KoreaLiaisonPM

Tag: factory audit

  • 10 Red Flags I Look For Before Recommending a Korean Manufacturer

    Most sourcing problems don’t announce themselves. A supplier rarely says “we can’t actually do this.” Instead, the warning signs show up quietly — in how they answer questions, what they avoid showing you, and small inconsistencies between what they say and what the paperwork says.

    After 20 years working supply chains for Hyundai-Kia, Renault-Nissan, and joint venture projects with companies like BHP and Rio Tinto across Kazakhstan and Australia, these are the specific things that make me slow down before recommending a supplier.

    1. Vague — or nonexistent — answers about who actually makes the product

    If a company can’t clearly explain which parts of the process happen in-house versus subcontracted, that’s the first flag. More often, they simply don’t mention it at all. I’ve seen companies bring in subcontracted engineers or workers to their own headquarters right before an audit, so they can sit in for the visit as if they were regular staff.

    Subcontracting itself isn’t the problem — plenty of legitimate manufacturers subcontract specific processes and disclose it openly, working as genuine partners with those subcontractors. The real issue is subcontracting done to cut costs while also shifting the cost and liability of any quality failure onto the subcontractor, and then hiding the arrangement from the buyer.

    2. Photos that don’t match the visit

    Marketing photos showing clean, modern equipment, but the actual facility looks different, is running older machines, or is clearly smaller than implied. I’ve walked into “factories” that were really small workshops subcontracting the real production elsewhere.

    3. Reluctance to share basic corporate information

    A legitimate Korean manufacturer will not hesitate to share its business registration number, corporate registration details, or basic company history. Hesitation here — vague answers, delays, “we’ll send it later” that never arrives — is one of the clearest signals something is being hidden.

    4. Recent, unexplained ownership changes

    Corporate registries show ownership history. A recent change in directors or majority ownership isn’t automatically bad, but if the company doesn’t volunteer an explanation when asked directly, that’s worth pausing on. Sometimes it’s a normal succession. Sometimes it’s someone stepping in right before a company was going to collapse under the previous owner.

    5. Payment terms that don’t follow a clear structure

    In export deals, payment terms need to be spelled out clearly upfront, or they become a source of dispute later. A typical structure looks like this: because material has to be ordered as soon as production is scheduled to start, the supplier usually collects 50–60% as a deposit after the PO is received, another 20% or so as a progress payment during production, and the remaining balance once shipping documents and supporting evidence (photos, etc.) are sent before shipment. Some buyers negotiate holding back a final 5%, releasing it only after the equipment is received, installed, and confirmed to be working properly.

    A supplier pushing hard outside this standard structure — demanding full payment before shipment on a brand-new relationship, or refusing any milestone-based structure at all — is a flag worth weighing alongside everything else on this list.

    6. Revenue concentrated in one or two customers

    If your prospective supplier’s business is heavily dependent on one or two major buyers, ask what happens if that relationship changes. A company that loses 50% of its revenue overnight is a company that may not survive to finish your order — regardless of how good their factory looks today.

    7. Quality documentation that’s inconsistent or incomplete

    Ask for their quality control process documentation, inspection records, or certifications, and watch how complete and consistent the response is. Gaps, contradictions between what different staff tell you, or documents that look freshly created rather than part of routine operations are all signals that quality control is a presentation, not a practice.

    8. No clear escalation process when problems happen

    Ask directly: “If a quality problem comes up mid-production, what happens?” What you’re really checking is how quickly the PM or manager on the ground reports the issue up to company leadership, and whether the company can actually mobilize a response within 24 hours. A supplier with a clear reporting line and a defined response process is a fundamentally different partner than one that improvises every time something goes wrong.

    9. No real timing schedule or documented follow-up process

    Serious manufacturers manage delivery against a formal timing schedule — not just a target date. Ask whether this document actually exists, and whether it includes a remarks column where problems and the actions taken are logged as they happen. Ask if issues get discussed in internal meetings, and whether there’s a record — meeting minutes, a resolution log — of how those issues were closed out. If a problem gets solved, does the resolution actually get written back into the remarks column on the schedule? This tells you whether a company manages its timeline on paper only, or actually runs on it.

    10. Financial strain signals that don’t match the sales pitch

    This is the one buyers miss most often, because it doesn’t show up on a factory visit. Late payments to their own suppliers, delayed tax filings, frequent changes in banking relationships, or heavy short-term debt against fixed assets — these are financial-record signals, not factory-floor signals. A company can look completely healthy in person and still be under serious financial strain. This is exactly why financial due diligence and factory audits need to happen together, not as substitutes for each other.

    None of these are automatic disqualifiers

    To be clear — a single flag on this list doesn’t mean walk away. Companies subcontract for good reasons. Ownership changes happen for normal reasons. Payment terms can reasonably vary depending on the project. The point isn’t to treat every flag as fatal. The point is to ask the direct question, get a direct answer, and see whether the explanation actually holds up.

    The suppliers I trust most are usually the ones who answer these questions without hesitation — not the ones with a perfect-looking factory and no good answer when something doesn’t quite line up.

    This is part of a series on sourcing and project management in Korea, based on direct experience managing manufacturing and industrial projects across automotive and heavy industry supply chains.

  • Financial Due Diligence vs. Factory Audit: Why Buyers Need Both (And Usually Only Get One)

    When international buyers talk about “verifying” a Korean manufacturer, there’s a standard playbook. Hire a certified audit firm in Korea, pay them, and have them visit a specific manufacturer to run a process audit.

