If a business is attempting to sell something that they’ve developed, then it has to be manufactured somewhere. Many small businesses choose to outsource their production needs, but inhouse manufacturing may provide certain benefits that outsourced manufacturing cannot provide. Cutting out the middleman is also a big step to take. That’s why evaluating all of the pros and cons of inhouse manufacturing is such an important part of the expansion process.
Here Are the Pros of Inhouse Manufacturing
1. It also provides for inhouse quality control.
When manufacturing processes are outsourced, there really is no quality control that can be supervised. Once you finish the tour of the manufacturing plant, you have no real idea of what policies and procedures are being implemented to create your product. With inhouse manufacturing, this is never an issue. You get to be in control of the quality processes and the outcome of the final product.
2. It can lower the price per product.
Manufacturing your own goods not only eliminates one step in the supply chain, but it also eliminates shipping costs, delivery costs, and the trouble of getting some products through customs. This gives an organization the option of lowering prices on the products being offered to the market or maintaining the current price structure so that more profits can be achieved.
3. It eliminates several logistics issues.
Let’s say one small businesses has outsourced their manufacturing to China. Another has focused on inhouse manufacturing. The products must ship in from China, go through customs, and then make it to their designated market. Some companies may wish to route all items to their business for a final inspection. Each has its own logistics issues. For the inhouse manufacturing business, the only thing that needs to happen is to take the product to the market once it has been completed.
4. Management considerations are greatly reduced.
It takes less administrative work to complete a manufacturing cycle inhouse when compared to outsourcing arrangements. This is because companies have more control over their expenses and processes. Instead of trying to influence how another company operates, the inhouse manufacturing can be adjusted whenever necessary to maximize quality and profit.
Here Are the Cons of Inhouse Manufacturing
1. It requires sales to happen.
Inhouse manufacturing must have sales so that products can keep being made. There are insurance costs, taxes, utility costs, and labor costs that must all be paid with local manufacturing. If sales aren’t steady, then the costs of starting and stopping the production chain can make it difficult, if not impossible, to stay in business.
2. There can be inventory complications.
Some states have specific rules about extra inventory that label a certain percentage of it as incoming revenues. Not every jurisdiction has this kind of rule, so businesses will want to know what to expect in this area before proceeding with development of their internal assets. It may be more cost-effective to outsource their manufacturing just so there isn’t the risk of carrying inventory.
3. Labor costs can be very high.
The standards of living around the world are very different. In some regions, making $10 per hour can barely let people pay for their basic living needs. In other locations, less than $1 per hour is considered great wealth. Labor is the primary expense that exists in the manufacturing process and inhouse manufacturing from this standpoint will always be more expensive. The good news is that it can create some good PR, whereas outsourced labor that is cheap can create some very bad PR.
4. Administrative duties may just switch.
When outsourcing is eliminated, the administrative duties that are eliminated from this oversight may just transfer over to new duties. Inhouse manufacturing requires human resources assistance such as benefit distribution, worker’s comp claims, and licensing requirements. Other duties may involve the care of the property assets, providing worker training, and other supervision requirements to ensure a high quality product. Cost savings is possible here, but it doesn’t always happen.
The pros and cons of inhouse manufacturing show that it can be a time-saving and money-saving opportunity. It might also be too costly for some small businesses to make happen. That’s why each of these key points must be considered before a final decision is made.