacturer for production.
    Further, as Blurock stated, the customer uses the expertise of the manufacturer to iron out the intricacies of the tool that he could not figure out himself ( and that is why he did not go to a toolshop to start of with because these guys want drawings and specifications ) and as we all know, time is money ! I have been in the game of tooling for the past 35 years and there are many tricks that customers come up with, so get the paperwork done first.

    But all said.........get an agreement from the customer.
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    Diamond Member Justloadit's Avatar
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    The problem arises more when the said product becomes a successful line. What now?

    I am with Dave. Right now the customer is amicable to signing, later he may change his mind. Do it ASAP to cover your ass.
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    Diamond Member Blurock's Avatar
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    I think the answers from our clever members just about sums it up; do not assume and do not take things for granted. Get an agreement or contract signed. Should you have to go to court, it will be much easier to provide proof of the intentions of the parties.

    In business today it is essential to have clear communication and no grey areas.
    Thanks guys!
    Excellence is not a skill; its an attitude...

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