Due Diligence Checklist for Japanese OEM Suppliers

How to use this checklist

Run the checklist as a structured questionnaire sent in writing to the shortlisted manufacturer ahead of the on-site audit. Items the manufacturer cannot or will not answer in writing become flagged topics for the on-site visit; items the manufacturer does answer in writing form the verifiable record the OEM contract is negotiated against.

Treat the checklist as one input among several — financial statements, customer references, and physical observation each contribute information the questionnaire cannot. The point of the questionnaire is to make answers comparable across candidates, not to be the entire diligence on its own.

1. Corporate and licensing

• Corporate registration: company registration number (法人番号), registered head office, capital, year of incorporation, representative director.
• Japanese product-category manufacturing licences in force: cosmetics manufacturing licence (化粧品製造業許可) and licence number; food sanitation business permits (食品衛生法に基づく営業 許可) and permit numbers; supplement-related quasi-drug licences if applicable.
• Cosmetics Marketing Authorisation Holder (MAH, 化粧品製造販売業) status — does the manufacturer hold the MAH itself, or rely on a third party?
• Foods with Functional Claims (機能性表示食品) registration experience for supplement OEM houses; specific SKUs registered.
• Beneficial owner identity above 5% / 10% / 25% thresholds, for AML and sanctions screening.

2. Financial

• Most recent two annual financial statements (B/S, P/L, cash flow). Many private Japanese mid-market manufacturers are willing to share under NDA.
• Bank facility status, including major lenders and any covenant breaches in the past 3 years.
• Customer concentration — share of revenue from the top 3 customers. Above 60% concentration is a risk flag for OEM continuity.
• Capex history and the next 12-month capex plan for the line that will produce the buyer's SKU.
• Insurance coverage: product liability, business interruption, property, and (where relevant) employment practices.

3. Quality and regulatory compliance

• ISO 9001, ISO 22716 (cosmetic GMP), FSSC 22000, HACCP, or equivalent certifications — scope statement, issuing body, certificate number, expiry, and most recent audit summary.
• Internal QA organisation: QA manager identity and reporting line, number of QA staff, frequency of internal audits.
• History of regulatory inspection findings from MHLW, prefectural authorities, or destination-market authorities in the past 3 years. Material findings and corrective actions.
• History of product recalls in the past 5 years — category, cause, scale, regulatory authority involved.
• Stability testing protocol for cosmetics and food, including accelerated and real-time testing methodology.
• Allergen control programme for food production lines — how cross-contact is prevented and verified.

4. Intellectual property

• Japanese trademark, design, and patent rights held by the manufacturer, including renewal status.
• Outstanding IP litigation, opposition proceedings, or enforcement actions in the past 5 years.
• Standard terms regarding IP ownership in the manufacturer's OEM contract template (see Japanese OEM Contract Essentials).
• Trade-secret protections — who has access to formulations, customer information, and process know-how, and what contractual restraints apply.

5. Supply chain and continuity

• Single-source raw material exposure — list of raw materials with a single qualified supplier and the contingency plan if that supplier fails.
• Geographic concentration — risk of earthquake, typhoon, or other regional disruption to the main production site.
• Business continuity plan — most recent BCP document and tabletop exercise date.
• Subcontracting policy — what production steps may be subcontracted, and whether subcontracting requires buyer notification or consent.
• Lead times for sample, first production, and repeat production — and stated buffer for peak season volume.

6. Sustainability, labour, and integrity

• Sustainability commitments — energy, water, waste, packaging. Some destination markets (EU notably) require buyer-side reporting that flows back through the OEM manufacturer.
• Labour practices — working hours, foreign worker programmes (技能実習 / 特定技能), and how the manufacturer monitors subcontractor labour practices.
• Anti-corruption and conflict-of-interest policies — whether the manufacturer can sign the buyer's standard anti-corruption clause.
• Sanctions screening of beneficial owners, directors, and major customers against UN, US (OFAC), UK (OFSI), and EU lists.

7. On-site audit observations

Document the questionnaire answers before the visit. On-site time is best spent observing what cannot be answered in writing:

• Physical condition of the production line, including changeover procedures, line clearance verification, and adjacency to other product lines.
• Raw material warehouse — segregation, FIFO discipline, temperature and humidity control, pest control evidence.
• QA laboratory — instruments calibrated, sample retention system, training records visible.
• Worker behaviour and culture — uniform discipline, hand washing protocol, willingness to stop the line for a minor non-conformance.
• Documentation discipline — are records actually filled out in real time, or visibly back-filled?
• Hidden capacity — informal areas behind the official tour route that the buyer's host appears reluctant to show.

8. Reference checks

• Two current OEM customers, contacted directly with the manufacturer's consent. Ask about on-time delivery, quality consistency, response speed on issues, and what they would change.
• One former OEM customer who has wound down the relationship in the last 2 years. The reasons for wind-down often reveal more than active references.
• Where possible, the manufacturer's logistics provider and one raw material supplier — both will know the manufacturer's payment discipline and cooperation style.

Decision framework

Score each shortlisted manufacturer on each category as Pass / Conditional pass (with specific contract conditions to address the gap) / Fail. A single Fail in licensing, quality, or sanctions normally disqualifies the candidate. Conditional passes in other categories become specific clauses in the OEM contract — quality agreement amendments, capex commitments by the buyer, audit rights, or termination triggers.