Quote:
Originally Posted by paiste13
I know this sounds like a silly question, but I'm curious if any company actually manufactures their product from start to finish.
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Yes, there are 10s of 1,000s that do. A lot of non-starters have polluted this thread with ignorance and misunderstanding.
Whether a company can or cannot or will or will not depends on the company's business structure and the specific product manufactured.
Contrary to the claims of non-starters, out-sourcing became vogue near the end of the 1st Industrial Age. Yeah, I'm talking before electricity.
Are you going to manufacture your own fasteners on-site?
There are financial, economic, legal, environmental, spatial, and labor considerations just to prove how difficult a decision it is to make in that instance. I know a couple of carpentry shops (S-corps) that make their own fasteners on-site because they're specialty fasteners and they're low volume so they'd pay a premium and never get a discount so it would be too costly to out-source. There are a couple of sheet metal fabrication companies that make their own fasteners, but then those guys would be capable of doing that anyway, and again the issue is they also use specialty fasteners.
The difference between heavy manufacturing and light (aka "clean") manufacturing is petroleum. Heavy manufacturing uses refined petroleum products including petroleum oils, jellies, and lubricants, petroleum-based solvents and cleaning fluids, and hydraulic fluids.
What's the first thing that should smack you oops upside the head?
EPA. Not only the federal EPA, but your State EPA, plus local environmental ordinances.
Compliance costs money in two ways. There's the cost of being compliant and the cost of ensuring compliance. A furniture company that specialized in rattan furniture spent $1.3 Million annually on compliance alone and that didn't cover the cost of being compliant.
Sure, you can pass those costs onto consumers but that would depend on the Price Elasticity of what your selling. Higher prices do not always equal higher profits. They can result in reduced profits.
Would you even have the space to make your own fasteners? You need space for inputs and outputs, plus machinery and equipment, and then the labor. If you don't have the space to manufacture fasteners or anything else, are you willing to bear the cost to relocate your facility?
Legal issues. If you cart your own goods, there's DOT plus the State DOTS. If there's a traffic accident, you're on the hook for liability. If the goods are damaged and it's destination freight, you're on the hook for the loss. It might be easier, safer, and more cost-effective to outsource your cartage.
In-house security is great until you eat the liability. Outsource security and you can name them as a 3rd Party Defendant and they'll take at least 50% liability, maybe even 100% if you were compliant. Note that in product liability, the same applies because if the culprit was a component you did not manufacture yourself then a 3rd Party bears a percentage of the liability.
Unions. Do you wanna pay union rates for janitorial and cleaning services or would you rather outsource at fair market wages? You could say the same for other facets of manufacturing.
Labor. Sorry, but contrary to what some people think not all of the 39,000+ municipalities have populations of 3 Million to 9 Million people.
If your manufactured good has electronics, do you have the space to make your own PWBs, plus make all the transistors, thermistors, capacitors, etc, and the microchips and processors? After meeting compliance cost, can you still profit? Do you even have the labor to do that?
Okay, Cincinnati has about 300,000 people but the MSA is 11 counties with 3 Million people. That would give you a work-force of about 1.8 Million and about 70% of those or about 1.2 Million are willing to drive 2 hours one-way to work, and there are 4 major universities and two minor universities, so you have a sufficiently educated work-force to make semi-conductors and other electronic components.
What if you live in an MMSA and have a labor force of about 400,000 and no universities? Are you going to uproot and relocate your family just to realize your dream of owning and running a manufacturing plant? Or would you rather stay in your community and outsource?
Those are just some of the considerations and I only scratched the surface. Contrary to what the non-starters believe, you don't flip a coin "heads we're in-house and tails we outsource." It would take 4-6 people about 5-6 months to review the relevant data and make that determination.
Outsourcing does not equal off-shoring. Those are two totally different concepts. You can outsource, you can off-shore, or you can outsource off-shore.
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