Subcontract machining is completed by companies that were hired by a firm for the specific purpose of providing their machining services. Subcontract machining is a widespread practice and is used by many industries, including but not limited to the aerospace, automotive, construction, electronics, food and beverage, marine, medical device and pharmaceutical industries.
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Also known as outsourcing, offshoring or contract machining, subcontract machining is performed by businesses that were hired as external service providers. Those terms are often used interchangeably because their definitions have yet to be agreed upon. However, offshoring is mostly used in reference to subcontracting that takes place outside of North America. Regardless of what the proper term is, subcontract machining is the business process where one firm hires another to provide certain services in exchange for payment. The involved businesses enter into a contract for a predetermined length of time or until a certain number of units are manufactured. The contracts can range from a few months to a few years; the average length is between three and five years. Subcontract machining benefits the firm that was hired to provide machining services in that they have a steady work flow. The hiring firm avoids the startup costs of purchasing their own production facility as well as the hassles and responsibilities.
Subcontract machining usually follows a standard business model. A company decides that it should hire an outside machining business to provide certain services and processing. This decision may be made for many reasons including labor costs, taxes, availability of materials and other considerations. The firm solicits job estimates from various companies that specialize in subcontract machining. The hiring firm is provided with bids or quotes based on the labor, tooling and material costs before making a selection based on what they interpret is the best quality in relation to the best cost. The two companies discuss details such as the length of the contract, the payment amount and the specific machining services to be provided and, once in agreement, sign a contract. The term subcontract means that the company is under a contract agreement to manufacturer the parts to the agreed specifications. Another option beyond subcontract machining includes contract assembly or machining for a specific industry such as aerospace, chemical or pharmaceutical. Hiring machining services is also similar to working with an OEM, an original equipment manufacturer. OEMs manufacture or fabricate products that are purchased by the hiring firm and sold under the branding of that company. In both situations, the firm that is hired to do the actual work is not the same firm who designs, advertises, retails and profits from the services.
