Is your business growing faster than your workshop can keep up?
All growing businesses eventually reach a point where…Orders start stacking up. Deadlines become crunchtime and you are faced with a decision:
- Buy the machines and do it yourself
- Pay a partner to do it for you
Here’s the problem:
Many business owners base this decision on instinct. And instinct can lead you to spend a fortune.
The good news?
Once you break down the real numbers, the right answer is usually pretty obvious.
Time to dig in…
Inside This Cost Breakdown:
- The Real Cost Of In-House Manufacturing
- Stainless Steel Tube Cutting: The Perfect Example
- The Hidden Costs Nobody Talks About
- When Outsourcing Makes More Sense
- When It’s Time To Bring It In-House
The Real Cost Of In-House Manufacturing
Making something in-house means you control everything. The machinery, the staff, the square footage. Everything.
That sounds great on paper. You get full control over quality and timing.
But control comes with a price tag…
Many people focus solely on the price of the machine itself. This is a huge mistake. The machine purchase is only the beginning. You also have to budget for:
- Skilled operators
- Training
- Maintenance and repairs
- Software and tooling
- Power and floor space
And those expenses don’t just end when the orders stop coming. They persist every month.
Stainless Steel Tube Cutting: The Perfect Example.
Watch a common workplace task that many expanding businesses stumble with.
Cutting stainless steel tube is tough physical work. Stainless is hard, retains heat and warps easily if settings aren’t dialed correctly. Saws/grinders leave rough edges that require additional finishing. More labor required per part.
If you want to perform stainless steel tube cutting efficiently yourself, you’ll need a fiber laser tube cutting machine. These can cost six figures by themselves before you even turn them on. Then you’ll need someone trained on how to run it. Know the metal, the gas settings and the nesting software.
Imagine having to purchase that much equipment for a business that only uses a couple hundred stainless tubes per month. Makes sense why countless shops opt for custom laser tube cutting through a specialist partner. Send over the design file and the stainless steel tubes are cut on world-class machinery, with the completed parts delivered ready to install. No machine rental. No operator fees.
Pretty simple, right?
The Hidden Costs Nobody Talks About
Here’s the thing…
The biggest cost of in-house manufacturing is not the machine. It’s the people.
Skilled labor shortages are becoming increasingly difficult each year. Deloitte and The Manufacturing Institute project that there could be 1.9 million manufacturing jobs left unfilled by 2033 if trends continue.
That’s a huge gap.
And another thing. Attracting and retaining talent was reported as the number one business challenge among manufacturers in the NAM’s 2024 Q1 outlook. 65% said it was their biggest challenge.
Think about what that means for you:
Buy a machine and cannot find anyone to operate it … That machine will just sit there idle. It loses you money each day it gathers dust.
Hourly wages are rising as well. As of September 2024, overall compensation (including benefits) in manufacturing increased 3.8% YoY. Meaning the forklift operator you hire this year will likely cost you more money in salary next year.
Other hidden costs include:
- Downtime: When a machine breaks, your whole line stops.
- Scrap: New operators waste material while they learn.
- Upgrades: Machines and software go out of date fast.
None of these are listed on the price tag. But they all affect your bottom line.
They can also add up fast. One week of downtime can erase months of savings if customers are waiting on backorders.
When Outsourcing Makes More Sense
Outsourcing turns a big fixed cost into a simple cost per part.
You only pay for what you use. When orders increase, your partner picks up the additional workload. When orders decrease, you aren’t left paying for idle equipment and employees.
That’s why outsourcing is usually the smart move when:
- Your order volumes go up and down
- You need special skills or machines
- You don’t have spare cash for big equipment
- You want to launch new products fast
It also allows your team to do what they’re good at. Selling. Designing. Support. The things that actually move your business forward.
Think about it this way:
A boutique furniture company requires 300 stainless steel frames for a product launch. Purchasing a laser, recruiting and training an operator would take months. Contracting the work out allows for parts in days.
Same parts. Way less risk.
And if it fails? There isn’t some multimillion-dollar widget mocking you from the corner. You just quit buying it and try something else.
But outsourcing isn’t perfect.
You sacrifice control of lead times, and you must trust your supplier. Double check their quality specs, reviews and lead times before you place that large order.
When It’s Time To Bring It In-House.
Here’s something most people don’t expect…
Many organizations are insourcing. According to a Deloitte survey with more than 500 executives, 70% of organizations insourced work previously outsourced over the past five years.
Why? To get more control, better quality and to cut out vendor mark-ups.
In-house manufacturing starts to make sense when:
- Your volumes are high and steady
- The process is core to your product
- You have the skilled staff to run it
- Your outsourcing bills are higher than the cost of owning the machine
One easy test: Perform a break-even analysis. Tally your annual outsourcing expenses. Next tally the total annual cost of insourcing — equipment payments, labor, electricity, maintenance and space.
If the in-house number is lower… and you have the ability to staff it… perhaps it’s time to consider purchasing.
If not? Keep outsourcing and put that cash to work somewhere else.
Crunching The Numbers: Final Thoughts
One size doesn’t fit all. The right solution is dependent upon your volumes, your cash flow and your personnel.
To quickly recap:
- In-house gives you control, but comes with big fixed costs
- Outsourcing keeps costs flexible and gives you access to expert machines
- Hidden costs like hiring, training and downtime can change the maths fast
- Break-even testing tells you when it’s time to switch
Blended is best for the majority of expanding companies. Perform your primary tasks in-house and outsource specialty tasks such as cutting stainless steel tubes.
Run the numbers. Make the call.
Then get back to growing your business!