In-House or Outsource Manufacturing? Which is more profitable?

Published: 04-01-2021

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In-house manufacturing includes production within a company using its personal internal means, assets, and representatives. Numerous countries choose to outsource manufacturing to a contract manufacturer for multiple reasons, including labor cost reduction.


Even though in-house manufacturing supports the domestic workforce and creates more jobs within the country, production expenses are much higher than in the case of outsourcing. 


Product manufacturing in-house can shorten delivery time and influence positively the quality of products. Moreover, it can improve processes and technology, among other advantages, which may include product design, process optimization, packaging, and delivery.


However, a lot of companies such as Apple, Cisco, GE, and AT&T have partnered with contract manufacturing companies in Asia to reduce production costs and benefit from outsourcing. 


In-house manufacturing requires a company to purchase its own equipment, rent a warehouse or factory, and pay higher maintenance as well as utility costs. For a newly established company, outsourcing can give a chance to decrease production costs and gain a market position without a need to invest a lot more in the early development stage. 


For small businesses, it is crucial to establish a steady stream of income with the help of outsourced parts, without spending a fortune on their own manufacturing unit. 


Furthermore, in-house manufacturing involves a lot of legal obligations. It is another reason why many new companies choose to involve an outside party first before venturing into in-house manufacturing.


Even if a company has its own in-house resources, equipment, and a well-established production process it can benefit greatly from contract manufacturing when assembling a new product.

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