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What is the difference between contract manufacturing and outsourcing?

What is the difference between contract manufacturing and outsourcing?

When resources aren’t readily available in-house for product manufacturing, businesses often look to either contract manufacturing or outsourcing as means to complete a product’s life cycle. These considerations can ensure that the number of products produced will align with market demand and expectations, allowing companies to reach their business goals effortlessly.

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In today’s blog, we take a closer look at the benefits of both contract manufacturing and outsourcing, as well as what both processes entail, and how they could impact businesses’ processes in terms of efficiency and practical solutions.

First up, let’s take a look at contract manufacturing.

Contract manufacturing: a popular choice among small businesses and start-ups

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Many small businesses or start-ups simply do not have the facilities in-house to produce parts of or whole products in full. However, with contract manufacturing, they are able to hire other companies for manufacturing and can get their products easily to market without the need to build and run factories of their own, as the resources are already readily available through the chosen service provider.

Over and above this logistics factor, contract manufacturing also poses the following benefits to businesses that choose this route for manufacturing:

  • Reduced labour costs as there is no need to hire additional in-house team members for one-off projects.
  • Saving on overhead costs, energy bills, materials and overhead bills, which, in turn, frees up funds for marketing products in print, broadcast and digital advertisements.
  • Maximised profits due to saving on expensive company costs that would have been incurred had a business chosen to do in-house upgrades and manufacturing.
  • Access to technical skills and insights from teams that have an extensive portfolio of clients that they have worked with in the past – and which allowed them to acquire various skills that they can apply to other business’ projects too.
  • Flexibility for staff and industrial designers to focus on the development and prototyping of planned products that will go into manufacturing once designs or signed off and the current production run is completed.
  • Improved scalability, as a business will, through contract manufacturing, be able to quickly adapt to an increase in market demand.
  • A more competitive outlook, thanks to an agile approach to manufacturing that can allow a company to quickly yet efficiently and expertly get their product to market. This is especially important for seasonal products, where timings are vital to ensure products are available at the right time when consumers might be actively seeking them out.
  • An expanded footprint, as it will be easier to introduce products into an overseas market where the contract manufacturing partner is based.
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When looking to hiring a contract manufacturing partner, it is important to research credentials and reviews, to ensure that your business receives a trusted service of the highest standard. Seek out those providers that are financially sound, have proven manufacturing quality standards as well as a verified agile character to adapt to the market.

When you fully research service providers, you will be less likely to deal with possible disadvantages, such as having a lack of control, poor product quality or having ideas “replicated” without your consent. So, ensure that if your business is going the contract manufacturing route that you choose the right service provider to work with.

Now, let’s take a look at outsourcing.

Outsourcing: another external consideration when in-house manufacturing is not an option

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Just as with contract manufacturing, outsourcing can provide a reprieve for businesses that do not have the capabilities or resources for in-house manufacturing or services. Outsourcing is often awarded to off-shore businesses but can be done inland as well, depending on business preferences.

Many big business names, such as Apple, Nike, Cisco, Wal-Mart and IBM, have also been known to use outsourcing for their manufacturing processes.

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At first glance, it might seem that outsourcing and contract manufacturing are one and the same, but there are some key differences.

Where contract manufacturing usually involves a legal contract or binding agreement between a business and service provider, outsourcing is an arrangement with a business to handle certain tasks as agreed upon between the two parties involved, and can include other aspects over and above product creation.

Businesses usually opt for outsourcing for reasons such as products of improved quality, reduced cost to company and improved savings, as well as less time needed to enter the market with new products. A basic example of outsourcing would be having electronic equipment created by an overseas service provider that will provide a cost-effective solution as opposed to having these products created in-house with additional expenses.

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Outsourcing can often also include non-tangible services, such as customer support or financial services such as bookkeeping – the latter usually preferred to be actioned inland as it includes sensitive business data.

However, as with contract manufacturing, outsourcing can also come at a risk regarding the quality of final products, which means that choosing a service provider must be done with the utmost care to ensure that a reputable business is picked that will get a job done to the best quality possible.

Choosing between contract manufacturing and outsourcing

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The process a business chooses will largely depend on its needs and desired outcomes. Some businesses might prefer having a straightforward contract in place, while others will prefer a more flexible outsourcing approach.

Ultimately, it is important to have a clear understanding of your available service partners, what their proven expertise is and how partnering with these providers can benefit your business in the long run – strategically and financially.

If you are a potential client and you are ready to experience an exceptional journey of design for your next project with amazing results, contact us today. We would love to hear from you and to provide the personal touch that we have become known and respected for as one of Melbourne’s leading industrial design teams!