Is Contract Assembly Right for Your Organization?
Smart manufacturers are always looking for optimal value. That value extends to raw material purchases, manufacturing processes, and allocation of labor. You wouldn’t tolerate inefficient manufacturing processes or pay any more for raw materials than you have to, so why would you devote precious labor time to an assembly process that adds limited value?
That’s the key question to answer when assessing whether contract assembly is the best choice for your operation—how much value does the process provide? Consider these factors when assessing this value.
Nature of the Assembly Work
Is there an element of your assembly work that stands out as high-value-added? Is it so difficult and unique that the process requires special skills, and does your organization have those skills? Contract assembly could provide the answer on either end of that scale, by providing useful expertise that your organization doesn’t have or providing a more efficient assembly process for standardized materials.
Proprietary products or processes should not be a concern, as any contract assembly operation will have agreements to outline and protect your intellectual property. Make sure that you and your supplier are both comfortable with the terms of the agreement before proceeding, and that there is a clear understanding of what is proprietary and how proprietary information is to be handled and stored.
When the nature of your assembly process adds limited value to your enterprise, use of contract assembly can let you focus your limited resources on more important efforts.
There may be several volume inflection points where contract assembly is a more economical choice. Savings could be reflected in labor costs or as unspent capital/fixed costs.
For low volumes, your assembly may not be particularly cost-effective but it may not be cost-effective for a contract assembler either. In that case, you may not be able to find a price that works for both sides. However, there are some high-value added processes that could benefit from a contract assembler’s expertise despite being an economic draw.
Within most industries there is a substantially sized “sweet spot,” where the volume is not large enough to make it worth investing in and expanding your own assembly operations but your costs can be significantly lowered through the use of contract assembly.
At the highest volumes, it usually boils down to labor costs versus logistics. Even if you do invest in your own capabilities, can you bring the costs below that of an efficient contract assembler? It’s possible that the cost curves diverge and very high volumes make contract assembly even more economically attractive.
Are your assembly costs disproportionately eating into your profit margin? That may be acceptable when you are in a specialty or technical field with challenging assembly needs and/or a larger profit margin to absorb those costs. However, if you are in a lower-margin commercial field where volume is important and assembly costs can make the difference between profit and loss, you can’t afford any inefficiency in the assembly process. Optimal use of contract assembly can lower your costs and keep your operations in the black.
Multiple Contract Steps
If your strategy already includes some outsourced manufactured parts, it’s possible that you can save time and money by incorporating assembly into the outsourced-manufacturing scheme. Multiple transfers between organizations increases the chances of miscommunication and errors and often decreases efficiency.
Depending on the nature of your processes and products, it may make more sense to incorporate -manufactured parts and assembly with a single vendor to make for a single smooth transfer between organizations. A package deal should also lower the costs for everyone involved via improved logistics. This is especially true when any sort of post-assembly finishing steps are required. It’s generally more efficient to combine assembly and finishing operations, and it’s certainly more efficient if you don’t have in-house capacity for either step.
A good contract assembler will have quality systems that mesh with yours to provide a smooth transition and ensure that they supply materials that always meet your specifications. By consistently supplying high-quality assemblies, contract assemblers can simultaneously reduce your inspection costs and scrap.
However, it is extremely important to make sure quality standards are understood and met. Spend as much, if not more, time analyzing the quality systems of your contract assembly partner as you do the cost structure. At the same time, make sure you are clear with your defined test specifications. Vague or shifting specifications can result in unusable assemblies and neutralize your savings.
Make the Value Choice
If you do decide that contract assembly is the right path for you, consider Smartrend Manufacturing Group as your supplier. We provide a wide array of manufactured parts as well as assembly and finishing processes through our network of qualified international factories. Whether you are looking for a cost-effective assembly process or a comprehensive outsourced manufacturing package, SMG has the capabilities necessary to save your organization time and money—and what company doesn’t want that?
At the very least, it’s worth re-evaluating your operations to see if you can benefit from contract manufacturing or assembly. Saving time and saving money leads to a more efficient organization and greater profits—and maybe even to company bonuses.