Turnkey Manufacturing vs Consigned Manufacturing: Which is Better
Tues, Jul 07, 2020
Developing new and innovative technologies has been the symbol of human progress and evolution. It is really soothing to know that you are providing people with the necessary products for use in all sorts of applications. However, there come times when a company decides to outsource products to focus on core and more important goals and planning pertaining to the future of the company. Along these lines, many electronic companies have also started outsourcing products and it has helped them to stay at a competitive edge in this era of cut-throat competition. The two most common practices, as of now, in the field of electronics are turnkey manufacturing and consignment manufacturing. The majority of companies go for turnkey manufacturing but others still favor consigned manufacturing. To be honest, it really depends on your preference and requirements, and to choose the better methodology out of these two, one ought to have deep insights into the pros and cons of each to decide which method suits them best.
This article aims to provide our readers with everything they need to understand about turnkey and consigned manufacturing before finalizing their choice. So, give a thorough read to the article!
In layman’s terms, turnkey manufacturing refers to outsourcing the majority of work to a company that will get absolute control of the entire production process. From material acquisition and product assembly to warranties and insurances and from product testing to after-sales services, the outsourced partner becomes the major stakeholder of the product and is responsible for any overheads, if happen, during the manufacturing and distribution supply chain. This method is preferred by many big corporations as it gives them ample time to concentrate on the core functions of the company such as sales and marketing rather than spending available resources on the manufacturing process. Many startups, having limited budgets, also employ turnkey manufacturing to avoid taking many risks, minimize operating overhead, and meet the customers/market demand in real-time. Once you turn over the task to an outsourced partner, you have to worry least about the attention to detail about the manufacturing process and operations, rather the company gets total control over the entire process.
In the case of manufacturing PCBs, multiple steps are involved from ordering and procuring components to storing, testing, and assembling to form the end product. So, in the case of turnkey manufacturing, all these processes will be outsourced to a company and they will handle everything related to it outside your wheelhouse. You will have a single contact point if any issue comes up to track down and get the issue resolved as per the contract. The downside of turnkey manufacturing is that you are transferring all the control to the outsourced partner and any unprofessionalism from their part can hamper your market reputation. That is why you ought to properly vet various providers before confiding in anyone. Make sure to partner with a reputable and professional manufacturer.
Contrary to turnkey manufacturing, consigned manufacturing is a business method where the inventor maintains full control over manufacturing and supply processes. Everything from material procurement to shipping, sorting, and inventory storing and maintenance is done under his (company) supervision and monitoring before passing over for manufacturing and final assembly. Simply put, the owner makes sure that the material was ordered as per the specifications and everything is to ensure quality and reliability.
Many companies prefer this method when they don’t have full confidence in the third-party partner or else when they have already invested in in-house production products. If you have the resources to handle everything and want to make sure everything is exactly as you wanted, then consignment manufacturing might be the right option for you.
The downside of this method is that it puts a ton of extra responsibility on your shoulders to arrange everything from material procurement to managing inventory. It, unnecessarily, consumes a lot of staff, money, time, and energy into the things that are less to worry about. No wonder, fewer companies prefer consignment manufacturing.
Which One is Better for A Company?
You have to thoroughly understand and analyze the core priorities and competencies of your company and the outsourced partner before making a decision. Both the manufacturer (vendor) and you (owner) must have similar business objectives and stated values. However, you ought to consider the following points anyway before finalizing:
1. The total budget for production and manufacturing.
2. Your confidence in the outsourced partner and evaluation of their capacities and expertise to offset any problems, lest they arise.
3. How much you ought to trust the manufacturer in procuring the right materials?
4. Do you have enough manpower and financial liquidity, and willingness, to undertake the majority of processes under your supervision?
Putting it differently, it depends on your company’s competencies, available resources, and priorities as to which method you should opt for. If you have sufficient resources, both capital, and labor, and want to retain sufficient control over production and supply chain then, consignment manufacturing is the better option for you. You may also want to consider the total cost of ownership, possible risks, and possible operational overhead related to your project. Conversely, if you have limited resources and want to allocate more resources towards sale and marketing then, go for Turnkey manufacturing and pass everything to the manufacturer. It will expedite product delivery capacity and also limits the risk for overhead expenses, not to mention lower supply chain costs.
However, you ought to be vigilant in choosing the right manufacturer who has a market reputation and enough resources at your disposal to undertake your project. Once you have got the trust and understanding of your manufacturer, you need not worry about what the result be and utilize your time and energy on more important tasks.
To conclude, both turnkey and consigned manufacturing are used by many companies to outsource their products. It really depends on your company’s financial capacity and priorities to determine which method suits you better, however, given the pros and cons of both methods, the majority of electronic inventors prefer turnkey manufacturing methods.