Once a bill of materials is finalised, someone has to turn it into parts on the line. The way that happens — turnkey, consignment, or kitting — shapes your costs, your working capital, and how much risk you carry. There is no single correct model; the right choice depends on your volumes, your engineering ownership, and how much of the supply chain you want to control. This guide compares the three approaches and shows when each one pays off.
The Three Fulfilment Models
Turnkey
In a turnkey model, the contract manufacturer or distributor buys all components and delivers a finished assembly at an agreed price. You receive one invoice and one point of accountability, and the supplier absorbs component price and availability risk. Turnkey is attractive for low-volume or fast-turn projects where managing dozens of suppliers is impractical, but it can reduce transparency and lock in a component margin.
Consignment
With consignment, you (the OEM) buy the components and supply them to the manufacturer, who charges only for labour and overhead. This gives you full visibility of component cost and lets you use negotiated pricing and existing inventory. It also means you own the risk: shortages, obsolescence, and excess stock all sit on your books.
Kitting
Kitting sits in between. A supplier collects, counts, and packages exactly the components needed for a build — often per-board or per-shift — so production receives a verified, complete set. Kitting reduces line-side labour, prevents short builds, and is a natural companion to either turnkey or consignment. Our introduction to BOM kitting covers the mechanics.
How the Models Compare
Cost and Margin
Turnkey bundles component margin into the assembly price, which is convenient but opaque. Consignment exposes component cost but requires you to carry purchasing overhead. Kitting adds a modest service fee in exchange for accuracy and labour savings on the line.
Control and Visibility
Consignment offers the most control over sources and pricing; turnkey offers the least. If traceability and approved-vendor lists are critical, consignment or a transparent turnkey arrangement with reporting is necessary.
Working Capital
Turnkey shifts inventory off your balance sheet until you take delivery, improving cash flow. Consignment pushes inventory, and its financing cost, onto you in exchange for lower unit cost. For cash-constrained programmes, turnkey often wins; for high-volume programmes with strong cash flow, consignment lowers total cost.
Risk Allocation
Component price spikes, shortages, and obsolescence are absorbed by the party who owns the purchase. Turnkey protects you from these risks; consignment leaves them with you. That single factor often decides the model during volatile markets.
Matching the Model to the Situation
Prototype and pilot builds generally suit turnkey for speed. Ramped production with negotiated pricing suits consignment. Complex multi-board assemblies benefit from kitting regardless of who owns the components. Many organisations run hybrids — turnkey for low runners and consignment for high runners — to balance cost, cash, and risk.
Making Procurement More Resilient
Whichever model you choose, resilience comes from good data. BOM scrubbing to remove single-source and end-of-life risk, safety-stock policies for long-lead parts, and alternate part approvals all reduce the chance that a hiccup becomes a line stop. Our articles on BOM scrubbing and safety-stock calculation go deeper.
Making Fulfilment Data-Driven
Whichever model you choose, the quality of the underlying data decides how well it works. Clear, accurate BOMs, agreed approved-vendor lists, and realistic forecasts give your partner what they need to plan, and they protect you from surprises.
Forecast Sharing and Flexibility
Share a rolling forecast that distinguishes firm orders from provisional demand. This lets a supplier commit to long-lead components early while keeping near-term quantities flexible. Without it, every order becomes a scramble and lead times balloon.
Service-Level Agreements
Define key metrics in the contract: on-time delivery, fill rate, quality escapes, and the process for handling shortages and excess. What is measured gets managed, and a clear SLA prevents disputes when a part is late or a forecast proves wrong.
Exit and Transition Planning
Agree in advance how the relationship will unwind — who owns remaining inventory, how tooling and programming data are transferred, and what notice is required. A clean exit plan reduces the cost of changing partners and removes a source of leverage disputes.
The Hybrid Advantage
Most mature organisations do not choose one model for everything. They use turnkey where speed and simplicity matter, consignment where volumes justify control, and kitting to keep the line accurate in both cases. The skill is matching the model to the part, the volume, and the market, and reviewing that match as conditions change. Revisit the decision at least annually, because a model that was optimal last year may no longer fit.
Get Help Structuring Your Component Supply
By-Techs supports turnkey, consignment, and kitting programmes with BOM analysis, cross-referencing, and dependable lead times for electronic components. Share your BOM and build plan with sales@by-techs.com and our team will propose the fulfilment model and pricing that fits your programme.