Contract Manufacturing & Automation in Automotive

PMi2

If you’re an automotive OEM or supplier, you’ve likely felt the squeeze of recent events on your production plans. A global pandemic, natural disasters, geopolitical instability, and even something as unexpected as a major bridge collapse in Maryland have exposed how delicate supply chains can be.

In the automotive industry, disruptions like the semiconductor chip shortage resulted in over $200 billion in lost revenue and 11 million fewer vehicles produced in 2021 alone.

These shocks drive manufacturers to rethink how and where they build critical components.

Why now?

Because the stakes for efficiency and resilience have never been higher.

“As an industry, we’re dealing with rising material costs, tight labor markets, and customers who expect faster delivery for new models,” said Eric Cline, the owner of PMi2, a machining and automation services company in Westminster, South Carolina.

In fact, even as conditions improve, nearly 60% of manufacturers surveyed in late 2024 said their top challenge was finding and keeping skilled workers.

Supply chain delays are still longer than pre-pandemic norms, with raw material lead times averaging 81 days as of late 2024. For automotive companies, these pressures make finding innovative ways to maintain production continuity an urgent concern.

That’s where contract manufacturing and automation services come in.

What is Contract Machining and Automation?

“Contract manufacturing” is essentially outsourcing production to a trusted partner. You provide the specifications, and a third-party company manufactures your parts or products. In machining terms, contract CNC services mean an outside machine shop produces your components, often with high-precision 3-axis and 4-axis machining capabilities that meet or exceed your quality requirements.

These arrangements are sometimes called toll manufacturing (mainly when you supply the materials) or simply third-party manufacturing. For example, an automotive OEM might hire a contract machine shop to produce engine brackets or drivetrain components to avoid investing in additional CNC machines themselves.

Likewise, contract automation solutions involve partnering with a specialist to design and build custom automation equipment or integrate robotics into production processes.

Companies like PMi2 focus on manufacturing automation machinery. In other words, contract automation can be a one-stop service where an external team creates the automated production line equipment for you, from initial concept through design, building, and testing.

It’s worth noting that contract manufacturing isn’t limited to metal parts or mechanical assemblies. For electronics, many firms use electronics manufacturing services (EMS) to produce circuit boards and wire harnesses for vehicles.

Similarly, private label manufacturing is when a contract manufacturer produces a finished product that another company brands and sells as their own.

The common thread across all these models is leveraging outside expertise and capacity, whether for CNC machining services, automation integration, or electronics assembly, to manufacture your product efficiently and to spec.

Benefits of Contract Manufacturing

Why are so many automotive industry players turning to contract manufacturing and automation? Several key benefits resonate, whether building cars or the components that go into them.

Cost-Efficiency

Outsourcing production can dramatically reduce capital expenditures. Instead of investing in a new $300,000-plus CNC machining center or hiring and training a large workforce, you pay only for the parts or services you need. This frees capital for other strategic investments. Industry experts say that strategic outsourcing can lower manufacturing costs by leveraging a partner’s economies of scale. You also save on overhead like facility space, maintenance, and energy. Ultimately, contract manufacturing converts fixed costs into variable costs, you pay per unit, which is ideal for controlling budgets.

Production Capacity on Demand

Contract manufacturers provide production flexibility. This is crucial in automotive, where volumes can fluctuate with model cycles or market swings. Need to scale up quickly for a new EV component launch? A contract CNC shop can add an additional shift or rely on “lights-out” production to meet the spike in orders.

Conversely, a drop in demand doesn’t leave you with idle machinery. Instead, you simply adjust your orders. This flexibility extends to product mix as well. Contract shops often have multi-process capabilities, so they can adapt to produce different parts as your needs change.

High-Quality & Precision

Rependable contract manufacturers stake their business and name on quality. They invest in skilled machinists, engineers, testing labs, and quality management systems like ISO 9001, IATF 16949, etc., to ensure every part meets design specifications.

Partnering with specialists known for high-precision machining, downstream customers benefit from their expertise and stringent quality control. OEMs or other companies in the supply chain find that parts from a trusted contract supplier have equal or better consistency than in-house production, because the supplier’s core competency is manufacturing excellence.

The bottom line is you can improve quality assurance by using a contractor who is laser-focused on making your parts right every time.

