Improve Your Outsource PO Process with Cetec ERP
The manufacturing industry is constantly evolving. Businesses need ways to increase efficiency and reduce costs while maintaining exceptional customer service. Implementing an Enterprise Resource Planning (ERP) system, like Cetec ERP, is key to achieving these goals. One example of how Cetec ERP supports these initiatives is the Outsource PO feature. The Outsource PO feature enhances your manufacturing process and thereby your overall production efficiency and accuracy in inventory and job costing.
Outsourcing labor to a contract manufacturer or vendor allows you to provide value-add, turnkey services to your customers without the capital expenditures of equipment or cost of running a production facility and massive warehouse.
But, to provide this service, you have to be able to ensure quality and on-time delivery. This means managing the supply chain, sourcing components, tracking production lead times and scheduling of your contract manufacturer, and having visibility to order status.
As a complete and fully integrated solution for any manufacturing company, Cetec ERP unifies all departments to solve three critical issues that are commonly faced when outsourcing your manufacturing:
1) Navigate inventory management and supply chain with inventory forecasting. Outsource processes allow you to manage your supply chain and inventory requirements across multiple warehouses, keep your inventory levels aligned with your contract manufacturer’s system, and improve communication.
2) Keep your orders on schedule and in view with the Outsource Vendor feature. Streamlined sales communication keeps your customers informed and ensures your contract manufacturer has the information and documentation needed to fulfill your orders.
3) Maintain complete and accurate job costing with Outsource POs. Roll the vendor’s cost of labor into the finished product, so that you can see the actual cost of labor and materials for a full-picture cost analysis.
Across our customer base, we encounter two different processes for outsourcing your manufacturing: you either outsource the entire process and consign material to the vendor, or you outsource one step of the production process. Cetec ERP has the flexibility to support both approaches. Let’s explore an overview of the two routes you might take.
The first scenario is that inventory is stored primarily in the vendor location, and the vast majority of manufacturing occurs in the contract manufacturer’s facility (minus some quality or in-house assembly you may perform).
In this case, you will likely follow a process similar to this:
- Enter a build to stock order at the vendor’s warehouse location. When you go to commit the order, the receiving location will be the warehouse where the finished goods will show once the order is completed.
You may model this with subassemblies, where the outsourced parts would be a suborder of the finished product, and connected to the sales order. This would allow you to perform the assembly or quality elements of the job while still managing inventory and production occurring at your vendor’s location.
- After running MRP by the Vendor’s location, the PO is placed to that vendor’s location. Run cycle counts and other warehouse functions to keep your inventory records in-line with theirs.
Create the Outsource PO for the work order (on the order line). When the order is complete, you will complete/receive into your finished goods. If it is a subassembly, pick it to the parent order for any assembly and quality steps remaining. Read more details on this process here.
The second scenario is that only a portion of production is outsourced. You don’t have SMT or thru hole production lines, but do the kitting/assembly in-house. This process is also assuming you ship the material for the job.
In this case, your process may look something like this:
- Create the work order, then create the Outsource PO attached to the work order.
- Release the order to Pick/Kit. When you ship the kit to the vendor, you update the work location of the work order. You can use the WIP Material report, filtered per vendor, to see what orders and inventory are in process at the vendor location.
- When the kit/job returns, simply update the work location. This signals that the order parts are now back in your inventory. Adjust any pick records as needed.
Some data setup is recommended to manage this effectively. We recommend that you set an Ordline Status per outsource Vendor, as this allows you to set the work location and track the status of your outsource POs. It’s also important to include the Outsource location on the labor plan, with ‘production lead time’ for the vendor, to help with updating the order real-time. Finally, set up warehouse locations for contract manufacturing and outsource vendors for your inventory and orders.
The Outsource PO feature provides a seamless way to manage your relationships with suppliers and monitor the quality of outsourced work, ensuring that your customers are taken care of and you are protecting your bottom line. By implementing these tools in your manufacturing business, you are setting yourself up for long-term growth, improved resource management, and exceptional customer satisfaction.