A common dilemma for many manufacturing companies is whether or not to outsource production. While outsourcing has a number of benefits, including short-term savings and capital structures, the advantages of keeping production in-house as much as possible are also numerous.
Why Stay In-House?
Your businesses journey from lab to commercialization is a long-term learning tool. Making product isn’t just about the completion: it is also an opportunity to perfect your process and your technology, improve quality, monitor control costs, and even discover new applications. Using third-party solutions to manufacture all of your innovations can diminish these opportunities.
The Benefits to Your Company
Making the decision to stay primarily in-house is one that focuses on longevity and maximized long-term value. Such long-term benefits of in-house manufacturing to your company include:
- Quality Improvement
The biggest advantage to keeping your production in-house is the continuous learning loop that it offers. This loop makes it possible for your manufacturing team to send feedback to the R&D team during each step of the development cycle, which allows you to see what works and what doesn’t in a time efficient manner. Having such feedback available immediately then allows you to make improvements on product design, raw materials, process optimizations, and even packaging and delivery, while catching issues that may have been overlooked early in development will help you find, control, and eliminate barriers to your product’s evolution.
- Production Control
Most product creation occurs in the lab via prototypes that can be easily developed and controlled by well trained experts. However, despite the highly advanced knowledge and skills of these experts, they will never be able to fully duplicate the manufacturing floor reality. Problems in material handling, equipment maintenance, and waste management have significantly different implications on the floor than they do in the lab and the full impact of these problems can not be fully understood until the actual production commences. Issues in these areas can effect production time, product yield, and costs, which all leads to the significant impediment in production control. In-house manufacturing helps you keep track of variances and scale production and allows you to develop fixes in a timely fashion, which only serves to benefit production control.
- Cost Tracking
While investors tend to support outsourcing as the best and most viable financial option, this can actually be a short-term view. Outsourcing can appear less expensive, but in reality it often leads to significant long-term costs. Keeping production in-house as much as you can gives you a full understanding of what it truly costs to manufacture a product from first to last stages. Having the ability to track every aspect of production from process yield to waste generation to the total costs of raw materials, processing equipment, maintenance, and warehousing gives you a far more complete picture of just what your business costs are and this level of tracking simply cannot be reproduced in the lab. Outsourcing may allow you to keep starting costs lower, but it makes it impossible for you to keep tabs on what it actually costs to complete the manufacturing cycle and reduce these costs effectively over time.
- Knowledge Protection
There are numerous laws in place that protect your company’s intellectual and physical property, including confidentiality and manufacturing agreements with third-party manufacturers. However, as soon as your production steps outside of your door, there’s nothing stopping a third-party manufacturer from acquiring your technology after they’ve produced it on your behalf. They are the ones who directly handle your materials, implement corrections, and develop the processes needed to produce your property. Even if your third-party manufacturers honor your agreements, giving them this much knowledge and power over your product still weakens your advantage over your competitors. Developing and producing in-house keeps your property and knowledge yours and yours alone, which gives you an edge over time.
While outsourcing does have its advantages and can’t always be avoided completely, keeping your production as predominantly in-house as possible only serves to benefit your manufacturing company long-term.
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