Focus on Core Competencies

Contract manufacturing lets you offload complex fabrication work so you can focus on what you do best. Automotive OEMs, for example, can concentrate on vehicle design, final assembly, and marketing, rather than becoming experts in manufacturing every type of component.

Tier 1 suppliers can devote more energy to systems engineering and customer service if they outsource sub-components to reliable Tier 2 and Tier 3 manufacturers. In short, outsourcing non-core production tasks frees your team and resources for innovation and integration. This frequently accelerates time-to-market for new models and technologies.

Risk Mitigation

Relying on a single factory overseas or domestically for critical parts can be risky. Contract manufacturing offers a way to diversify your supply chain and build in redundancy. You can have backup suppliers ready or turn to multiple contract manufacturers in different locations to hedge against regional issues.

Also, in times of emergency, say a sudden equipment failure or a natural disaster shutting down one of your plants or suppliers, a contract manufacturing partner can step in to keep production running. This resilience is invaluable in today’s uncertain environment.

Access to Advanced Technology

Contract manufacturers often use the “latest and greatest” equipment and processes because they must stay competitive across their clients. By partnering with them, you indirectly gain access to cutting-edge tech without the investment.

For instance, a contract shop might have 5-axis CNC machines, laser cutters, or specialized EDM machining capabilities that your in-house shop doesn’t.

An automation integrator might offer experience with next-gen robotics or Industry 4.0 digital systems that you can leverage in your project. This means your products can be made using advanced techniques, improving performance and efficiency.

Addressing Issues that Keep OEMs and Suppliers Awake at Night

Let’s talk about your daily pain points. If you’re an OEM or a Tier 1 or Tier 2 supplier, you might face one or more challenges at some point, and maybe all of them at the same time.

The good news is that contract CNC services and automation partners alleviate these headaches.

Escalating Costs: Owning and operating manufacturing facilities is expensive, from buying machines and raw materials in bulk to labor, utilities, and continuous maintenance.

A contract manufacturer helps convert those fixed costs into a pay-as-you-go model. You don’t have to invest millions in equipment or carry the full burden of depreciation and upkeep. For example, instead of tooling up a new machining line for a component, you could engage a contract machining service that already has the equipment and expertise. This lowers your unit cost and avoids sinking capital into assets that might sit idle in slow periods.

Strained Capacity: Your production lines are near maxed out, and adding capacity in-house will take too long or cost too much. Perhaps a new contract requires additional sub-assemblies that your current factory can’t produce.

A contract manufacturer can provide immediate pressure relief. Many Tier 1 suppliers use outside machining shops when their plants are at capacity. It’s much faster to ramp up with a partner than to build new lines from scratch. Plus, if demand turns out to be temporary, you haven’t overextended yourself. The production flexibility of contract partnerships means you can seamlessly handle peaks and valleys in workload.

Skilled Labor Shortages: It’s increasingly difficult to find and hire experienced CNC machinists, welders, and automation technicians, and it’s even harder to retain them. The manufacturing skills gap is real. Over half of U.S. manufacturers report difficulty attracting skilled labor. If you’re short-staffed, your output and quality suffer.

Outsourcing leverages the contractor’s workforce. Good contract manufacturing firms like PMi2 invest heavily in training and often have a full team of specialists available. This means your project will have the skilled hands it needs. You no longer have to recruit for every niche expertise. The contract partner fills the labor gaps as an extension of your workforce.

Quality Control Issues: Maintaining strict quality assurance is tough, especially in periods of high demand or when launching new parts. Defects or inconsistent tolerances can damage your reputation.

A dedicated contract machining service lives and dies by its quality. Many such partners implement robust quality management systems and frequent inspections. For instance, PMI2’s in-house machining is coupled with assembly/testing services to verify that every component meets spec. When you partner with a contract manufacturer, you’re effectively plugging into a refined quality control process. This can significantly reduce scrap rates and warranty issues.

Need for New Technology or Processes: Adopting a new automated manufacturing process may be necessary, but it could be time-consuming and costly without in-house expertise.

Contracting with a firm that already has that capability is an obvious win. It could be a contract automation integrator with experience in flex-feeding and bin-picking robotics or a machining partner adept at multi-axis milling for complex geometries. Outsourcing this work shortens the timeline and risk of developing unproven tech. The contract partner will get things up and running faster and support delivering on your project without hiccups. Essentially, you “borrow” the expertise to expand your own capabilities quickly.

