In House Manufacturing vs. Outsourcing – 5 Things to Consider

You have built an empire (or maybe you are well on your way). You have a product base that the market likes and solid customer support—so, now what? Consider these five factors when deciding whether to utilize in-house manufacturing vs. outsourcing as the next step to grow your business.

1. Are your outsourcers helping you to actively improve the manufacturing process?

Having your own people review and tweak your manufacturing processes and designs can lead to new efficiencies. Outsourcers will build the product that you give them to the specifications you ask for, but will they be as committed to making the process more efficient and less expensive? Most likely not. Additionally, using in-house manufacturing will allow you to hire, train, and retain employees who share your company’s culture and vision.

2. Is your vendor practicing appropriate vendor management?

Part of finding a good supplier for your company is finding a vendor you trust. If there are distinguishing features for your products that are considered to be proprietary or sensitive, it may not be worth the risk to put that information in the hands of a third party. As new ideas are cultivated, will they only be supplied to you or could that information be disseminated to your competitors too?

3. Do you have the ability to outsource manufacturing to multiple suppliers?

When outsourcing manufacturing, are you too reliant on one manufacturer to keep your product flowing? Can the manufacturer expand with you both in volume and geography? Only having one or two supply sources can lead to decreased negotiating leverage for your company and increase your exposure to supply chain risk. Consider whether bringing this manufacturing in-house will provide you with long-term flexibility, cost savings, and lower risk.

4. Do R&D and innovation provide you with a competitive advantage?

Using in-house manufacturing can provide you with many advantages in research and development (R&D) and innovation. For instance, having your R&D employees witness and work with the direct producers can lead to more innovation and changes because of their closer interaction. Additionally, if being first to market is important, then being able to change something instantly instead of waiting for a new work order and approvals may be vital to the success of your next product.

5. Is outsourcing costing you more?

When your business was less complex, outsourcing may have had its financial advantages (and it still might). Have you assessed these costs now that your business has matured? Bringing manufacturing in-house is a significant investment and a strategic decision. You should have experts provide you with accurate budgeting and estimated costs for key expenses such as: facility costs (to rent vs buy), human resources (new laborers and supervisors on staff), equipment, legal costs, and finally, financial reporting (segmenting out the manufacturing department to monitor the true cost).