Contract manufacturing or in-house manufacturing? This is a question that confuses all the consumer goods businesses, especially the ones that are starting from scratch. Today we will discuss the pros and cons of both options and help you decide the most suitable path to scale your business with efficiency.
What is Contract Manufacturing?
Contract manufacturing has become the most acceptable and widely adopted standard in the rapidly growing age of technology. Here, you outsource the manufacturing to an entity that specializes in the production of your desired goods. They deal with all the raw material procurement and other manufacturing processes while you focus on branding and marketing the product.The brand enters into a contract with a third-party manufacturer, hence the term contract manufacturing.
Let’s take a look at all the pros and cons
Pros of Contract Manufacturing
- Cost Burden: The contract manufacturer can help you estimate per unit cost since they are in charge of all the equipment, labor costs, raw material costs, and quality checks. This helps you with the cost predictability of your business, which is a very important factor in scaling. Plus, contract manufacturers will make the products more efficiently due to their expertise in the field.
- Knowledge and Efficiency: The contract manufacturer has all the innovation and knowledge required to make the product; going with them ensures that the best technology and skilled labor are deployed in making the product, so you can relax and focus on marketing the product.
- Risk Reduction: The contract manufacturer is responsible for all risks related to the manufacturing process; they assure that you’ll get the final product in perfect condition. If something goes wrong during the process, like an accidental fire or other damage, you won’t have to bear it; hence, reliable contract manufacturers help you mitigate the risks well.
Cons of Contract Manufacturing
- Lack of Control: While this may not be a direct risk, it can definitely affect your business if you don’t have in-house knowledge to deal with the issue. The lack of specialized knowledge in terms of tools, skills, and infrastructure can affect your plans to bring production in-house in the future.
- Theft of Intellectual Property: When dealing with a contract manufacturer, there is a slight chance that your intellectual property, your key ingredients, etc. might get stolen. Though it is not a regular occurrence, there’s a chance of a contract manufacturer selling your technology to your competitor, or they might launch their own product of similar nature, which can cause unwanted competition.
Take these cons with a pinch of salt, though; everything is ensured by legal contracts these days, and the pros outweigh the cons by a huge margin.
The leading example is Trust Works. They are experts in the field of health and wellness products like vitamins, softgels, gummies, and tinctures of various kinds and cater to a wide range of brands from industries like pharmaceuticals, nutraceuticals, dietary supplements, and the hemp industry. They are contract manufacturers for various big brands like Walgreens, Kroger, Rite Aid, and more., and they are not limited to just manufacturing but also provide custom bottling, labeling, and packaging services.
What is In-house Manufacturing?
In-house manufacturing sounds good on paper, but in effect, it comes with a lot of precursors. Here, you have full control over the product, and you can tailor it perfectly as per the demand of your target audience, but the cost involved is huge when compared to a contract manufacturer. Let’s understand the pros and cons of in-house manufacturing.
Pros of In-house Manufacturing
- Full Control over Quality: With in-house manufacturing, you have full control over the quality of goods you produce. You can keep a close eye on the whole production process, resulting in better quality and efficiency.
- Better Customer Service: When you make your products in-house, you can cater to your customers’ grievances better and build a robust customer support network without relying on third parties. This helps in breaking the communication barrier with your customers, as you can understand their issues to the core and resolve it effectively.
- Better Security: With in-house manufacturing, there is no risk of intellectual property theft. Your secret ingredients, processes, and patents remain safe.
Cons of In-house Manufacturing
- Cost: Getting skilled staff and building the infrastructure to support the manufacturing process requires lots of investment, which can be challenging for newcomers.
- Dealing with Permits: You have to maintain factory codes, get permits, maintain all the equipment, and deal with red tape, which can hinder your growth prospects.
If you want to penetrate the market effectively with a lower cost burden, then contract manufacturing is the right way for you. You can solely focus on marketing and advertising your brand to tap into your potential user base at a much faster pace as compared to dealing with the hectic requirements of in-house manufacturing, which might slow your growth prospects.