Securing Primary Tooling Rights in Chinese Subcontracting Manufacturing Contracts
Securing primary tooling rights in China requires standalone title contracts, clear steel verification, non-lien waivers, and physical shop-floor audits.
Physical Tooling Audit
Meaning
On site inspections of manufacturing equipment verify the presence and condition of assets owned by the buyer but stored at a supplier’s facility. A physical tooling audit involves checking the serial numbers and asset tags of every injection mold or stamping die against the master registry. This procedure ensures that the tools have not been moved or sold without authorization.
It also provides an opportunity to evaluate the maintenance standards of the factory and the wear on the equipment.
Verification Process
Inspectors compare the physical items with the technical drawings and procurement records held by the company. During a physical tooling audit, the team looks for signs of unauthorized repair or modification that could impact the quality of the finished parts. This direct observation is more reliable than the paper reports provided by the factory management.
Compliance Check
Adherence to the terms of the equipment custody agreement is evaluated through the inspection of maintenance logs and storage conditions. A physical tooling audit confirms that the supplier is protecting the buyer’s investment as required by the contract. If discrepancies are found, the auditor documents them as evidence for a potential breach of agreement or a request for corrective action.
Risk Management
Regular visits to the production site deter the factory from using the buyer’s tools for third party orders. By conducting a physical tooling audit, a company maintains a visible presence and reminds the supplier of their legal obligations. This oversight is particularly important when the supplier is facing financial difficulties or when the relationship is nearing its end.
Accurate data from these audits supports the decision making process for future tool investments and supplier selections.