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Key Steps for Assessing Production Matters | Comprehensive M&A Due Diligence

By: Jack Nicholaisen author image
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Mergers and acquisitions can be complex.

One crucial aspect is due diligence in production matters.

This article dives into key areas like supplier assessments, manufacturing processes, and inventory management.

It’s essential because a thorough review can reveal risks and opportunities that impact the success of the merger.

article summaryKey Takeaways

  • Assess Supplier Reliability: Identify and evaluate key subcontractors to ensure continuity and quality in production.
  • Review Supplier Contracts: Understand major supplier contracts to mitigate supply chain risks.
  • Evaluate Manufacturing Efficiency: Analyze manufacturing yields to identify and address production bottlenecks.
  • Monitor Inventory Levels: Regularly review inventory reports to manage stock levels effectively.
  • Enhance Customer Service: Assess and improve product service programs to boost customer satisfaction and loyalty.

To get the most out of this guide, focus on each section’s practical steps.

Use the self-assessment questions to evaluate your current practices.

Explore the provided resources to deepen your understanding.

Ready to ensure a smooth transition and operational excellence?

Keep reading to master production-related due diligence.

Reviewing production-related matters is a critical component of M&A due diligence, particularly for businesses heavily reliant on manufacturing and production.

A comprehensive assessment includes examining suppliers, inventory, and manufacturing processes to identify potential risks and opportunities for improvement.

This review ensures that the acquiring company can maintain production quality, meet customer demands, and integrate seamlessly with the target company’s existing operations.


➤ MORE: Check out the FULL Due Diligence Checklist here

Review List of Significant Subcontractors

Obtaining a list of the company’s most significant subcontractors, including the dollar volume of business and the type of services or products supplied, is essential.

This information helps assess the reliability, quality, and potential risks associated with these subcontractors.

Evaluating subcontractor relationships ensures that production can continue smoothly post-acquisition without disruptions.

Practical Benefits:

  • Identifies key subcontractors critical to the company’s operations.

  • Evaluates the reliability and quality of subcontractors.

  • Mitigates potential risks related to subcontractor dependencies.


  • Ensures continuity of operations.

  • Helps maintain production quality and efficiency.

  • Reduces the risk of supply chain disruptions.

Practical Steps:

  1. Request a Detailed List: Ask the target company for a list of their most significant subcontractors, detailing the type of services or products supplied and the dollar volume of business.

  2. Analyze Performance Data: Review performance reports and feedback from these subcontractors to assess their reliability and quality.

  3. Conduct Interviews: Interview key personnel involved in managing subcontractor relationships to gain insights into any potential issues or dependencies.

  4. Review Contracts: Examine existing contracts with subcontractors to understand terms, conditions, and termination clauses.

Self-Assessment Questions:

  • Who are the company’s most significant subcontractors?

  • What type of services or products do they supply?

  • How reliable and quality-focused are these subcontractors?

  • Are there any potential risks related to these subcontractors?

  • How dependent is the company on these subcontractors?


Assess Supplier Relationships and Contracts

Reviewing contracts with major suppliers is crucial to understand the terms and conditions that govern these relationships.

This review helps identify any potential supply chain risks or dependencies that could impact the company’s operations.

By assessing the stability and reliability of supplier relationships, the acquiring company can ensure a steady flow of materials and components necessary for production.

Practical Benefits:

  • Understands supply chain dynamics and potential risks.

  • Evaluates contract terms for any unfavorable conditions.

  • Identifies opportunities for renegotiation or improvement.


  • Ensures a stable supply chain.

  • Reduces the risk of production delays or stoppages.

  • Provides insights into supplier dependency and risk management.

Practical Steps:

  1. Obtain Supplier Contracts: Request copies of contracts with major suppliers, focusing on key terms and conditions.

  2. Analyze Terms and Conditions: Review the contracts for any clauses that might pose risks, such as termination clauses, pricing structures, and delivery terms.

  3. Assess Supplier Performance: Evaluate supplier performance data to understand their reliability and any past issues.

  4. Identify Alternative Suppliers: Research potential alternative suppliers to mitigate risks associated with current dependencies.

Self-Assessment Questions:

  • Who are the company’s largest suppliers?

