Best Practices for SMBs Working With Contract and Joint Development Manufacturers

In today’s fast-paced product development landscape, small and midsize businesses (SMBs) often rely on external partners to scale efficiently. Joint development manufacturers (JDMs) are frequently tapped for design expertise, while contract manufacturers (CMs) handle procurement and production. This model offers agility and access to specialized capabilities, but it also introduces risks that can compromise product quality, cost control, and intellectual property (IP) integrity.

To help SMBs navigate these relationships effectively, we’ve compiled a set of best practices and risk mitigation strategies based on real-world experience and industry insights.

6 Strategies to Strengthen Contract and Joint Development Manufacturer Relationships

1. Intellectual Property and Bill of Materials (BOM) Ownership

Why It Matters:

Your product’s IP encompasses more than just the design files—it includes the bill of materials (BOM) configuration and sourcing decisions. If these aren’t properly documented and centrally managed, they can be lost or distorted when switching manufacturers.

Best Practices:

• Centralize BOM management in a cloud product lifecycle management (PLM) system like Arena. This ensures that all sourcing decisions and configurations are preserved and accessible.
• Define ownership early. Make it clear in your contracts and RFIs/RFPs that the BOM and sourcing data belong to you, the original equipment manufacturer.
• Use software licensing policies. For example, a leading provider of wireless home sound systems requires its JDMs to input BOMs directly into Arena and provides them with licenses governed by strict access policies.

Risk to Avoid:

If your JDM or CM controls the BOM outside your systems, you risk losing visibility and leverage. This can make it difficult to renegotiate with or switch vendors down the line.

2. Cost Transparency and Strategic Sourcing

Why It Matters:

Many SMBs don’t have a clear picture of their true cost of goods sold (COGS), which makes it hard to maintain competitive pricing while managing margins.

Best Practices:

• Use Cloud PLM and supply chain intelligence (SCI) tools to analyze BOM costs and sourcing trends. This helps you benchmark pricing and identify anomalies.
• Negotiate a fixed margin model with your CM, paired with a quarterly cost reduction schedule. This aligns incentives and encourages continuous improvement.
• Retain sourcing control where possible. While your CM has better buying power, you should maintain your components’ approved manufacturer list.

Risk to Avoid:

Without cost transparency, you may overpay for components or fail to detect cost creep over time. Benchmarking is essential to hold partners accountable.

3. Managing the Risks of CM/JDM Control

Why It Matters:

When your manufacturing partner controls too much of the design or sourcing process, you lose flexibility. This can lead to quality issues, cost increases, or vendor lock-in.

Best Practices:

• Maintain control of the approved manufacturer list (AML) and approved vendor list (AVL).
• Require explicit approval for any substitutions.
• Audit component selections. Some CMs may substitute parts that seem to meet technical specs, but these changes can affect quality, cost, or compliance.
• Educate your team. Startups and SMBs are especially vulnerable to manipulation by more experienced CMs. Make sure your team understands the implications of sourcing decisions.

Risk to Avoid:

Unauthorized substitutions or opaque sourcing practices can lead to compliance failures, warranty issues, or costly redesigns.

4. Visibility and Proactive Supply Chain Risk Management

Why It Matters:

Supply chain disruptions like component shortages, tariffs, and geopolitical conflicts can derail your production plans. The earlier you detect these risks, the better your chances of mitigating them.

Best Practices:

• Use SCI tools to monitor component availability, lead times, and obsolescence risks.
• Ask the right questions. Don’t wait for problems to arise—proactively ask your CM or JDM about potential risks and how they’re being managed.
• Build redundancy. Where possible, qualify multiple sources for critical components.

Risk to Avoid:

Lack of visibility can turn a minor sourcing hiccup into a major production delay. Proactive risk management is essential for resilience.

5. Aligning on Strategic Goals

Why It Matters:

Your CM or JDM isn’t just a vendor—they’re a strategic partner. Misalignment on goals, timelines, or quality standards can lead to friction and missed opportunities.

Best Practices:

• Set clear expectations around timelines, deliverables, and quality metrics from the outset. Hold regular check-ins to review progress, address issues, and recalibrate as needed.
• Involve partners early. Bringing your CM or JDM into the design process can surface manufacturability issues before they become costly.

Risk to Avoid:

Treating your CM or JDM as a transactional supplier rather than a strategic partner can lead to miscommunication and suboptimal outcomes.

6. Documentation and Change Control

Why It Matters:

Changes to design or sourcing can happen quickly. Without proper documentation and change control, these changes can introduce errors or compliance risks.

Best Practices:

• Use a centralized PLM system to manage engineering change orders (ECOs), BOM revisions, and quality records.
• Implement a formal change control process that includes cross-functional review and approval.
• Maintain a complete build package that includes all files, specifications, and sourcing data.

Risk to Avoid:

Informal or undocumented changes can lead to version control issues, production errors, or regulatory noncompliance.

Outsource Manufacturing With Confidence

Working with CMs and JDMs is a powerful way for SMBs to scale product development and manufacturing. But these relationships require careful management to avoid common pitfalls. By taking ownership of your IP, maintaining cost transparency, managing sourcing decisions, and proactively addressing risks, you can build resilient partnerships that support your long-term growth.

Whether you’re a startup selecting your first JDM or an established OEM looking to optimize your CM relationships, these best practices can help you navigate the complexities of outsourced manufacturing with confidence.

Ready to strengthen your supply chain partnerships? Learn how Arena helps.