What is contract assembly?

Some companies outsource the assembly of their products to contractors.

As the name suggests, contract assembly is a term used to describe the process of outsourcing the assembly part of a manufacturing process to a company well suited to handle the assembly. There are several reasons why a company might choose to go the contract assembly route. For some companies, it can be a form of comparative advantage in that they outsource the manufacturing process they are less able to manage profitably to another company that has no problem doing so. In that case, the other company may have more modern equipment or a wider range of equipment and trained personnel that will provide a faster turnaround time. It could also be due to the fact that it could be cheaper for the company to outsource the assembly process for various reasons,

The cost of maintenance and repair of machines is usually taken into account when companies choose to hire assembly.

When the decision to engage in contract assembly is made, the company that outsources the assembly will look for a company that handles the specific type of assembly process they want. Typically, the main types of manufacturing processes that require contract assembly include the manufacture of electronics, machines with complex parts, or even some seemingly innocuous products that only require the contract assembler to assemble a certain item in its final stages, such as binding a book in accordance with specifications and pack the final product in specified packaging. In the case of electronics, most companies outsource the production of individual items and electronic components, mainly to Asian countries where labor is much cheaper. When these items are ready, they will be sent to the location of the company that owns them, from where they will be forwarded to the company that may have been hired to carry out the contractual assembly of the items.

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In this scenario, it is clear that it is possible for an investor to outsource different phases of the manufacturing process to external companies, including hiring this company to set up the contract. Even a part of machinery or automobile manufacturing can be outsourced through contract assembly. In this case, the contract assembler may be hired to assemble some component of the vehicle on behalf of the car manufacturer.

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