  • What are the key terms and conditions of supplier contracts?

  • Are there any supply chain risks or dependencies?

  • How does the company manage supplier relationships?

  • Are there any alternative suppliers available?


Evaluate Manufacturing Yields and Processes

Reviewing monthly manufacturing yield summaries by product is essential to assess the efficiency and quality of the company’s manufacturing processes.

This evaluation helps identify areas where improvements can be made, ensuring that production is both efficient and cost-effective.

Understanding manufacturing yields also aids in maintaining product quality and meeting customer expectations.

Practical Benefits:

  • Assesses the efficiency of manufacturing processes.

  • Identifies areas for improvement in production.

  • Ensures high-quality manufacturing standards.


  • Maintains product quality and consistency.

  • Enhances production efficiency.

  • Reduces waste and operational costs.

Practical Steps:

  1. Request Yield Summaries: Obtain monthly manufacturing yield summaries for each product.

  2. Analyze Data: Review the data to identify trends, bottlenecks, and areas for improvement.

  3. Benchmark Against Standards: Compare the company’s manufacturing yields with industry standards to gauge performance.

  4. Identify Bottlenecks: Investigate any significant issues or bottlenecks in the production process and develop strategies to address them.

  5. Implement Improvements: Work with the target company’s manufacturing team to implement improvements and optimize processes.

Self-Assessment Questions:

  • What are the current manufacturing yields by product?

  • How efficient are the company’s manufacturing processes?

  • Are there any significant issues or bottlenecks in production?

  • How does the company ensure quality control in manufacturing?

  • What measures are in place to improve manufacturing efficiency?


Examine Inventory Reports and Backlogs

Obtaining copies of inventory reports and assessing current inventory levels and backlogs is vital for understanding the company’s inventory management practices.

This evaluation helps identify any potential issues with inventory levels, such as excess stock or shortages, and ensures that the company can meet customer demand without unnecessary delays or costs.

Practical Benefits:

  • Provides insights into inventory management practices.

  • Identifies potential issues with stock levels.

  • Helps ensure that the company can meet customer demand.


  • Maintains optimal inventory levels.

  • Reduces the risk of stockouts or excess inventory.

  • Enhances customer satisfaction by ensuring timely product availability.

Practical Steps:

  1. Request Inventory Reports: Obtain copies of the latest inventory reports, including details on current levels and backlogs.

  2. Analyze Inventory Levels: Review the reports to identify any discrepancies or issues with stock levels.

  3. Assess Inventory Management Practices: Evaluate the company’s inventory management practices, including how frequently inventory levels are reviewed and adjusted.

  4. Identify Improvement Opportunities: Work with the target company to identify and implement improvements in inventory management.

Self-Assessment Questions:

  • What are the current inventory levels and backlogs?

  • How does the company manage its inventory?

  • Are there any significant issues with inventory management?

  • How frequently are inventory levels reviewed and adjusted?


Assess Product Service Programs

Reviewing product service programs and contracts with service providers is crucial for evaluating the company’s after-sales support and customer satisfaction.

Effective service programs can significantly impact customer loyalty and repeat business.

By understanding the existing service programs, the acquiring company can ensure that customer needs are met and identify opportunities for enhancing service offerings.

Practical Benefits:

  • Evaluates the effectiveness of after-sales support.

  • Identifies opportunities to improve customer satisfaction.

  • Ensures continuity of service post-acquisition.


  • Maintains high levels of customer satisfaction.

  • Enhances customer loyalty and retention.

  • Supports long-term business success.

Practical Steps:

  1. Request Service Program Details: Obtain information on existing product service programs, including terms and conditions.

  2. Analyze Service Effectiveness: Review data on service performance and customer feedback to assess effectiveness.

  3. Evaluate Third-Party Contracts: Examine contracts with third-party service providers to understand their roles and performance.

  4. Identify Improvement Areas: Work with the target company to identify areas where service programs can be improved and implement necessary changes.

Self-Assessment Questions:

  • What product service programs are in place?

  • How do these programs impact customer satisfaction?

  • Are there any contracts with third-party service providers?

  • How effective are these programs in supporting customers?

