Contract assembly is outsourcing the assembly part of a manufacturing process to a company that is better suited to handle it. Reasons for outsourcing include cost, lack of expertise, or better equipment. Electronics and complex machines are common products that require contract assembly. Companies can outsource several stages of manufacturing, including contract assembly.
Just 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 that is suited to handle the assembly. There are a number of reasons a business might choose to go the contract assembly route. For some companies, it may be a form of comparative advantage where they outsource the production process they are least able to handle profitably to another company that has no problem doing it. In this case, the other company may have more modern equipment or a wider range of equipment and trained personnel who will provide faster turnaround times. It could also be because it might be cheaper for the company to outsource the assembly process for various reasons, or it could be that the company outsourcing the assembly might have less experience at that stage of the manufacturing process than the company that has been commissioned to do so.
When the decision to engage in contract assembly has been made, the company outsourcing the assembly will look for a company that handles the particular type of assembly process they want. Usually, the major types of manufacturing processes that require contract assembly include the manufacturing of electronics, machines with complex parts, or even some seemingly innocuous products that simply require the contract assembler to assemble a particular item in its final stages , such as binding a book according to specifications and packing the final product in specific packaging. In the case of electronics, most companies outsource the production of individual electronic items and components, mainly in Asian countries where labor is much cheaper. When these items are ready, they will be shipped to the headquarters of the company that owns them, from where they will be sent to the company that may have been contracted to do a contracted assembly of the items.
In this scenario, it can be seen that it is possible for an investor to outsource several stages of the manufacturing process to outside companies, including that company’s engagement in contract assembly. Even a part of the production of machinery or automobiles can be outsourced through contract assembly. In that case, the contract assembler may be contracted to assemble certain vehicle components on behalf of the automaker.
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