In house manufacturing is the production option people usually think of when they consider a typical factory. In an in house manufacturing situation, the company that eventually sells the products being produced is the company that manufactures those products. In house manufacturing has the benefit of allowing direct oversight and control of the manufacturing process and also avoids having to share production secrets with another company. On the other hand, in house manufacturing can tie up a lot of resources in land, factory space and equipment that may not be easily converted or cheaply eliminated if production needs change.
Outsourcing involves one company hiring another company to do work for it. In the manufacturing context, certain companies outsource all of their production activities and focus instead on marketing and sales efforts internally. An advantage of outsourcing is that another company bears all of the risk of having unused production capacity. The outsourcing company may simply buy as many or as few outsourced products as it wants. On the other hand, a company loses a great deal of control over the quality of its products when it outsources them.