Dimensional variation is inherent to any manufacturing process. In order to minimize its impact on assembly products it is important to understand how the variation propagates through the assembly process. Unfortunately, manufacturing processes are complex and in many cases highly nonlinear. Traditionally, assembly process modeling has been approached as a linear process. However, many assemblies undergo highly complex nonlinear physical processes, such as compliant deformation, contact interaction, and welding thermal deformation. This paper presents a new variation propagation methodology considering the compliant contact effect, which will be analyzed through nonlinear frictional contact analysis. Its variation prediction will be accurately and efficiently conducted using an enhanced dimension reduction method. A case study is presented to show the applicability of the proposed methodology.