Contract Manufacturing Vs In-House Manufacturing – Pros And Cons

In-house manufacturing sounds attractive on paper. It brings a lot of benefits to the table, including total control over:

  • Materials sourcing
  • Production methods and processes
  • Production volumes
Contract manufacturing

In-house manufacturing allows you to carry out your vision exactly the way you want. Yet, you still have to:

  • Invest a lot of capital building out a manufacturing facility
  • Get all the necessary licenses and permits
  • Have a team of employees on your payroll
    • Offer benefits to your employees
    • Hire a team of managers to run the factory
  • Maintain and/or update all the equipment
  • Deal with inspections by the local jurisdictions
  • Keep your factory up to code
  • Pay a lot of overhead costs

With all those obligations, in-house manufacturing doesn’t sound so great anymore, does it? Is in-house manufacturing even worth it? Maybe, if you’re manufacturing tens of thousands of parts every day. If not, is there a better solution?

Actually, yes. There is a better solution: contract manufacturing. Regardless of the production volume, contract manufacturing may be the easier solution. Often times, contract manufacturing is even cheaper than in-house manufacturing.

The Right Contract Manufacturer Can Offer The Same Benefits As In-House Manufacturing

Contract manufacturing can offer most of the benefits of in-house manufacturing. There’s nothing to prevent a manufacturing contract from stipulating all these things. For example, you can ask the contract manufacturer to only source materials of a certain caliber. A lot of contract manufacturers will give you complete control over:

  • Materials sourcing
  • Production method and process
  • Quality control process

To put this another way, you can enjoy all the benefits of in-house manufacturing if you’re careful about selecting and engaging a contract manufacturer. If you find a contract manufacturer that can carry out your vision exactly the way you want, you’ll be getting the best of both worlds. Contract manufacturing actually offers benefits that in-house manufacturing doesn’t.

The Benefits Contract Manufacturing Offers That In-House Manufacturing Doesn’t

Contract manufacturing brings benefits that in-house manufacturing can’t provide. It’s why many companies complete their manufacturing on a contract basis rather than in house.

1. Minimal Upfront Costs

Upfront cost

Image via Putu Kharismayadi, the Noun Project

If you build a production facility, for example, you’re going to need to lay out a significant sum of money. With contract manufacturing, you don’t need to pay a lot of upfront costs. You may need to pay a deposit for the first production run, but usually nothing more beyond that. With a contract manufacturer in the picture, you don’t need to save up a lot of money to start producing auto parts.

2. Rapid Production Start

Rapid start

Image via Gregor Cresnar, the Noun Project

The contract manufacturer already did all the heavy lifting with building a facility. It’s no easy feat. Establishing a manufacturing facility can take years. It involves tons of planning, too. Instead of investing hundreds of thousands of dollars or more into your facility and many months building it, you can hit the ground running by contracting with a company. Most contract manufacturers can start producing as soon as the ink on the contract is dry.

3. Flexible Production Rates

Flex rates

Image via Icon Island, the Noun Project

If you want to earn a good return on your investment, the in-house facility needs to hit certain production volumes every month. Otherwise, of course, you’d lose a lot of money. Also, you wouldn’t be able to temporarily stop production without layoffs or losses. If you manufacture in house, you’re looking at a risky capital investment. Your auto parts need to move fast in order for in-house manufacturing to be worth the investment.

Contract manufacturing offers a lot more flexibility. Contract manufacturers may ask for a minimum production run size, but you don’t need to constantly order from them. You can order as many parts as you like without worrying about losing too much money on manufacturing costs.

4. Leveraging Existing Expertise


Image via Ralf Schmitzer, the Noun Project

With in-house manufacturing, you can hire an experienced production team. But there’s no substitute for working with a contract manufacturer that has many staff members with decades of experience. They have enough experience producing a wide variety of parts and assemblies. You don’t need to spend time training a production team. You’ll be able to hit the ground running with an experienced team. You don’t even have to worry about managing the team. The contract manufacturer takes care of that.

More Resources On Contract Manufacturing

Things could go really wrong if you end up with the wrong contract manufacturer. It’s important to do your due diligence. We put together many guides on finding the right contract manufacturing company. Here’s a few of them:

If you want to learn more about Intran manufacturing services, you’re welcome to contact us.

April 13, 2020 Tagged: