Build vs. Buy: The Case for Building: Advantages of In-House Production

Understanding the potential benefits is crucial as food brands evaluate the strategic shift towards in-house production. Bringing production in-house can offer several competitive advantages that align with long-term business goals and operational control.

(The purpose of this document is to provide background information on this contract topic. Anyone contemplating engaging with a provider must perform their own due dilligence and seek trusted professional business and legal advice.)

Control and Customization

Greater Control Over Production Processes and Timelines

In-house production facilities provide brands with direct oversight of their manufacturing processes. This control level can significantly improve production efficiency and the ability to adapt quickly to new market demands or operational challenges. Key aspects include:

• Process Optimization: Brands can continuously optimize processes to improve yield, reduce waste, or enhance product quality without needing approval from an external party.
• Adaptation to Demand Fluctuations: With their own facilities, brands can more dynamically adjust production volumes in response to seasonal demand spikes or unexpected market trends.
• Production Scheduling: Having direct control over production schedules allows brands to better manage inventory levels, reduce lead times, and respond more rapidly to orders or market changes.

Ability to Customize Processes and Products to Specific Needs

Customization is particularly critical for brands that differentiate through unique products or require specific production techniques. In-house production enables:

Tailored Equipment and Technology: Brands can invest in specialized equipment tailored to their specific product needs, which can enhance product differentiation.

Innovation in Production: Direct control over production allows for experimenting with new processes and formulations, driving innovation while keeping intellectual property secure.

Specialized Product Lines: Brands can develop and produce niche products that may not be economically viable for contract manufacturers due to their lower volume or higher complexity.

Cost Considerations

Potential for Long-Term Cost Savings

While the initial investment in in-house production is significant, the long-term financial benefits can be substantial. These include:

• Reduction in Unit Costs: Over time, owning production facilities can reduce the per-unit cost of goods, especially as the brand scales up production.
• Elimination of Markup: Without the need to pay a contract manufacturer’s markup, overall production costs can decrease, impacting the bottom line favorably.
• Economies of Scale: As production volume increases, in-house operations can achieve economies of scale, further driving down costs.
• Intellectual Property and Confidentiality
• Enhanced Protection of Proprietary Recipes and Processes

In the competitive food industry, safeguarding proprietary information is crucial. In-house production minimizes the risk of intellectual property theft or leakage, as the processes and recipes are contained within the company. This is particularly important for brands with unique or signature products.

Speed to Market

Quicker Response Times for Making and Marketing Adjustments to Products

In-house production facilities can streamline the path from product development to market release:

• Rapid Prototyping and Testing: New products can be developed, tested, and refined quickly without the need for extensive coordination with an external manufacturer.
• Faster Turnaround for Market Trends: Brands can respond more swiftly to changing consumer preferences or emerging trends, keeping them competitive in a fast-paced market.

Quality Assurance

Direct Oversight of Quality Control Measures and Standards

Owning the production process allows for stringent quality control and assurance practices:

• Standard Setting and Compliance: Brands can set their own high standards for quality and ensure compliance without relying on external parties.
• Continuous Improvement: With complete access to production data and feedback, brands can implement continuous improvement processes to enhance product quality systematically.

While the shift to in-house production involves substantial initial investments and operational challenges, the potential benefits—ranging from increased control and customization to cost savings and enhanced quality assurance—make it an appealing option for many food brands. These strategic advantages can significantly influence a brand’s market positioning and long-term success, making the decision to build a potentially transformative one.

By Carl Melville Managing Partner, TMG and Founder of CoPack Connect