John and Jessi are two best friends. Both decided to launch clothing brands on the same day. John took manufacturing in-house. Jessi hired a third-party manufacturer.
Who do you think, in the next 6 months, will scale his business?
Well, it was Jessi. Why? Not because outsourcing is always cheaper, but because he did his research before stepping into the market. He priced everything, not just the unit cost. That included capital equipment, maintenance, training, labour, utilities, storage, and all the surprise overhead that comes with running a plant. With less cash locked in machines, Jessi invested in marketing, talent, and new product launches.
John, on the other hand, tied up 80% of his budget in production and payroll (as an SMB), leaving little for sales and growth.
So what do we learn? Before you choose in-house or contract manufacturing, build a Total Cost of Ownership (TCO) model. In this guide, we’ll show small and mid-sized brands how to outsource manufacturing the right way.
What is outsourced manufacturing?
In outsourced manufacturing or contract manufacturing, instead of manufacturing your products in-house by your employees, you hire a 3rd party to manufacture your products or subassemblies on your behalf (to make a finished product).
Why do businesses outsource manufacturing?
Well, due to multiple reasons, businesses are actively outsourcing manufacturing. Some of the common ones include;
- To reduce the labour cost
- To speed up the process
- To improve quality with the latest tech
- You lack in-house expertise
- You want to focus on your core business operations
Most businesses choose to go with outsourcing when they want to reduce labour costs. To run a plant, they need employees with certain expertise, which could cost a business a lot or, if it’s a small business, it could cost a fortune.
When starting out, most businesses lack the expertise they need to compete with businesses that have been operating for decades. In order to match even 50% of their speed, you need experts with the latest technology and skills, who can manufacture your products with greater efficiency and in much shorter lead times.
Once the manufacturing part of the business settles down, businesses can focus on their core functions, whatever they are, except for manufacturing itself.
These are some of the reasons that push businesses to outsource manufacturing. Plus, if they lack finances, outsourcing will give them the opportunity to get products manufactured until they can afford to set up their own plant.
As we discussed above, mostly in-house setup costs a lot, especially when you lack the skillset and equipment needed. According to Infosys BPM, about 68% of US companies are outsourcing their business processes from Asia and Eastern Europe, with the major portion of these processes comprising manufacturing.
How to outsource manufacturing?
Now, as we know, why should one go with outsourcing. Let’s learn how one can do this in the first place.
1- Find the right platform
Finding the right platform is not as difficult as finding the right manufacturer. You can check industry referrals, go to trade shows, research sourcing platforms, and public directories.
And if you are someone with no access to or can’t go to physical shows or dont have any referral, you can find verified manufacturers using the free resource: the Internet.
There are a lot of online sourcing platforms available on the internet where you can simply log in, browse, and find your perfect match, like Seebiz, Alibaba, Thomset.net, etc.
If you want a guide on where you can find verified domestic or international manufacturers or suppliers. Here you can find manufacturers to outsource.
If you’re specifically looking to outsource clothing manufacturers. Here’s a complete guide.
2- Choose the right model
Choosing the right manufacturing model is as important as finding the right manufacturer. There are several models you can choose from based on your product and market.
A- OEM (Original equipment manufacturer):
In this model, you, as a business, provide the manufacturer with the design or tech pack of your product. You will have more control over product specifications, and you can get private labelling on your design.
B- ODM (Original design manufacturer):
When you dont have a design in mind, you go with ODM., where the design is originally made by the manufacturer, but you can privately label it. It’s a much faster approach as you can have several options to choose from.
C- JDM (Joint development manufacturer) or Co-design:
JDM is a hybrid model that blends the OEM and ODM approach where needed. Means you can split the work between you (a business) and a manufacturer. In this method, if the manufacturer handles the design, assembly could be handled by the business itself, etc.
Among the three, you can choose the one that fits your risk tolerance and launch timeline.
3- Do TCO (Total cost of ownership), not just price
Model all-in landed cost: unit price, tooling/NRE, yields/scrap, freight, duties/tariffs, testing/certification, inventory carrying cost, engineering time, plus risk buffers for delays and returns.
Also include a nearshore and domestic scenario. Because if the manufacturing facility is too far from your storage or warehouse, it may increase the transportation costs and lead times. Also, there could be frequent policy or tariff shifts, natural disasters, and certain risks like unfortunate shutdowns or quarantines, etc, that could change the dynamics. That makes businesses look for manufacturers closer to them.
