Assembly Contracts: Everything You Need to Know
Assembly contracts govern relationships of assembly specialists, who operate somewhat differently than other manufacturers. Assembly specialists combine semi-finished parts into more complicated semi-finished goods or final products.3 min read
2. Low-Volume Contract Assembly Manufacturing
3. Is An Assembly Contract Right for You?
4. Advantages and Disadvantages of Contract Manufacturing
Assembly contracts govern relationships of assembly specialists, who operate somewhat differently than other manufacturers. Assembly specialists combine semi-finished parts into more complicated semi-finished goods or final products. An example is welding. Another example is an automotive assembly specialist may combine dye-cast rubber, lug nuts, and metal rims to make a tire for a car.
Advantages of Assembly Contract Software
There are two major advantages of assembly contract software: reducing response time and improving productivity.
Assembly contract software can reduce response time by allowing the legal team to respond faster. Using special software to custom-build a contract can take response time from three weeks down to one day. In addition, an excellent first draft can result in both parties reaching an agreement faster.
An assembly contract can also improve productivity by saving time. Saving time relieves pressure on the budget and allows the parties involved to focus on other higher-priority tasks. Some businesses report that drafting an assembly contract in-house saved them over 90 percent of the time it would have taken to have someone else draft the contract.
Other advantages include less chance of human error, easier delegation of work, and general quality improvement.
Some businesses believe that contract formation should not commence until the quality has reached a certain threshold. The opposite is true - using contract assembly software actually improves the quality of a contract. Contract assembly frees the legal department to provide for many commonly used options without losing oversight.
Low-Volume Contract Assembly Manufacturing
Low-volume contract assembly manufacturing is a business-to-business niche. The low volume business is able to keep start-up costs and overhead low, and do not have to concern themselves with new product development or directly marketing to customers. However, they do not have control over demand and are subject to the whims of their client's market. If a client's sales drop, so do the sales of the low-volume contract assembly manufacturer.
The key to success in this niche is building long-term, mutually beneficial relationships with clients. If the business intends to remain small, it can serve a handful of customers over the years with a steady income and consistent profitability. However, if it intends to go into high-volume productivity, it is best that the business secure contracts with international companies.
Is An Assembly Contract Right for You?
A smart manufacturer seeks maximum value in purchasing raw materials, labor allocation, and manufacturing processes. This raises the question "Why devote time and resources to an assembly process that provides limited value?" Exactly how much value the process provides can help you determine if an assembly contract is right for your business.
You may wish to ask the following questions:
- Is there a high-value-added element of the assembly work?
- Does the process require special skills, and if so, does your organization have that capacity?
- Is contract assembly a more economically viable choice? This is usually answered by comparing labor costs and logistics. In most business, there is a substantial "sweet spot" where the volume is too low to be worth investing in and expanding operations but costs can be lowered considerably by using contract assembly.
- Are assembly costs affecting your profit margin?
- Are there multiple contract steps?
- Is the inspection result up to your standards of quality?
Advantages and Disadvantages of Contract Manufacturing
Contract manufacturing is a type of outsourcing popular in the United States. The manufacturing process is outsourced to a third party. More specifically, jobs previously performed by the manufacturer are outsourced to the third party.
There are advantages and disadvantages of contract manufacturing. Contract manufacturing can save considerable amounts of money on raw materials, labor, and other production-related expenses. Third-party contract manufacturers are often in developing countries rife with cheap labor and minimal regulations. As long as the company maintains appropriate oversight, this can lower production costs while raising profit margins.
The disadvantage is that this often costs American workers their jobs, and they may not find a replacement job with similar pay and benefits.
If you decide that contract assembly is right for you, one option is Smartrend Manufacturing Group. SMG provides a wide range of manufactured goods, as well as assembly and finishing services.
If you need help with your assembly contracts, post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. The attorneys graduated from such law schools as Harvard Law and Yale Law and average 14 years of legal experience working for or on behalf of companies like Google, Menlo Ventures, and Twillo.