• Introduction
• What is the Difference Between Contract Manufacturing and Contract Assembly?
• What are the Advantages of Contract Assembly?
• Potential Disadvantages of Contract Assembly
• Steps Involved in Contract Assembly Manufacturing
• What Industries Use Contract Assembly
• Selecting the Right Contract Assembly Company
• Get in Touch

There are a variety of strategies for outsourcing production to third-party manufacturers. It’s also possible to outsource an entire production process or just part of it.

One of the most popular outsourcing strategies is contract assembly, or contract assembly manufacturing. This is when, rather than outsourcing any manufacturing processes to a third party, a third party is used to handle assembly processes.

Contract assembly is often carried out by companies or manufacturers that specialize in assembly work or with specialist skills relevant to a particular product or component. The assembler can be used to assemble either a component or an entire, finished product.

In contract manufacturing, the entire manufacturing process is outsourced to a third party. The third party will complete all stages of manufacture of a product or component, including sourcing materials and manufacturing components and parts. They will also assemble the finished product at the final stage of production.

Contract assembly covers the assembly stage only. Parts and components used in assembly are generally consigned by the customer, and the customer usually handles everything up to the assembly stage.

Contract assembly is particularly common in industries where product assembly involves complex assembly procedures or specialized equipment. The electronics, automotive and aerospace industries are examples. It’s also frequently used for products that are produced in large quantities.

Fig. 1: Assembly Lines at Komaspec

Contract assembly is an attractive strategy for companies that benefit from outsourcing production operations. The direct benefits that come from contract assembly include:

• Cost-effectiveness – Costs associated with labor and the purchase of machinery, equipment and manufacturing space needed to handle assembly can all be reduced.
• Focus on its core competencies – Without needing to handle assembly, a business can focus on other areas such as product development or marketing.
• Quality Improvement – Having access to specialist expertise, specialized production and inspection equipment and greater production capabilities can improve product quality and consistency.
• Flexibility – A business has no long-term commitment to a third-party assembler, no need to lease production space, buy equipment, or directly employ the various workers needed for production, allowing for vastly greater flexibility.
• Scalability – If necessary, it may be possible to quickly scale-up or scale-down the capacity needed from an outsourced assembly process.
• Faster time-to-market – Third party assemblers will often have a certain amount of spare capacity and equipment, allowing them to scale up and launch work at short notice, giving a faster time to market.

Outsourcing assembly to a contractor can also mitigate some of the risks associated with production. Notably, the contractor is responsible for quality standards and production deadlines.

While there are numerous benefits to contract assembly, there are also some drawbacks to following this manufacturing method. Most of the drawbacks are associated with the loss of control that comes about when the assembly process is delegated to an external business.

• Communication Complexity – While most problems are quickly identified, in some instances, misunderstandings or missed messages can result in mistakes being made. Poor quality standards or failed products and components can sometimes be the result. It’s important to communicate very clearly with your contract assembler and to make sure that all requirements are written down. Ongoing supervision can also be used to pick up quickly where mistakes are made.  
• Quality and delivery issues – Third-party assemblers that lack the skills or capacity to deliver high quality work at the right time may be a problem. It’s important to make sure you choose an assembly manufacturer with the expertise, equipment and capacity you need.
• Intellectual property – In some cases, it may be necessary to make an agreement with a contract assembler that safeguards the intellectual property rights to a product or component.

The risks associated with contract assembly can be avoided by working with a reliable third-party assembler with the right skills, equipment and capacity for your specific needs. Having clear contracts and documentation that outline your exact requirements, deadlines, quality expectations and intellectual property rights will also help.

Table 1: Comparative Analysis of Advantages and Potential Disadvantages of Contract Assembly

From the initial planning stage to when the final shipment is sent, the contract assembly process contains certain key phases. The most important thing at most stages is close coordination between the customer and assembly partner.

The main steps involved in contract assembly manufacturing include:

1. Design and Planning: This is the initial phase, where product designs are analyzed and refined. The assembly process also needs to be carefully planned at this stage.
2. Sourcing Components and Sub-Suppliers: The customer handles the sourcing of components and parts for use in assembly. Where sub-suppliers are used, they need to be clearly designated. All part and component sources need to be clearly defined for the entire project. This is a key difference between contract assembly and contract manufacturing.
3. Consigning Materials and Components: The customer is responsible for arranging the purchase and delivery of components and raw materials to the contract product assembler. This requires careful coordination and record-keeping on both sides.
4. Assembly Process: This stage is handled by the sub-contractor and is when the various components and sub-assemblies are assembled to produce the final product.
5. Quality Control and Testing: The assembled products/components must undergo thorough testing and quality control to ensure they meet any pre-agreed standard requirements.
6. Packaging and Shipping: The final products are packaged and shipped to the designated location.

