Contract Manufacturing vs Outsourcing: What's the Difference?

Contract manufacturing is a process in which a company enters into a  contract with a third-party manufacturer to produce certain products or components. This type of arrangement is often used when a company needs to produce a product without having the capacity or resources to do it on their own. Using contract manufacturers allows that company to focus on their sales process, whilst the contract manufacturing company focuses on the production process and creation of that final product.

There’s a lot of information available on contract manufacturing vs outsourcing, with the terms contract manufacturing and outsourcing often being suggested to be different, but they're actually very similar. In this blog, we break down what contract manufacturers are, compare the key differences between contract manufacturing and outsourcing, as well as what the advantages and disadvantages of outsourcing your manufacturing processes versus doing it in-house are.

What are contract manufacturers?

A contract manufacturer is a company that specialises in the manufacturing process and production of products for other companies. A contract manufacturing company has their own staff, equipment, processes, production facilities and expertise, to allow them to take on the entire manufacturing process for the other businesses. These companies can provide services such as sourcing raw materials, helping with the engineering design, prototyping, tooling fabrication, assembly and packaging of the products. However, it’s important to note that not all contract manufacturers offer all these services, so you may need to find one that specialises in your specific products' needs.

Another important point to highlight here is that contract manufacturing is not the same private label manufacturing, which is where a company selects items from a manufacturer's existing range  but puts their own company name on it. Unlike private label manufacturing, companies involved in the contract manufacturing process are involved at every stage of the production process, from design, fabrication through to labelling and packaging. Find out more in our recent blog about contract manufacturing vs private label manufacturing.

Is contract manufacturing the same as outsourcing?

Contract manufacturing is a type of outsourcing. The term outsourcing can be applied to any company that another company outsources a product or service to - for instance marketing, accountancy, recruitment, production process etc. In contrast, contract manufacturing is a specific type of outsourcing related specifically to products when two parties sign a contract manufacturing agreement.

Hiring a contract manufacturer vs doing it in-house: what's better?

Whilst you can outsource your contract manufacturing services, some businesses may decide to keep their manufacturing operations in-house. We discuss what the advantages and disadvantages are of these options to help you decide what's right for your business.

What are the main advantages of manufacturing in-house?

1. In house manufacturing allows greater control

Instead of hiring a contract manufacturer, producing components in-house may help your business to have greater quality control over the whole production process from start to finish. This will help your business to ensure high quality standards are met at all times.

2. Having in house manufacturers allows you greater visibility

Unlike using a contract manufacturer, completing your manufacturing processes in-house will allow your company to have greater visibility over the whole production process and supply chain of your products. You will know the production staff, you'll be able to ensure practices are followed at all times, you can go at your own pace and know exactly what's happening with the production of your products.

What are the disadvantages of manufacturing in-house?

Whilst there are advantages to manufacturing in-house, there are also some disadvantages.

1. You'll need to invest a lot of money

Having your own manufacturing facility can be expensive to run, with you needing to ensure you have the right specialist equipment for the job.

2. Increase in overhead costs

You'll need to employ more staff to produce components for you on-site. In turn, more staff means more investment. The energy costs to operate high power equipment also needs to be factored into business case justifications.

Is it better to outsource manufacturing?

So now we've looked at the advantages and disadvantages of having your own in-house manufacturing, we're going to explore the pros and cons of your business appointing a contract manufacturer. Whilst we've listed just a few benefits in hiring a contract manufacturer here you can find more detailed information on contract manufacturing advantages in our blog.

1. Using a contract manufacturer means you get better technical expertise

Using a good contract manufacturer will mean that your business will benefit from their proven technical and manufacturing expertise. In turn, this technical insight will help you to ensure the quality of your products too. Contract manufacturers are involved with the production process day in and day out, so they know exactly what they're doing - meaning it's one less thing for you to worry about.

2. A good contract manufacturer will help you reduce costs

One major difference between the outsourcing of contract manufacturing or manufacturing in-house is the potential cost savings. The investment required for in-house manufacturing capabilities is significant and the payback period is likely to be lengthy, possibly not being fully realised for decades. Additional operational costs would also apply in terms of labour, recruitment and training etc.

3. Using outsourced manufacturing firms helps you get started quickly

Those that are involved in product manufacturing already have the infrastructure set up to get going immediately. This typically means that you can get moving with the production of your products as soon as the formal agreement is signed.

4. Using a contract manufacturing firm will help your business to scale quicker

Setting up the facility in-house to enable you to manufacture products can take a very long time. A contract manufacturing firm will already have everything in place to enable you to hit the ground running, this means that a contract manufacturer will also be able to work with you quickly if your business needs to adapt to market fluctuations.

What are the disadvantages of outsourcing contract manufacturing?

1. You don't know the contract manufacturers as well as you do your own team

One downside of contract manufacturing is the fact that you don't have complete visibility of the people or processes running the contract manufacturing facility. That's why it's important to build a good relationship and be confident in their capabilities before signing a contract manufacturing contract.

Get quality help from an experienced contract manufacturing company

If after reading this you decide you need to reach out to a contract manufacturer to help your business with your manufacturing processes and needs, look no further than Dudley Industries. We are an experienced contract manufacturer with over 80 years’ experience in providing high quality expertise to hundreds of businesses help to turn their ideas into full scale production. We offer a range of contract manufacturing services, such as sheet metal forming, sheet metal design, bespoke branding, machine tooling, welding services and more.

Speak to Dudley Industries: Experienced contract manufacturers with over 80 years of experience

Find out more about our contract manufacturing services today, or get in contact with the team to find out how we can help you.