Supply Chain Uncertainty: Your supply chain team worries about relying on a single source or distant suppliers for critical parts, underscoring the need to avoid putting all your eggs in one basket. Trade wars, shipping delays, work stoppages, and political instability can threaten continuity. We’ve all seen how a factory shutdown for whatever reason overseas or a logistical snag can halt an assembly line at home.

Working with a domestic or regional contract manufacturer can shorten your supply chain and add a layer of resilience. For example, if you typically import machined castings, having a third-party manufacturing partner locally who can produce those castings or step in if imports are delayed is a smart backup. Contract manufacturers often have diverse material sourcing and can adapt if one supplier can’t deliver,

Shifting Global Conditions: Trade policies and economic conditions can change quickly. Tariffs, for example, can suddenly make imported components more expensive, pressuring you to find alternatives. There’s also a strong trend toward reshoring manufacturing back to North America and Europe to reduce dependency on distant sources. Meanwhile, natural disasters like earthquakes, tsunamis, and floods remind us that geographic concentration of production is risky.
Agile manufacturing networks: Contract manufacturing is inherently flexible and can be set up in various locations relatively quickly compared to building new owned plants. If a tariff makes parts from overseas unviable, a domestic contract manufacturer could take on that work with short notice, avoiding long-term capital bets. We’re essentially moving toward a world where, instead of huge, rigid supply chains, companies maintain networks of smaller, agile producers. A contract partner in the Midwest, another in Mexico, another in Southeast Asia. Each is ready to step in depending on market conditions. This agility is a lifesaver when global conditions shift overnight.
Technological Change & Electrification: The rise of electric vehicles (EVs) and advanced driver-assistance systems (ADAS) is transforming the auto industry. New components like battery enclosures, electric motors, and lidar sensor mounts need manufacturing at scale, often with new materials and processes, e.g., lightweight aluminum machining, and electronics integration. Established OEMs and suppliers might not initially have all this expertise in-house.

Collaboration with specialists. Contract manufacturers that focus on high-precision machining of complex EV parts, or EMS providers that build electronic assemblies, can accelerate your adoption of new tech. Rather than diverting your existing production lines to experiment with a new EV component (and possibly disrupting your current production), you can farm that out to a specialized manufacturer who has the right equipment.

The Push for Automation & Industry 4.0: Finally, there’s an overarching challenge of staying competitive through efficiency and data. Factories are getting smarter using IoT sensors, AI analytics, and robotics to optimize operations. But implementing these “Industry 4.0” solutions requires investment and know-how.

Manufacturing Challenges into Opportunities

Contract automation services and system integrators fill this gap. If your plant needs automation upgrades, you don’t have to figure it all out internally. Firms like PMI2 specialize in robotic integration, for example, integrating FANUC or Universal Robots arms into a production cell. They can design custom automation for tasks in your line and even tie it into your digital factory systems.

By contracting these services, you effectively outsource the R&D and deployment of advanced automation. The result is a more efficient, modern operation without completely diverting your internal resources.

CNC Capabilities Overview

https://youtu.be/860Cj93LjfQ?si=RZV5aAJeDvPyfcCB

One of the first things to evaluate when considering a contract manufacturing partner is their CNC machining capabilities.

Many contract shops serving automotive and industrial clients are well-equipped. Companies like PMi2’ include premium CNC milling and turning centers, as well as EDM and grinding machines.

Here’s an overview of the typical capabilities to look for in a contract CNC manufacturer.

