What is Outsource Manufacturing?
It is a process where a business hires a third party to assemble or build products for its customers. The main driving force of choosing outsource manufacturing is to reduce cost. It can help businesses save money on labor, material, and transportation. Companies outsourcing manufacturing know that they can reallocate their resources to focus on things they are good at. This helps in developing core competencies and providing better quality. Using this tactic, they can focus more on planning contract deliveries and customer services while still maintaining a certain control over manufacturing. Other factors for outsourcing manufacturing include increasing production capacity without making huge investments, establishing overseas branches, driving transformational changes, and easy access to intellectual capital.
Outsource Manufacturing in NetSuite
NetSuite introduced outsource manufacturing feature in its first release of 2020. It has been a very valuable addition to the manufacturing vertical. It helps to synchronize procurement and production transactions. It helps businesses manage their sub-contracted manufacturing processes through outsource manufacturing from vendors. Lastly, it facilitates the consumption of production components through a streamlined ‘procure-to-pay’ flow.
Why BOLDAdvanced Outsource Manufacturing (OM)
While working to streamline and automate outsourced manufacturing, our team at AlphaBOLD faced some challenges. NetSuite does not offer the functionality to automatically create Purchase Orders to sub-contractors when a Sales Order is received, and it is completely a manual process. As a result, the process is not very efficient and lacks the link between Sales Orders received and Purchase Orders issued to sub-contractors to fulfill these Sales Orders. So, the aim was to add automation, efficiency, and traceability to the Outsource Manufacturing process.
This led us to build customization, which we named ‘Advanced Outsource Manufacturing. To list a few, our solution helps you achieve the following goals:
- Automate the NetSuite Outsource manufacturing process by automatically issuing a Purchase Order to a sub-contractor directly from Sales Order lines
- More visibility and tracking by linking Sales Orders and relevant Outsourced Purchase Orders
- Ability to tackle complex manufacturing by providing support for multiple BoM revisions
- Users can have more control over the Outsource Manufacturing process to decide whether to fulfill Sales Order from available stock or issue a Purchase Order to sub-contractor
- More control and visibility of labor cost as it offers to use labor rates agreed with sub-contractor
Item - Level Control
‘As mentioned above, the need is to automatically trigger the creation of Purchase Orders from Sales Order lines after the transaction is saved. We decided to mimic NetSuite's drop-ship/special order process for OM Purchase Orders to achieve this. AlphaBOLD believes that custom solutions must spring from established designs to achieve streamlined and easy-to-understand procedures.
Hence, we placed a checkbox on the assembly item form.
It allows users to specify whether they want OM Purchase Order(s) to be created automatically for a given finished good.
Order - Level Control
During the order creation, just like for special items or drop-ship items, you can decide whether you want to fulfill the item from stock or generate an OM Purchase Order.
The field ‘Fulfillment Instructions’ on the Sales Order form is what triggers the OM process.
POs are generated automatically when the ‘Contract Manufacturer’ value is selected and the [Save] button is clicked.
Manufacturing Sub-Contractor Management
Our solution makes management of outsource manufacturing through sub-contractors easy. It exploits native NetSuite functionality to attach multiple sub-contractors to each item. Remember, the preferred Vendor is required to successfully create an outsource manufacturing Purchase Order. Due to its simplicity, no additional training is required for your NetSuite users.
Furthermore, suppose a sales order lists more than one item which needs to be produced by the same sub-contractor. In that case, the solution combines all those items onto a single Purchase Order, simplifies PO to SO tracking, and reduces the number of orders that need to be managed and reconciled.
Outsource Manufacturing Locations Management
Location management for outsourced manufacturing items is very simple with BOLD Advanced Outsource Manufacturing. You can provide instructions to the sub-contractor where you want to receive the finished products (in case it is not a Drop-ship order). Multiple outsource manufacturing locations could be associated with each subcontractor and then get sourced on Purchase Order issued to them. Out of the locations assigned to each sub-contractor, we can choose which location to use against each item on Sales Order.
Advanced Bill of Material Management
The Advanced Bill of Material feature of NetSuite helps you use multiple BoM revisions for each assembly item to tackle complex manufacturing requirements. Our solution can help you integrate auto-creation of outsource manufacturing Purchase Orders while using an advanced bill of materials. So, if you are using multiple revisions or recipes for a single assembly item, BOLD Advanced Outsource Manufacturing can help you get the maximum out of it. It helps to provide information to the sub-contractor regarding all the specifications and components to use as per detailed active BoM revisions.
Labor Rate Management
Visibility and control of labor cost is a big concern for the businesses which leverage outsource manufacturing. BOLD Advanced Outsource Manufacturing provides this visibility and control. Labor rates are based on prices quoted by the sub-contractor for each type of production order. Once agreed and updated, quoted rates are automatically sourced to provide labor cost per quantum of production required. This visibility brings in greater value by providing all the information necessary to manage finances in a more informed way.
To ensure data integrity, our solution maintains the links between SO lines and already-created Purchase Orders:
- It alerts the user when they attempt to delete the line that is already linked to the CM Purchase Order and disallows the user to change any fields on the line, except the ‘close’ checkbox.
- The user will not be able to remove the SO line for which the PO was already generated. However, the user would be able to close the line by checking the ‘close’ checkbox.
- The [Clear All Lines] button will be removed from the SO custom form to maintain integrity between linked transactions.
- When the SO line is closed, and it has been linked to the Purchase Order, the user event script would close the matching line on the ‘CM Purchase Order’ linked to the SO line(s)
Our solution can be very useful to businesses that use contract manufacturers as it helps automate some of the manual procedures of the “Outsource Manufacturing” feature in NetSuite. It provides automation, integration, traceability, data integrity, and greater visibility. Lastly, this solution is easy to use, deploy, and most importantly, offers significant cost reductions by minimizing the order processing time.
If you have any questions for us, please leave a comment below. If you would like to schedule a live demo with our NetSuite team, click here.