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To manufacture in-house or not? 13 October, 2006

Posted by varoom in Business Plans.

In any business, with a physical product on offer, we must make some key decisions about manufacturing. Do you set up your own manufacturing facility to make your product or do you sub-contract, sub-license manufacturing rights or sell the design to a single company? When considering the set up of a manufacturing capability you should ask yourself several questions, what do I know about manufacturing?, where are my core competences?, what advantage will manufacturing bring me?, where will I manufacture?, how will I fund the capability?, is this the best use of my investment capital?.

Thinking strategically we need to consider what competitive advantage in-house manufacturing brings versus sub-contracted or sub-licensed manufacturing. If there is no advantage we should not reinvent the capability that exists already in the market.

There are many choices when considering manufacturing, Sub-contractors are common, if you have a potentially high volume product then offshore manufacturing can be considered. But at the early stages of the business and risk/reward strategy of small local manufacturing in sub-contractors can be employed. This gives you advantages of local control to perfect the manufacturing process, product quality and distribution. When the volumes increase you can switch to offshore, lower cost, manufacturing.

Focussing on core competences is very important, sticking to what you are good at, improving the product, investing in the future product roadmap is far more profitable use of your skills than setting up a manufacturing facility.

However if your have the expertise and experience and if there is a clear differentiation and return on investment obtained from manufacturing your product then go ahead. But continue to challenge the decision and try not to be emotively tied to in-house manufacturing. It’s easy to get caught up the process and miss the fact that it’s burning cash and resources that could be deployed elsewhere.


Greville Commins



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