4- Vet manufacturers
Like everything, finding the right manufacturing partner takes a lot of research. It’s not like we can just go, find the cheapest one, and deal done. First, you have to make a tech pack (a document with all the specifications you want in your product). Secondly, vet the manufacturers based on the product you want to manufacture and the model you choose. After shortlisting, screen 5–10 vendors to get 2–3 solid quotes and vet them based on factors like lead times, MOQs, cost, and communication.
5- Send the RFQ (Request for quotation)
That’s an important step to vet your manufacturers properly, not just ask for the pricing. Send a detailed RFQ to your vetted manufacturers. This helps you find the best option by comparing pricing, lead times, and whether they have the specializations you are asking for.
Download the ready-to-use RFQ template here.
6- Do a Pilot run
Once you choose your manufacturer, don’t go all in right away. Before mass production, do a pilot run or ask for samples. This way, you can verify whether they can make the product the way you want. Check for any defects, on-time delivery, functionality, quality, and everything you mentioned in your tech pack. Cross-check and request modifications if needed. Ask for multiple samples until you are satisfied with the results. Once all the boxes are checked, proceed with mass production.
7- Logistics & risk
Last but not least, here comes the logistics, when you finally get your products. At this point, you need to choose Incoterms that match your risk appetite (e.g., many SMBs operating in the US start with FOB or DAP).
Also, add buffers around holidays and port congestion. For important SKUs, don’t rely on a single manufacturer; instead, consider dual-sourcing to prevent shortages or sudden shutdowns due to unforeseen circumstances.
Below, you can find commonly used incoterms for any transport (air, sea, road, rail)
| Term | Who pays main freight? | Who insures? | Who clears export? | Who clears import/duties? | Where risk transfers | Unloading at destination |
| EXW | Buyer | Buyer | Buyer | Buyer | When goods are made available at seller’s site (not loaded) | Buyer |
| FCA | Buyer | Buyer | Seller | Buyer | When goods are handed to buyer’s carrier at named place | Buyer |
| CPT | Seller | Buyer | Seller | Buyer | When goods are handed to first carrier (origin) | Buyer |
| CIP | Seller | Seller (cargo insurance included) | Seller | Buyer | When goods are handed to first carrier (origin) | Buyer |
| DAP | Seller | Seller or Buyer (agree) | Seller | Buyer | When goods arrive at named place, ready for unloading | Buyer |
| DPU | Seller | Seller or Buyer (agree) | Seller | Buyer | When goods are unloaded at named place | Seller unloads |
| DDP | Seller | Seller or Buyer (agree) | Seller | Seller (duties & taxes) | When goods arrive at named place, ready for unloading | Buyer |
Sea & inland waterway only (container or breakbulk on vessels)
| Term | Who pays ocean freight? | Who insures? | Who clears export? | Who clears import/duties? | Where risk transfers | Unloading at destination |
| FAS | Buyer | Buyer | Seller | Buyer | When goods are placed alongside the ship at origin port | Buyer |
| FOB | Buyer | Buyer | Seller | Buyer | When goods are on board the vessel at origin | Buyer |
| CFR | Seller | Buyer | Seller | Buyer | When goods are on board at origin (seller still pays freight) | Buyer |
| CIF | Seller | Seller (marine insurance included) | Seller | Buyer | When goods are on board at origin | Buyer |
How Seebiz can help you with outsourced manufacturing
SeeBiz makes outsourced manufacturing easier by keeping your stock, orders, and suppliers in sync. With multi-warehouse tracking (including items in transit), low-stock alerts, and detailed inventory reports, you always know what to make next and where to send it, so you don’t overbuy or miss a build.
You can raise POs and invoices fast (in minutes, not hours), which speeds handoffs between your team and the contract manufacturer.
Reorder points are built in, so you can tie purchases to lead times instead of guessing them, and analytics help you spot slow movers before cash gets stuck.
Teams also use it to catch “leakage” and keep last-sold pricing straight when volumes ramp, reducing mistakes across suppliers and SKUs.
And because SeeBiz also runs a wholesale marketplace, you can discover or vet vendors in the same ecosystem you use to manage inventory.
Isn’t it the best deal? Let’s find you a manufacturer and also keep your processes streamlined with our inventory management.
