The Advantages of Contract Manufacturing Outsourcing

Contract manufacturing outsourcing is a bit of a catch-all phrase that refers to any time a company partners with a third party to produce either their entire product or portions of it. In 2019, the global outsourcing market hit $92 billion in value, indicating that many companies enjoy the benefits of moving some of their services or production needs out-of-house. The move is especially beneficial for newer entrepreneurs who aren’t sure whether their idea is going to take off.

There are many benefits to contract manufacturing outsourcing, but that doesn’t make it the best solution for everyone. In some cases, it may be better to keep the majority of implementation in-house—but even then, outsourcing is still going to touch the business in some way. The real deciding factor isn’t whether it was the right move in the first place—it is more about whether the entrepreneur chose the right firm.

The Benefits of Outsourcing Manufacturing

Most companies or entrepreneurs decide to go with contract manufacturing outsourcing when the idea is new. They may have an entirely new business or addition to their line. To gain confidence, they may choose to partner with a third party. There are several distinct benefits to this, including:

Cost	Expertise	Timing
Starting at ground zero, including obtaining all the tools, supplies, personnel, and resources necessary to create a new product or even add to an existing line, is often a cost-prohibitive endeavor. It’s also risky, as investing all that into a product that may fail in the first year is a significant gamble. Meanwhile, contract manufacturing makes use of another company’s resources to ensure minimal overhead in the initial rollout. With contract manufacturing, expenses are predictable and scheduled. In in-house production, scope creep is typical as costs for raw materials, labor, and machinery changes.	In one medical industry study, 38% of leaders who choose to outsource their manufacturing cite a lack of internal resources and expertise as a reason. In many cases, the existing people available to a corporation only have one half of the knowledge needed. For example, a medical device creator may know a lot about anatomy, but very little about supply chains and raw material sourcing. A contract manufacturer will have these individuals on staff and ready to aid in the process. They can fill in the skill gaps present in the creator’s existing workforce.	The ability to accurately gauge how quickly a product will get to market is essential for launch and marketing plans. However, when doing this in-house, it’s possible for unexpected scope creep to extend the timeline. The creator may find they need specialized tooling, or the material they’ve chosen won’t be available for months. Many small things can lead to major delays in internal production. A contract manufacturer, on the other hand, is going to consider all these factors and calculate them into a fixed delivery date, which will prevent timeline scope creep.

Contract manufacturing outsourcing can eliminate the barriers to market entry for many small entrepreneurs and even larger companies with new products to bring to market. However, it’s not the ideal solution for every scenario.

When Contract Manufacturing Outsourcing May Not Work  

Many of the reasons to avoid contract manufacturing are avoidable with the selection of the right provider. There are many contractors out there, but not all have the same standards. A creator who chooses the wrong one may have to deal with:

• IP concerns: A company with intellectual property protection concerns should seriously evaluate whether they’re comfortable outsourcing their product to a third party. The more outside parties involved in the process, the more risk of a leak that could lead to problems. If choosing a contract manufacturer, it’s vital to work with one that has clear protocols in place to protect IP.
• Limited control: In contract manufacturing, the third party will manage all the tasks involved in the production process, including training staff and establishing a process. In some cases, this can lead to a one-size-fits-all approach that eliminates the ability to customize a project. For a creator that wants more control, it’s best to work with a company that offers the expertise needed to create a specialized plan and training for staff.
• Communications issues: This is an especially big problem when working with overseas contract manufacturers. It may be challenging to reach someone on the phone to discuss issues with the production process or make quick changes with the design. On-site visits are near impossible. It is best to choose a domestic contract manufacturer in the same area to avoid this issue.

Contract manufacturing outsourcing is an excellent option for many creators who want to bring a product to the market. In many cases, it can eliminate barriers that would prevent someone from making their concept a reality, but it’s not right in every situation. To truly enjoy the many benefits of contract manufacturing outsourcing, it is wise to work with a company that’s local, collaborative, and serious about protecting intellectual property rights.