Fig. 2: A Flow Diagram of the Contract Assembly Manufacturing Process

Contract assembly is most often used for either:

• High volume products in consumer-facing industries - The primary advantage being the efficiency savings that specialist assemblers offer.
• Highly regulated industries, such as aerospace or automotive - Customers can “rent” the assembly know-how and production capabilities of specialized suppliers rather than having to go to great lengths to develop it themselves.

Electronics Industry

In the electronics industry, contract assemblers are often used to assemble complex consumer devices such as computers and smartphones. Companies in this industry can outsource assembly to contractors, and this frees up internal resources for managing the complex supply chains and inventory involved in producing consumer electronics. Alternatively, electronics brands may be able to focus on designing new, innovative products if they let contract assembly providers take care of product assembly.

Many printed circuit-board assembly (PCBA) manufacturers primarily exist to handle assembly processes (SMT, soldering, DIP) using customer provided components. As such, they are, essentially, contract assembly service providers.  

Automotive and Aerospace Industries

In the automotive and aerospace industries, the use of contract assemblers is common practice. This can be the assembly work for components like engines or transmissions. Or, alternatively, it can mean the assembly of an entire vehicle or aircraft. One component for which assembly is commonly outsourced is wire harnesses. These are a core component in automobiles, and there’s a high degree of specialization, specialized equipment and domain knowledge required in the production of these components. By outsourcing assembly to an outside supplier, large brands can simplify their operations and improve quality by taking advantage of contractor expertise.

Medical Industry

In the medical industry, contract assembly services can be used for medical devices such as pacemakers, insulin pumps and surgical instruments. Contract assembly providers in this industry often have to adhere to strict regulatory standards that ensure assembled medical devices are safe and effective for use.

Whatever the industry in question, the contract assembly provider will work closely with the client company to understand their specific requirements. They will then use their expertise and equipment to assemble the product or component to the company's specifications. As well as assembling the product from its constituent parts, this could include testing the assembled product to ensure it meets quality standards and packaging it for shipment.

It's essential to exercise due diligence when selecting a contract assembly company. We’ve written extensively on how to select the right contract manufacturer before. Nonetheless, here are the most important things to do when choosing a contract assembly manufacturer:

1. List Potential Companies: Research online, check industry directories or get recommendations from peers to compile a list of companies that align with your manufacturing needs. Depending on your specific product/component, you may want to look for suppliers with specialist experience, equipment and production processes for your needs. This is especially true where complex processes like cable assembly will be needed or where complicated products will be made in high volume.
2. Evaluate Potential Companies: Create an evaluation sheet based on key criteria like experience, quality management systems, certifications, capacity, equipment and pricing.
3. Understand Sub-Contractor Capabilities: Visit the company’s website, and read about their history, capabilities, and services. Additionally, research online reviews and forums for insights into customer experiences with the company.
4. Check References: Ask the company for references and contact them to inquire about their skills, capabilities, experience and standards.
5. Ask Key Questions: Query potential contract assembly companies regarding their capabilities, track record, certifications and anything else you need information on.

Fig. 3: Choosing the Right Contract Assembly Company

Working with a Contract Assembly Provider

A sub-contracted assembly manufacturer is completely in charge of the assembly process. They have a lot of responsibility in a narrow field and are not in constant communication with other areas of production. Because miscommunication can create issues, there needs to be a clear definition of a customer’s exact requirements as well as the assembler’s responsibilities. Ongoing support and monitoring are also necessary. The assembly provider is not a turnkey supplier, and they need to have access to all the information they need to work effectively.

1. Ensure that assembly requirements, quality standards and business terms are defined in the manufacturing contract.
2. Establish a clear and documented assembly process.
3. Provide clear documentation and a bill of materials (BOM) for consigned parts and components.
4. Coordinate the supply chain to ensure the inventory of consigned parts and components is sufficient and on-time.
5. Monitor assembly performance and part/product yield and provide feedback as necessary. Monitoring part/product yield is critical to the overall process of outsourcing assembly.

We welcome you to explore our services and discover how our expertise can serve your assembly needs. With our contract assembly services, we aim to enhance your production efficiency, allowing you to manage your costs effectively and to provide industry-specific expertise.

Take a look at our other helpful articles or contact us via our form or by email. We're ready to help you navigate the path to increased productivity and profitability.