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Basics of Contract manufacturing

Learn contract manufacturing basics: managing outsourced production with Katana.

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

Contract manufacturing, where production is outsourced partially or fully to a third party, is crucial for brands not handling manufacturing directly. This article outlines how Katana supports such operations, including creating outsourced purchase orders (OPOs) to manage ingredient availability and stock movements effectively. It also covers the workflow for brands managing raw materials sent to contract manufacturers.

This type of manufacturing is also referred to as "outsourced manufacturing" or simply "outsourcing".

If a brand owner isn't responsible for purchasing or tracking raw materials (the components are managed by the contract partner), you don't need to track materials in Katana. Instead, you can use Katana similarly to resellers by purchasing products.

Katana also supports workflows where a 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, learn how to partially outsource manufacturing in Katana.

This schema provides some explanation regarding the workflow in Katana for brand owners who use a contract manufacturing partner for the full manufacturing process.

Schema for contract manufacturing

Full outsourced manufacturing workflow

This is the recommended 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 the added product has "I make" and "I buy" 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 a contractor sends an order in partial shipments, adjust the quantities on the initial OPO before receiving and create a new OPO for the items that haven't arrived yet (partial receive for OPOs isn't available yet).

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

Important information about OPOs

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

- OPO item costs consist of purchase price and ingredient costs. Read more

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

- 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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