One of the most important decisions a business can make in the early stages of producing a product is whether to manufacture the product onsite using your own facilities, or whether to outsource manufacturing to a third party. Of course in some instances you might not have the capability to manufacturer onsite, so the decision may be made easier by simply eliminating one of the options – but for many the decision can way heavily on their minds while they evaluate which is the best course of action.
Here we’ll evaluate the pros and cons of both in-house and outsourced manufacturing, to help you make an informed decision on which better suits your business needs.
- Control – by manufacturing in-house you have full control and visibility over every step of the production process. You can adjust and adapt your manufacturing as needed, without time delays in making contact with third parties, and you have constant control over the quality of the output.
- Understanding – you likely understand your product and your needs better than anyone. And while you can certainly provide detailed briefs and explanations of your needs, depending on the complexity of your product or manufacturing requirements there’s always a possibility of miscommunication which could result in time wasted and/or unsuitable deliverables.
- Fast & effective communication – with in-house manufacturing, the entire team is often based under one roof. This makes for smoother and faster communication, reducing any bottlenecks or delays caused by flow of information. In-house team members also often know one another’s work schedules and are familiar with core details of a project, which can add to efficiencies and save valuable time.
- Flexibility – depending on your own capabilities, taking manufacturing in-house may allow you to have more flexibility in reacting to market demands. You may be able to increase production quickly based on sudden market interest in your product, where a third party may have a strict production schedule in place to accommodate varying customers and projects. That being said, there are many ways in which outsourced manufacturing may have additional flexibility over in-house – see the pros of outsourced manufacturing below to help you consider which option may have the flexibility you require.
- Easy customisation – if customisation of products is part of your product offering, in-house manufacturing may be the route to go. In-house manufacturing enables faster fulfilment of bespoke orders, as customisations do not have to filter through a range of order processes and multiple channels.
- Logistics – by manufacturing in-house, logistics remain smooth and simple. Orders can be produced and fulfilled onsite, before being shipped directly to the customer. This is significantly simpler (and more cost effective) than arranging for products to be shipped from manufacturers to your site, before being shipped again to your customers.
- Overheads – if you choose to manufacture onsite, this will increase your business overheads. You will need to ensure you have enough space, the right equipment, and suitably trained staff to manufacture, inspect and store your product(s), as well as funds to maintain and repair equipment as needed. Any downtime in your machinery will impact output, so your facility must be constantly inspected and maintained to ensure you protect your business against any risk of downtime and lost production time.
- Labour resources – manufacturing onsite will require hiring enough suitably qualified staff to produce your products. This requires not just financial investment but time invested in screening, hiring and potentially training staff. If your staff resign or leave at any point, this may also impact production while you hire and train new staff member(s) to replace them. Maintaining the appropriate level of staff to meet demand can also be a challenge, particularly if demand is likely to fluctuate. For example if demand for your product drops and you are forced to reduce output, you may overspend on labour if you have more employees than are required to produce a smaller volume. On the other hand if demand increases, you may not have enough resources available to make the most of the new demand by immediately increasing production to meet these new demands.
- Labour Investment – employees require additional benefits on top of their salary, such as annual leave, sick pay, insurance and more. This adds to the cost of manufacturing without any increase to manufacturing output.
- Expertise – choosing to outsource your manufacturing processes can benefit your products with the knowledge and skills of experts in their field. They may identify and recommend changes to improve the product or cost efficiencies, or they could have more efficient or effective processes which you may not be aware of.
- Reduced labour costs – you don’t need to pay staff wages, and you don’t need to invest in training new employees. By outsourcing, all labour responsibility is shifted to the manufacturing partner. This includes responsibility for all non-financial labour benefits, such as annual leave, so it will fall on the manufacturer to ensure that your output is delivered as and when promised regardless of staff sick days or annual leave.
- Physical Space & Equipment – if you’re limited to how much you can produce based on your physical space, outsourcing may be a stronger option. This way if demand fluctuates there is no impact on your bottom line. For example, in the event of a sudden increase in demand, if you are manufacturing in-house you may rapidly hit your capacity limits and need to invest in additional employee or equipment resources to meet this demand. An outsourced manufacturer, however, may be better equipped to handle fluctuations in volume, and may have the capacity to react quicker and more cost-effectively to a sudden increase in volume.
- Reduced Overheads – operating a manufacturing process or facility can be quite costly, particularly in terms of the business overheads. By outsourcing manufacturing, you can cut the costs associated with manufacturing such as electricity, equipment, licenses, insurance, water and more.
- Speed to market – working with experienced and expert third parties can significantly speed up your time to market. This is especially beneficial when launching an entirely new product, because enlisting a supplier for input early in the design process could identify any issues that would otherwise hinder production. As a result, a strong manufacturing partner can improve your product’s manufacturability from the outset and reduce your time to market.
- Flexibility – as mentioned above, both in-house and outsourced manufacturing can impact flexibility in different ways, so it’s important to consider both to establish which will better benefit your own flexibility. The right partner will have more capacity for production, making it quicker and easier for them to respond to changes in market demand. There is no additional investment required in equipment or labour resources because the manufacturer is already built to deliver volume production.
- Intellectual / Physical Property Protection – of course there’s risk involved in exposing your product to third parties. You may risk intellectual or physical property theft, particularly if your manufacturer is located in a country where laws and agreements differ from your own country. This is why it’s important to carefully evaluate any potential partners, ensuring you can trust them with your product.
- Minimum Production Numbers – some manufacturing partners operate minimum order numbers, which can increase cost if you had planned for lower volume production. Similarly this can result in a huge cost if an issue was to arise with your product, as you could be left with significant quantities of unusable product.
- Lack of control – by outsourcing to a third party, you often have less insight and less control over the manufacturing process and quality of the output. Of course the option always exists to switch manufacturer if your products aren’t delivered to your standards or your expectations, however this will have an impact on the time to market as you will have to identify and evaluate a new partner before then starting the manufacturing process again.
So which is right for you?
At the end of the day, neither in-house manufacturing nor outsourced manufacturing are a one-size-fits-all solution. To determine which is best for you, you will need to evaluate your own products and facilities, and establish which benefits are most valuable to you versus the associated disadvantages.
It’s also important to evaluate what your company’s strengths are. Your main goal should be to focus on what you’re good at – and that may be theoretical product design rather than design execution. If this is the case, then outsourcing your production to someone whose strength is manufacturing (particularly if their strength is manufacturing products like yours) might be the best solution for you. This will save you investing a huge amount of time and energy into trying to establish a new skillset, or neglecting other aspects of the business while focusing on manufacturing.
If you are considering outsourcing manufacturing, what’s most important is that you do your research into any potential outsourcing partners, as it can sometimes be challenging to switch manufacturer once production has begun. Make sure your new partner is knowledgeable and has the required expertise to produce your product to the standards you desire, and that they are reliable and trustworthy.