Multi-Axis CNC Milling: Modern contract shops utilize 3-axis, 4-axis, and even 5-axis CNC milling machines. This allows them to handle complex geometries and machine multiple faces of a part in one setup, which improves accuracy. For automotive parts, 5-axis machining is excellent for things like engine components or tooling with intricate contours. Multi-axis capability means your designs have fewer limitations.
CNC Turning (Lathes): On the turning side, they’ll have CNC lathes to produce shafts, bushings, housings, and other round parts. Tier 2 suppliers frequently produce components like transmission shafts, steering components, and spacers on these machines. With live tooling, a CNC lathe can mill flats, drill holes, and perform other operations in one go.
EDM (Electrical Discharge Machining): Many contract manufacturers, like PMi2, offer wire EDM and sinker EDM capabilities. EDM is crucial for very tight-tolerance features, sharp internal corners, or hard materials that are difficult to machine conventionally. For example, in automotive, EDM might be used to machine precise injector nozzle holes, producing tooling dies for stamped parts or intricate designs for manufacturing plastic injection molded components. It’s a niche process, but if your part requires it, having a contract shop that can do EDM in-house is a big plus.
Precision Grinding: Precision grinding machines are typically used. After initial CNC machining, grinding might be applied to bearing surfaces or slide components that need mirror-smooth finishes and exact dimensions, providing tolerances up to ±0.0001 of an inch. Contract manufacturers often grind parts like valve components, injection molding dies, and any critical fit items.
Fabrication & Welding: In addition to subtractive machining, many contract manufacturers offer light fabrication. Especially for automation equipment or larger assemblies, they might fabricate frames or weld brackets as part of delivering a turnkey part or system. In automotive applications, a contract shop could, for example, machine a set of components and then weld them together into a sub-assembly (such as a fixture or a welded housing). Look for capabilities like MIG/TIG welding, sheet metal fabrication, and possibly 3D laser cutting if relevant to your needs.
Assembly and Testing: A full-service contract manufacturer can often take things a step further by assembling components and performing basic testing. PMi2 highlights in-house assembly, testing, and systems integration services. This means the outsourcing partner might not just machine the parts, but also assemble them into a unit. This eliminates the need to send components to another contractor. This is edging into what some call electronics manufacturing services when electronics are involved, or simply value-added assembly. It’s useful if you want a ready-to-use component delivered to your line, rather than a bucket of parts.
CAD/CAM and Engineering Support: On the software side, contract machining services use advanced CAD/CAM systems to program their machines with engineers on staff. This can be a hidden gem.. Engineers might suggest slight design modifications to improve manufacturability or reduce cost. A collaborative partner will work with your design team to optimize the part for production. They can also handle complex programming for toolpaths and even design custom fixtures or tooling needed to machine your part efficiently.

Secondary Finishing

Machining a part to shape is often just the beginning. Automotive components usually require secondary operations to be truly complete and ready for use. A strong contract manufacturer will either perform these in-house or manage them for you through vetted suppliers, delivering a finished product. And seeing how those finished parts are used in practice can spark ideas for your own projects.

Heat Treatment
Surface Treatment
Machining Finishing
Assembly & Testing
Quality Documentation

Applications

Here are some examples where contract manufacturing automation adds value to the automotive supply chain.

Precision Engine Components: Parts like fuel injector bodies, turbocharger impellers, or transmission valve bodies require extremely tight tolerances and often exotic alloys. Many Tier 2 suppliers produce such parts via contract CNC machining.
Custom Tooling and Fixtures: Automotive assembly lines rely on many custom jigs, fixtures, and gauges. A contract manufacturer can build this tooling on-demand.
Robotic Cell Components: Implementing automation often requires custom brackets, adapter plates, and end-of-arm robot tools, services ideal for contract machining. A company like PMi2, integrating FANUC robotic automation for a client, may machine the mounting plates and grippers required for handling parts.
Electronics Housings & Brackets: Modern vehicles have numerous electronic sensors, control units, and displays, each often needing a housing or bracket. Contract manufacturers can produce die-cast or machine aluminum housings for ECUs,, and other hardware.
Aftermarket and Service Parts: It’s not just production-line parts. The aftermarket and spare parts market benefit too. For older models where original tooling might be retired, an OEM can use a contract manufacturer to machine limited batches of service parts to supply customers.

Custom Automation Integration

https://www.youtube.com/watch?v=4cxw-Xdh0SI&list=PLZAsBusJOd3bt60wpBEEuyNdWk3ed22sT&index=2

Automation is a game-changer for manufacturing, but implementation often requires custom engineering. Contract automation integration services solve this. Companies like PMi2 that design and build automation systems have the ongoing experience to create unique solutions. Most modern automotive suppliers’ facilities have automated production cells and robotic stations designed and built by third-party integrators.

An experienced and well-regarded custom automation and engineering firm brings proven expertise to the table. Custom automation typically begins with understanding your process. The automation partner then develops concepts for an automation or robotic cell to do that task. They manage the system design, electrical and control system design, robot programming, fabrication, and assembly. Once complete, the equipment undergoes rigorous testing before installation and operator training.