  • What measures are in place to improve after-sales service?


FAQs - Frequently Asked Questions About Production Due Diligence in Business Transactions

Business FAQs

Why is due diligence in production-related matters important in M&A?

It ensures operational continuity and identifies potential risks.

Learn More...

Due diligence in production matters helps identify potential risks and operational inefficiencies.

It ensures that production processes, supplier relationships, and inventory management are robust and reliable.

This thorough review can prevent disruptions post-merger, ensuring a smooth transition and integration.

Read more here.

How do I evaluate the reliability of subcontractors during due diligence?

Review their performance data and existing contracts.

Learn More...

Evaluating subcontractor reliability involves reviewing performance data, customer feedback, and existing contracts.

Conduct interviews with key personnel to gain deeper insights into subcontractor performance and potential risks.

  • Request a list of significant subcontractors.
  • Analyze performance and reliability data.
  • Review contract terms and conditions.

These steps help ensure that subcontractors are reliable and capable of meeting production demands.

Read more here.

What should I look for in supplier contracts during M&A due diligence?

Focus on key terms, conditions, and potential risks.

Learn More...

Reviewing supplier contracts involves examining key terms, conditions, pricing structures, and termination clauses.

Identify any unfavorable conditions or risks that could impact the supply chain.

Assess supplier performance and explore alternative suppliers to mitigate risks.

  • Obtain copies of major supplier contracts.
  • Analyze terms for potential risks.
  • Consider alternative suppliers for risk mitigation.

Read more here.

How can I improve manufacturing yields during an acquisition?

Identify and address bottlenecks in production processes.

Learn More...

Improving manufacturing yields involves analyzing monthly yield summaries and identifying bottlenecks in production.

Implement strategies to enhance efficiency, such as optimizing workflows and investing in quality control measures.

  • Request monthly manufacturing yield summaries.
  • Identify trends and bottlenecks.
  • Implement efficiency improvements and quality control measures.

Read more here.

Why is inventory management important in M&A due diligence?

It helps maintain optimal stock levels and meet customer demands.

Learn More...

Effective inventory management ensures that the company can meet customer demands without excess stock or shortages.

Reviewing inventory reports helps identify potential issues and implement improvements.

Maintaining optimal inventory levels reduces costs and enhances operational efficiency.

  • Obtain copies of inventory reports.
  • Analyze current inventory levels and backlogs.
  • Identify and address inventory management issues.

Read more here.

What role do product service programs play in M&A due diligence?

They impact customer satisfaction and loyalty.

Learn More...

Product service programs are crucial for maintaining customer satisfaction and loyalty post-acquisition.

Evaluating these programs helps identify areas for improvement and ensure effective after-sales support.

Strong service programs can significantly enhance customer loyalty and repeat business.

  • Review existing service programs and contracts.
  • Assess service effectiveness through customer feedback.
  • Identify and implement improvements in service programs.

Read more here.

In Summary…

Thorough due diligence in production-related matters is a cornerstone of successful mergers and acquisitions.

By carefully assessing suppliers, evaluating manufacturing processes, monitoring inventory levels, and enhancing customer service programs, you can uncover potential risks and identify opportunities for improvement.

These steps ensure operational continuity, maintain product quality, and enhance overall efficiency.

Applying the information from this article, you gain a clear roadmap for conducting effective due diligence.

You’ll be able to identify reliable subcontractors, mitigate supply chain risks, optimize manufacturing processes, manage inventory effectively, and improve after-sales support.

These actions not only streamline the integration process but also contribute to the long-term success of the merger or acquisition.

Ready to take your M&A strategy to the next level?

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Unlock the full potential of your M&A endeavors by leveraging the expert advice and practical steps outlined in this guide.

Let’s ensure your next merger or acquisition is a resounding success.


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About the Author

jack nicholaisen
Jack Nicholaisen

Jack Nicholaisen is the founder of After acheiving the rank of Eagle Scout and studying Civil Engineering at Milwaukee School of Engineering (MSOE), he has spent the last 4 years disecting the mess of informaiton online about LLCs in order to help aspiring entrepreneurs and established business owners better understand everything there is to know about starting, running, and growing Limited Liability Companies and other business entities.