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Should You Manufacture Yourself or Use a Contract Manufacturer?

Two workers walking side by side in hard hats in a warehouse

The process of bringing a new product to market requires many important decisions, and when hardware companies are ready to start manufacturing, they often wonder if they should make the product in-house or sub it out. The answer, as it is with any complex decision, is “it depends,” but at the very least, you’ll want to consider the following:

  • Facility: Leasing or purchasing a physical space can be a major expense, depending on your needs. A space dedicated purely for assembly may be fairly straightforward, whereas a facility with special processes and/or requirements (like a clean room, paint booth, chemical storage, cutting fluids, etc.), will most likely incur additional scrutiny and costs.
  • Equipment: Large purchases like CNC machines and injection molding equipment can be crucial to achieving the lowest cost per part but tend to have long payback periods. Also, complex equipment often has more stringent maintenance and service requirements.
  • Expertise: Finding skilled employees with the right backgrounds is sometimes the hardest challenge a new company faces. The more complicated or specialized your product or a specific component is, the more difficult it can be to find and/or train the right people to manufacture it.
  • Quality: Assuring a new product launch is up to your quality standards requires significant effort, from establishing and implementing a quality plan, to determining test criteria, to figuring out how to deal with defects. If taking this on internally seems like too much, you might be better off letting a more established company, with quality protocols already in place, make critical components for you.
  • Intellectual Property: In this digital age, having a patent and/or an NDA with a supplier is no longer enough. Cyber-security attacks continue to be on the rise, and if you or your suppliers do not take necessary precautions, your IP could be at risk. So, for proprietary parts, it may be best to keep them in-house. Note: For available resources on cybersecurity, be sure to check out this link: https://newyorkmep.org/cyber-security-assessment-program/
  • Supply Chain Risk: Components that are critical to your product deserve extra scrutiny, beyond ensuring you have adequate inventory and safety stock. If you are getting these critical parts from a supplier, it’s a good practice to have a backup vendor already vetted and ready to go at a moment’s notice. If you are making these parts yourself, consider having redundancy in the production line in case a failure occurs.
  • Cost: When comparing the per-unit cost of purchasing a component versus manufacturing it yourself, don’t forget about “hidden” costs like the added expense of protecting and transporting the goods to your facility (typically, these types of costs are never recovered unless, for example, you find a creative way to re-use or re-purpose the packaging). On the other hand, manufacturing more components yourself could require additional warehousing space and higher inventory carrying costs.

As you think about these and other factors, consider each sub-assembly, critical part, and possibly even the minor components (depending on the complexity of your product) to weigh the pros and cons of manufacturing each in-house. On one extreme, you could bring in all the raw materials, purchase or lease the necessary equipment, and make and assemble everything yourself, in your own facility, where you can control quality, order accuracy and shipping. The other extreme would be to have everything made, assembled and distributed by a single contract manufacturer, who may be able to do it more efficiently than you could on your own. But the optimal solution will most likely be a hybrid approach where you order certain components, make others yourself, and do at least some of the assembly in-house. If you’re able to find that right balance in your manufacturing strategy, you’ll be able to produce your highest quality product in the most efficient manner possible.

For more insights about engaging with a contract manufacturer, be sure to check out the previous post at https://fuzehub.com/fuzehub-blog/how-do-i-engage-with-a-contract-manufacturer/. And if you need assistance with potential suppliers, new facilities, cyber-security, or anything else mentioned in this article, reach out to FuzeHub’s Solutions Team at https://fuzehub.com/expert-consultation/.

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