Benefits of Contract Automation

Robotic Integration: A big part of modern automation involves integrating robots and cobots into production. PMI2, for example, specializes in robotics integration with FANUC and Universal Robots, among others. They customize and program robotic arms for turn-key production operations. The advantages are robotics deployment, which does not require the creation of an internal robotics design and engineering team. The integrator’s experience with the robot models and applications reduces the project timeline.
Automated Machinery & Conveyors: Not all automation involves off-the-shelf robots. Custom machines, like automated assembly stations, might use linear actuators, index tables, feeders, and AI vision systems to perform a specific task. For instance, you might need an automated assembly station that takes two plastic parts, applies glue, and presses them together, outputting a finished sub-assembly every 10 seconds. Rather than creating a “Rube Goldberg” solution internally, a third-party automation team creates the precision solution.
Systems Integration Expertise: Automation projects often integrate with existing production lines. A contract integrator brings valuable expertise. They consider every aspect of how the new automated cell interfaces with your current workflow. They bring their experience with many projects to bear. The integrator designs the automation to slot into your line with minimal disruption, avoiding the system operating as an island.
Addressing Labor and Ergonomics: Contract automation engineering provides solutions for labor-intensive or hazardous tasks. From robotic bolting stations to automated lift-and-load systems, we reduce physical strain and improve safety while allowing workers to focus on higher-value efforts. Automation frees up workers for higher-value tasks and improves safety. In the context of labor shortages, automating such tasks is crucial. It means you can meet production targets with fewer people, and the people you do have can supervise multiple automated cells rather than physically doing all the work.
Flexibility and Reusability: Business owners and production managers fear automation being limited to one task or function – a “one-trick pony.” Integrators now design systems with flexibility in mind. Quick-change fixtures, reprogrammable robots, and modular designs mean many automated cells can be retooled for handling a new part. For example, a robotic assembly cell might run Model A parts this year, and with some gripper changes and program tweaks, run Model B parts next year. When working with a contract automation team, discuss long-term goals and needs. A reputable engineering firm will design a system to maximize your investment with equipment flexibility.

Other Industries Served

While this article focused on outsourcing machining and automation solutions in the automotive supply chain, the principles are relevant across other major manufacturing sectors. The challenges and strategies are not exclusive to car manufacturers and suppliers; many industries benefit from third-party machining and automation services.

Aerospace & Defense: These industries have zero tolerance for quality escapes and often need high-precision machining of exotic materials, like titanium and Inconel, for turbine parts, structural airframe parts, or defense equipment. Contract manufacturers supporting this sector typically hold certifications like AS9100 and ITAR registration. They produce parts in lower volumes but with extreme precision and traceability.
Contract automation solutions are built for electronics assembly in defense manufacturing or robotic drilling and riveting in aerospace. Aerospace companies derive advantages from contract manufacturing by avoiding maintaining internal teams for producing low-volume components. This approach allows them to access expertise and services on demand.
Robotics & Industrial Automation: Interestingly, PMI2 provides these services and contract services within this sector.. Makers of robots and automation equipment often outsource fabrication of frames, gears, and custom parts for their equipment.
Electronics & Technology Products: Suppliers and OEMs in this sector often turn to third-party machining and automation companies for services, including producing heat sinks, casings, connector housings, and specialty electrodes for automated spot welding systems.
Medical Devices: The medical field relies heavily on contract manufacturing for precision components (surgical tools, orthopedic implants, diagnostic machine parts) because of the stringent quality and material requirements (often stainless steels, biocompatible alloys). A contract manufacturer can produce these parts or the tools for manufacturing them.
Energy: This sector, covering oil and gas systems, renewable energy technologies, equally benefits from third-party machining, robotics, and automation. Advanced automation solutions, such as robotic welding, precision assembly, and automated inspection systems, enhance manufacturing efficiency, precision, and scalability.

External Expertise Drives Automotive Efficiency and Quality

Contract machining and automation services have emerged as critical tools for automotive OEMs and suppliers striving to stay competitive in a challenging environment.

“We’ve seen how our services offer cost-efficiency, flexibility, and access to expertise that can make the difference between disruption and success,” Mr. Cline said.

From precision CNC machining of vital components to the design of custom robotic cells, using external partners allows you to adapt quickly without compromising on quality or breaking the bank.

Don’t let the pressures of modern manufacturing hold back your business. By partnering with the right contract manufacturer, solutions to pressures create strategic advantages.

Contact PMI2 today to discover how we can help you cut costs, boost quality, and increase production agility before the unexpected happens.