Starting a business is a dream and when you think of starting a business then you have two options one is to have one’s manufacturing unit or factory and the other option is to become a distributor or retailer and do trading of other’s products. Manufacturing in simple words refers to setting up a factory, purchasing machinery for production, employing labor, and having working capital for running day-to-day activities of the factory so that production at the factory runs smoothly. If you are one of those individuals who is looking to go into manufacturing then you should read some of the advantages and disadvantages of manufacturing –
Advantages of Manufacturing
Higher Rate of Return
The first and foremost advantage of manufacturing is that it offers a higher rate of return when one compares it with retailing or trading because in the case of manufacturing only cost of production is included and one is free to add his or her profit margin to the cost of production which leads to a higher rate of return on sales of manufacturing concern which is not the case with trading where you have to sell the product on fixed margin. In simple words manufacturing is like a highway just in case of the highway there are no speed limits in the same way in case of manufacturing there are no limits to profits as the manufacturer is the price maker while retailing or trading is like city road just like on city roads there are speed limits in the same way in case of trading there are fixed profit margins.
Manufacturing has Scalability
Manufacturing is a scalable business implying that the manufacturer can increase the production capacity if the demand for goods manufactured is high and hence enjoy more profits provided that the manufacturing unit has required capital and machinery to increase the production of manufactured goods. In simple words in the case of manufacturing sky is the limit as there are no restrictions on the number of goods one can produce as compared to retailing where a retailer is dependent on the manufacturer and he or she cannot increase the quantity on his own.
Scope of Innovation and Creativity
In the case of manufacturing, there is a huge scope of innovation as well as using creativity in the production of goods as opposed to trading or retailing where the retailer has to sell the goods at fixed profit margins without any scope of innovation or applying creativity. In simple words, the work related to retailing or trading is more robotic in nature while work related to manufacturing is more challenging and creative.
Disadvantages of Manufacturing
Huge Capital Requirement
The biggest drawback of manufacturing is that it requires huge capital because in the case of manufacturing everything whether it’s the factory land or cost of building or machinery for production all require investment on the part of the owner and higher the capital requirement higher will be the risk associated with doing business because if the manufactured product does not click with customers than the owner will incur huge losses and chances are he or she will not be able to do business again. In simple words unlike retailing or trading which requires less capital manufacturing is a business that requires huge capital and that is the reason why it can be done by people having deep pockets and risk-taking capacity.
Manufacturing requires Multi-Tasking
If you want to take revenge on someone then suggest them to become factory owner or manufacturer because manufacturing involves so many tasks or work and the owner needs to be good at multi-tasking if the production has to run smoothly as manufacturing involves so many aspects like handling of factory premises, machinery, getting requires licenses from the government departments, checking quality of goods produced, managing accounts department, managing factory workers and so on. In simple words just like when you search a query on Google you will find millions of results in the same way in case of manufacturing there are numerous tasks that require the attention of the owner and if the owner is not able to do multi-tasking effectively then chances are he or she will fail miserably.
Not Easy to Switch
Manufacturing requires a long-term commitment on the part of the owner because manufacturing is one business that is not easy to switch as it involves huge capital outlay and effort on the part of the owner of the company. In simple words unlike trading where you can switch easily and do business of various types in case of manufacturing that is not the case as one has to stick with one business only as switching the business will mean huge losses to the individual looking for switching.
As one can see from the above pros and cons of manufacturing that manufacturing is not an easy task and requires patience, hard work, and dedication on the part of the person doing manufacturing and that is the reason why the majority of people hesitate to go into manufacturing directly and prefer trading or retailing business as risks in case of trading is much lower as compared to manufacturing.