Outsourcing Vs. In-House Manufacturing: Pros and Cons

With so much information out there, it’s tough to know which sources are credible. Plus, the manufacturing landscape is always changing due to political, market, and industry factors. You might be wondering, “What’s most important to focus on, and how should we adapt?” One major choice is in-house vs. outsourced manufacturing. What’s the best option for you?

Hankscraft, a leader in contract manufacturing, helps optimize our customers’ processes. We’re not just a vendor, we’re a partner. When our customers succeed, we succeed.

In this article, you’ll learn the pros and cons of in-house vs. outsourced manufacturing. With clear insights, you’ll be ready to make the right choice for your business.

Every manufacturing situation is unique, and we’re here to help. Contact Hankscraft today to discuss your needs and simplify your manufacturing process with a trusted partner.

“With the ever-changing manufacturing environment, many companies are faced with “make or buy” decisions.  There are pros and cons to both options. We at Hankscraft are happy to help you decide what might be best for your business by introducing our capabilities and options to compare with what you are doing today.”
– Dave Schoell, President of Hankscraft Inc.

Outsourcing manufacturing comes with several advantages. The benefits of outsourcing can significantly impact your business operations, helping you focus on your core competencies and improve your business’ bottom line.

With less overhead costs on labor investments, your business will have additional resources when you need them the most. The labor associated with outsourcing often consists of specialists in their field, who have proven success and can guide you without your own time expenditure.

By outsourcing, you can avoid the high capital expenditure of setting up your own manufacturing facilities. You’ll also have easy access to advanced equipment and technologies that would have been too costly for you to invest in on your own. This helps you stay competitive in your market.

Outsourcing provides scalability and access to global markets. You can easily ramp up production when needed, and your products can be manufactured in regions closer to your target markets. This makes logistical sense, allowing you to get your product to market faster. It can even have a positive environmental impact. Finally, you can optimize your manufacturing by choosing locations that work best for you.

Cost Advantages

Outsourcing to a contract manufacturer can offer a built-in mechanism for annual cost reductions, as larger clients often require suppliers to agree to yearly cost-cutting measures to retain their business. This process effectively incentivizes the manufacturer to find efficiencies and lower costs over time, resulting in continuous savings. In contrast, when production is kept in-house, these reductions aren’t guaranteed, as there’s no external pressure to drive down costs each year.

While outsourcing manufacturing has its benefits, it also can come with certain drawbacks, depending on the vendor. Consider these challenges when weighing the pros and cons of in-house vs. outsourcing manufacturing.

Outsourcing can pose risks to your intellectual property. Without the right protections in place, your designs and innovations could be at risk. Additionally, depending on the region and vendor, your brand trust could be at stake due to unethical behavior on your vendor’s part.

Outsourcing often involves working with suppliers in different countries. This can lead to communication, cultural, or time zone barriers, which can affect the smooth running of operations.

One of the main disadvantages of outsourcing is the potential loss of control over the manufacturing process. The risks can include unexpected fees associated with tariffs, shipping delays, volatility of vendors, and lack of oversight on quality control.

In-house manufacturing also has its own set of advantages. Depending on your analysis of the following list based on your business’ size or our product type, conclusions about cost savings and other benefits may arise.

One of the main benefits of in-house manufacturing is the enhanced control and oversight it provides. You have direct control over the entire manufacturing schedule and process, which can lead to better quality outcomes.

Not all vendors may be able to prove their ability to protect your IP, but you can take measures to do that in-house. Your designs and innovations stay within your company, reducing the risk of intellectual property theft. This can also lead to improved brand trust and loyalty from your customers or consumers. However, keep in mind that manufacturing in-house doesn’t automatically eliminate the risk of IP theft.

Finally, in-house manufacturing allows for better integration with your research and development efforts. It can also mean quicker turnaround time on design adjustments, and production volume changes. This can lead to faster innovation and a competitive edge in the market.

Vendor Pricing Leverage

With in-house manufacturing, companies can achieve better vendor pricing leverage by consolidating their material needs across all production lines, allowing them to negotiate bulk discounts from suppliers. In contrast, outsourced manufacturers may have less purchasing power, as they often buy materials in smaller volumes based on individual client needs.

Despite its benefits, in-house manufacturing also has its drawbacks. While it’s not always up front, there could be more costs associated with in-house manufacturing in the long run. There are also significantly more resources needed.

Managing a workforce can be a challenge. You’ll need to handle hiring, training, and retaining employees, which can be time-consuming and costly, and difficult with current job markets.

According to Deloitte’s US Global Outsourcing Survey 2022, In the digitally transforming world, the shortage of skilled labor has driven executives to rank talent acquisition as their top internal challenge. At the same time, many feel ill-prepared to address high turnover rates, with 62% of executives reporting difficulty in retaining employees.

You may find it difficult to predict and stay up to date to meet market demands if you manufacture in-house. This is a result of limited scalability, longer lead times due to new work processes, limited warehousing space, and more.

If certain issues occur while manufacturing in-house, you may be more liable. This could include copyright infringement, workplace accidents, quality issues, equipment maintenance, and an endless list of capital investment upkeep.

Hankscraft’s comprehensive approach includes:

• Product design and development
• Sourcing and procurement
• Production and assembly
• Quality control
• Packaging
• Logistics

This partnership not only helps you stay agile in meeting market demands but also ensures that every aspect of the manufacturing process is handled by an experienced team, streamlining your operations and improving efficiency.