Basics of Contract manufacturing

A business model where a third part fully or partially manufactures products

Dayvid Lorbiecke avatar
Written by Dayvid Lorbiecke
Updated over a week ago

Contract manufacturing (also referred to as "outsourced manufacturing" or simply "outsourcing") is a business model where a brand owner uses a third party to fully or partially manufacture their products (i.e. contracting a specific manufacturing operation).

In situations where a brand owner isn't responsible for purchasing or tracking raw materials (meaning that all the components are managed by the contract partner), the user does not need to track materials in Katana. If this is the case, you can use Katana similarly to resellers by purchasing products.

Katana also supports workflows where the brand owner is responsible for purchasing raw materials for the contract manufacturer and tracking the stock for those materials.

If you're only outsourcing a part of your manufacturing process, read how to partially outsource manufacturing in Katana.

This schema helps explain the workflow in Katana for brand owners who use a contract manufacturing partner for the full manufacturing process.

Workflow for those who use a contract manufacturing partner for the full manufacturing process

  1. Create an Outsourced purchase order (OPO). This allows you to track the availability of ingredients and record automatic stock movements when creating and completing OPOs. Read more

    • To track ingredients make sure that the product you add to the OPO has "I make" and "I buy" both enabled on the product card.

  2. Print out the OPO using the default template or create your own, and send the OPO documents to the contractor.

  3. A separate Location is often used for each contractor, so ensure the ingredients are available there.

  4. Update the OPO with the quantities reported by the contractor.

    • If the contractor sends the order in partial shipments, adjust the quantities on the initial OPO before receiving in Katana and create a new OPO for the items that haven't arrived yet with partial receive for Outsourced purchase prders is not available yet.

  5. Receive the OPO (optional: assign item batches when it arrives at the destination location.)

What should you know about OPOs?

- Unlike a PO, Outsourced purchase orders allow you to track ingredients needed for a completely outsourced manufacturing process.

- OPO item cost consists of the purchase price and ingredient costs. Read more

- In addition to products, you can add materials to an OPO. Read how to create an Outsourced Purchase Order.

- Katana has five default print templates for Outsourced purchase orders (Purchase order, Request for Quotation, Bills of Materials, Consolidated pick list, and Barcodes) and you can always create your own custom templates. Read more

- When an OPO is received, purchase items' stock increases, and ingredients' stock decreases. Read more

- You can revert a Received OPO just like any other order. Read more

- Items can be purchased in different Units of measure. Read more

- Outsourced purchase orders can be deleted. Read more

- You can export Outsourced purchase orders. Read more

- An OPO can be duplicated. Read more

- You can add Additional cost rows to OPOs. Read more

- You can also track batches on Outsourced purchase orders. Read more

- Send Outsourced purchase orders as bills to Quickbooks Online and Xero the same way as Purchase orders.

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