    The process usually goes like this: the audit firm notifies the manufacturer of a visit date. The auditor shows up with a carefully prepared Quality Audit Sheet. There’s a company introduction, a cup of coffee, and then the walkthrough begins.

    I’ve been on the receiving end of this myself. During the Kazakhmys project in Kazakhstan, I went through process audits on a single day — a piping contractor in the morning, an electrical contractor in the afternoon. Two audits, back to back, in one day. That evening, I remember hosting the auditors for dinner.

    Here’s the problem. Going through a detailed audit sheet, item by item, absolutely gives a foreign buyer peace of mind. But the real effectiveness is smaller than it looks. The reason is simple: because the visit date is announced in advance, the manufacturer has every opportunity to prepare so that nothing gets flagged.

    That doesn’t make it worthless. A certified audit firm carries credibility, and the report is a convincing document for a buyer. But it isn’t a complete way to evaluate a manufacturer, because an audit is, by nature, an event that can be prepared for.

    What actually matters isn’t the one day of the audit — it’s whether, on an ordinary day, this supplier is running production according to the drawings and specifications everyone agreed to.

    Limitation #1 — An audit is a prepared event

    A scheduled audit, especially one with advance notice, is fundamentally a snapshot — and one the other side knew was coming. Tidiness, paperwork, the flow of the day’s process: all of it can be optimized for that single visit. When an auditor has to cover two suppliers in one day, as I did in Kazakhstan, there isn’t much time to dig deep into either one. No matter how thorough the checklist is, it can’t get past the fact that it’s measuring what was prepared to be shown that day.

    Limitation #2 — What an audit misses: the ordinary day

    The real question isn’t “how does the process look on audit day” — it’s “on the 361 other days, is this supplier actually producing to the confirmed drawings and specs?” A single scheduled visit can never answer that. What does is showing up unannounced, or simply visiting often enough that it stops being an “audit” and becomes routine — seeing the process as it actually runs. This is exactly what I do during active projects: regular site visits, not scheduled inspections.

    Limitation #3 — What an audit misses: financial condition

    There’s one more thing no audit sheet will ever capture — whether this company will still be standing eight months from now, when your production run is scheduled to finish.

    I spent over a decade inside automotive OEM supply chains — Hyundai-Kia, Renault-Nissan — and managed joint venture projects with global mining companies like BHP and Rio Tinto across Kazakhstan and Australia. In that world, a supplier’s cash position matters as much as its equipment list. A factory that looked flawless during a visit can be three months behind on payments to its own raw material suppliers. Brand-new machinery can be sitting on debt the company can’t actually service. A director might be running two companies and quietly draining one to keep the other afloat.

    None of that shows up on an audit sheet. None of it shows up on a factory walkthrough either.

    What financial due diligence actually catches

    This is where my background differs from most sourcing agents and audit firms you’ll find. Before I moved into project management and technical verification, I spent years on the financial consulting side, reviewing corporate financials, tax structures, and ownership issues for Korean business owners. That background changes what I look for when I evaluate a supplier.

    A basic financial check on a Korean manufacturer looks at things like:

    Corporate registration and ownership structure. Who actually owns this company? Has ownership changed recently? Is there a pattern of related companies that suggests risk is being shuffled around rather than resolved?

    Payment history and credit signals. Is the company current with its own suppliers and with tax authorities? Late payments upstream are usually the first sign of trouble — and they show up in the financial record long before they show up on the factory floor.

    Revenue concentration. Is this company dependent on one or two buyers for most of its revenue? If your order is a small fraction of their business, that’s a very different risk profile than if you represent 60% of their output and they can’t afford to lose you.

    Debt load relative to fixed assets. New equipment funded by heavy short-term debt is a different situation than the same equipment paid for in cash. Both factories look identical during a visit.

    Basic solvency indicators. Is this a steadily operating company, or one quietly restructuring, changing bank relationships, or delaying supplier payments to stay afloat?

    None of this requires access to confidential internal accounting. Much of it is available through standard corporate and credit information channels in Korea, cross-referenced against what the company tells you directly.

    Why buyers usually skip this part

    Most PM and sourcing services aren’t built to do it. They’re staffed by people with manufacturing, quality, or logistics backgrounds — exactly what you want for the factory side. But financial review is a different skill set entirely, so it’s rarely included and rarely done. Buyers either skip it, or assume the factory audit already “covers” it. It doesn’t.

    The combination that actually protects a project

    In twenty years of B2B work overseas, the projects I’ve seen go wrong rarely went wrong because a factory couldn’t run its machines. They went wrong because a supplier’s financial position collapsed mid-project, and nobody had looked closely enough, early enough, to see it coming.

    A scheduled factory audit shows you that a supplier can produce on the day they prepared for. Regular, unannounced visits show you whether they actually produce that way every day. And financial due diligence shows you whether they’ll still be standing to deliver on the date you agreed to.

    Buyers who want a real answer to “can I trust this supplier” need all three — done by someone who understands what each one is actually looking for. A pre-scheduled audit report by itself isn’t enough.

    This is part of a series on sourcing and project management in Korea, based on direct experience managing manufacturing and industrial projects across automotive and heavy industry supply chains. Next: the specific red flags I look for when evaluating a new Korean supplier.