Customer advantages of turnkey contract manufacturing
When a business embarks on a manufacturing project — like the construction of printed circuit boards, wire harnesses, and cable assemblies — they often have two choices when it comes to the process: the turnkey approach, in which a contract manufacturer purchases all the parts and then does the actual manufacturing, and the consignment approach, in which a customer supplies all the parts to the contract manufacturer, who then makes the products.
On the face of it, the consignment option may seem more cost effective. However, we’ve found through years of experience that the turnkey approach offers several compelling advantages related to cost, timeframes, and efficiency:
Costs and Organization
In a turnkey process, the manufacturer takes on the financial responsibility of purchasing all the materials, which can translate into cost saving for a customer because of the manufacturer’s purchasing volume and negotiating advantages. The manufacturer also manages component inventory and oversees product kitting, meaning that the customer doesn’t have to divert resources toward those time-consuming tasks.
A Reduction in Delays
The turnkey manufacturer coordinates the elements of material availability, procurement, and assembly. In the event of a supply chain disruption, a manufacturer often has contingency plans that involve multiple suppliers and facilities, cutting down on the likelihood of significant delays. With a consignment model, customers may be unaccustomed to keeping track of the flow of materials, and may not be prepared to respond to a delay until further along in the production process.
Knowledge of The Process
Manufacturers order components with the full knowledge of the manufacturing equipment and associated processes, which results in better yields. Turnkey manufacturers discover production challenges (related to materials issues) in product sooner and resolve them more quickly, compared to the consignment model, which adds customer intervention and avoidable delays.
Turnkey manufacturers can also provide detailed records of materials, processes, and testing results, giving the customer the ability to track progress.
Flexibility and Scaling
Turnkey manufacturers are equipped to handle changes in order volume, and are able to scale production up or down without additional setup costs or delays. Under the consignment model, a customer would have to write additional purchase orders for materials, then track and ship them to the manufacturer, adding additional costs and lost production time.
If you have questions about how the consignment approach might benefit your current project, we’d love to hear from you. Just let us know.
